Martea trecuta, seara, ma suna unul dintre copiii mei. “Tata! Ai auzit?” Si imi povesteste despre ordonante. ”Mergem in piata! Veniti si voi?”

Era tarziu si am lasat copiii sa se duca singuri.

Miercuri am inteles mai bine despre ce este vorba. Aveam 30 de musafiri acasa, dintre care multi s-au grabit sa ajunga in piata. Era tarziu cand am ajuns si noi, iar in partea opusa a pietei erau deja incidente pe care fortele de ordine incercau sa le aplaneze. Asa ca nu am stat mult. Totusi am ramas impresionat de ce am vazut si ne-am dus in continuare in fiecare seara, cu familia.

Prezenta mea acolo este o decizie personala. Inainte de a fi presedinte de banca sunt tata si imi pasa de viitorul copiilor mei si al tarii in care locuiesc. Nu cred ca din acest punct de vedere exista vreo diferenta fata de cei  cu care m-am intalnit acolo – clienti, prieteni, parteneri de afaceri, antreprenori, sportivi, inca o campioana olimpica, angajati. La fel ca in cazul lor, dorinta mea pentru un viitor mai bun pentru copii mei, intr-o Romania mai prospera, este total legitima.

Inteleg ca faptul ca imi pasa de ceea ce se intampla in Romania, tara unde am locuit 20 de ani si care pentru mine este acasa, ii deranjeaza pe unii. Am vazut reactii de indignare de la politicieni, declaratii ca ”nu este corect” sa ma aflu acolo.

Da, sunt si presedinte de banca. In acest rol, imi pasa de cele 5.500 familii de romani care depind de salariul de la banca, imi pasa de viitorul lor, dar si de cele 2 milioane de clienti care ne-au incredintat economiile lor si de cele 30.000 de companii finantate de banca.

Politicienii nu ar trebui sa fie surprinsi de pozitia mea. De cel putin 10 ani am acelasi discurs.

Pentru a crea valoare, pentru a creste productivitatea care ne va permite sa platim salarii mai mari avem nevoie de un sector privat performant. Afacerile au nevoie de un mediu predictibil, fara schimbari importante de legislatie facute peste noapte. Orice schimbare trebuie discutata cu cei afectati, printr-un proces amplu de consultare. Orice propunere legislativa trebuie facuta pe baza unei analize de impact – o alta prevedere legala care adesea nu este respectata de politicieni. Mediul de afaceri are nevoie de o perioada rezonabila de implementare a legilor.

Cu alte cuvinte, avem nevoie de dialog real, nu doar sa ne prefacem ca dialogam.

In ultimii 10 ani s-au schimbat prea putine din acest punct de vedere. Dialogul este evitat. De ce sa ne obosim cu contraargumente, daca este mult mai simplu sa discreditam sau sa insultam orice voce critica?

Ad hominem nu este un semn bun cand este vorba despre un proces democratic.

Imi pasa. De aceea am fost in piata. Era de asteptat ca unii vor exploata prezenta mea intr-un mod total previzibil. Este un risc  pe care mi-l asum.

Recently I was asked by a television station to confirm that we, in anticipation of the Darea in Plata law, had increased the down payment for our standard mortgage loans from 15% to 35% (40% in EUR). I did this and explained the reasons why. I also explained them in a previous post. This became news, as if such a move was totally unexpected, and drew a series of comments and reactions.

The initiators of the law didn’t comment on my motivation/argumentation. Consistent with their earlier behavior, they preferred not to be bothered by facts and logic and to follow their long standing practice of insulting and threatening their opponents.

It was almost comical to see the statement of one of the supporters of the Darea in Plata law: he had notified the Competition Council. As if the Competition Council doesn’t read the papers and needs encouragement to follow what is happening in one of the most important sectors of the economy.

Darea in Plata will reduce competition

Instead, maybe he should have asked the Competition Council to express an opinion on the Darea in Plata law itself. If the Competition Council would analyse the potential impact of this law, which I warmly recommend them to do, they might conclude that one of its effects is that it will reduce the competition between banks.

Mobility Encourages Competition

An important element in stimulating competition in any sector is the ease with which a consumer can move from one provider to another. This is valid in any industry, banking included. There are specific regulations, including EU Directives, that aim to makes it easier for consumers to switch banks. The easier it is to switch for consumers, the more competition between banks is stimulated. Logic.

Darea in Plata Hampers Mobility

What is now the effect of Darea in Plata on all this? 67% the total loans to individuals in romania are mortgage or home equity loans. When a person contracts such a loan, he/she has the obligation to repay it, including interest, and responds with all his belongings. In these circumstances, banks have worked with down payments from about 5-15%. If and when Darea in Plata comes into force, all new mortgage and home equity loans will be asset-based financings in which the risk of the bank is linked exclusively to the value of the asset. This is a totally different risk profile which will force banks to adjust their risk policies. As I explained here, this will increase the need for down payments.

Refinancing Anyone?

It is not very difficult to see that those who took loans with lower down payments (5-20%) will not be able to get refinancing unless they meet the new criteria (say 35-40% down payment). Very few consumers will be in the position to make an early repayment of  20% of the value of their loan in order to refinance.

So, Darea in Plata basically makes it impossible of anyone who took a loan from a bank before Darea in Plata to refinance this loan and will lock more than 450,000 Romanians in with their loans at their existing bank. No refinancing possible. Please come back in 10 years or so.

Who seems afraid of the Competition Council?

So, I am not afraid that the Competition Council will look at the fact that banks increase down payments. This is a matter of cause and effect and pure logic. I am afraid the Competition Council will not be asked by the initiators to express an opinion on the Darea in Plata law. If they were, they would certainly come to the conclusion that this is bad for competition.

Due process, including impact study is needed.

As before, there are reasons, good reasons, why no country in the world has legislated a “hard” datio in solutum. If we want to consider being the first in the world to do so, we better think this through. At least we might ask Parliament to respect the law and to produce an impact study and ask relevant stakeholders, including the Competition Council, to express an opinion.

Romanian version is available here.

Recent, un post de televiziune mi-a cerut sa confirm ca, anticipand legea Darii in Plata, am crescut avansul pentru creditele garantate cu ipoteca de la 15% la 35% (respectiv 40% pentru euro). Am confirmat si am explicat motivele pentru care am facut-o. Le-am explicat si intr-un articol precedent. Aceasta informatie a devenit imediat o stire, generand o serie de comentarii si reactii, de parca ar fi fost o miscare total neasteptata.

Initiatorii legii Darii in plata nu au comentat motivele/argumentele mele. In concordanta cu comportamentul lor de pana acum, au preferat sa nu fie preocupati de fapte si logica, ci sa urmeze acelasi parcurs, insultandu-si si amenintandu-si oponentii.

A fost aproape comic sa vad reactia unuia dintre suporterii Darii in plata atunci cand a notificat Consiliul Concurentei. De parca aceasta institutie nu ar fi la curent cu stirile si ar trebui incurajata sa urmareasca ce se intampla intr-unul dintre cele mai importante sectoare ale economiei.

Darea in Plata va reduce competitia

In schimb, poate ca acest suporter ar fi trebuit sa ii solicite Consiliului Concurentei sa  exprime o opinie in legatura cu  legea Darii in plata. Caci, daca ar analiza impactul potential al acestei legi, ceea ce recomand calduros Consiliului, poate ca ar ajunge la concluzia ca unul dintre efectele ei ar fi acela ca va reduce competitia dintre banci.

Mobilitatea incurajeaza competitia

Un element important in stimularea competitiei in orice sector este legat de usurinta cu care un consumator se poate muta de la un furnizor la altul. Acest lucru este valabil in orice industrie, inclusiv in cea bancara. Exista reglementari specifice, precum si directive ale Uniunii Europene, care isi propun sa le faciliteze consumatorilor transferul de la o banca la alta. Cu cat clientilor le este mai usor sa se mute de la o banca la alta, cu atat mai ridicat este nivelul de concurenta pe piata bancara. E logic.

Darea in plata ingradeste mobilitatea

Care este atunci efectul Darii in plata in acest caz? 67% din totalul creditelor acordate persoanelor fizice reprezinta credite garantate cu ipoteca. Atunci cand o persoana contracteaza un astfel de credit, devine responsabila pentru rambursarea acestuia, inclusiv a dobanzii, si raspunde cu bunurile sale. Pana in prezent, bancile au acceptat avansuri de 5-15%. Cand si daca legea Darii in plata va intra in vigoare, toate creditele garantate cu ipoteca vor fi finantari bazate pe active, riscul bancii fiind legat exclusiv de valoarea activului. Vorbim de un profil de risc cu totul diferit, care va obliga bancile sa isi ajusteze politicile de risc. Asa cum am explicat aici, acest lucru presupune solicitarea unui avans mai mare.

Isi doreste cineva vreo refinantare?

Nu e deloc dificil sa observam ca cei care s-au imprumutat dand un avans mai mic (5-20%) nu vor mai putea obtine refinantari decat daca indeplinesc noile criterii (sa spunem un avans de 35-40%). Foarte putini clienti vor fi in pozitia de a rambursa in avans 20% din valoarea creditului lor pentru a se putea refinanta.

Prin urmare, Darea in Plata practic face imposibila refinantarea pentru oricine a luat un credit inainte de aplicarea legii si va “bloca” peste 450.000 de romani si creditele lor la institutia cu care lucreaza in prezent. Refinantarea nu mai este posibila. Va rugam reveniti peste 10 ani.

Cui ii e frica de Consiliul Concurentei?

Nu ma ingrijoreaza faptul ca specialistii Consiliului Concurentei vor analiza decizia bancilor de  a creste avansul la credite. Este vorba de o situatie de tip cauza-efect si de logica simpla. Ceea ce ma ingrijoreaza este faptul ca acestei institutii nu i se va solicita de catre initiatorii legii sa-si exprime opinia in legatura cu Darea in plata. Caci, daca ar face-o, sunt sigur ca ar ajunge la concluzia ca aplicarea ei ar fi daunatoare sistemului bancar, inclusiv din punct de vedere concurential.

Este nevoie de un proces corect, inclusiv de un studiu de impact

Asa cum am mai spus, exista motive, motive intemeiate, pentru care nicio tara din lume nu a legiferat o forma “dura” de Datio in solutum. Daca avem in vedere sa devenim primii care o fac, ar fi bine sa ne gandim serios inainte. Macar am putea sa ii solicitam Parlamentului sa respecte principiile si procedura de legiferare si sa realizeze un studiu de impact, respectiv sa solicite tuturor partilor interesate relevante, inclusiv Consiliului Concurentei, sa-si exprime opinia.

Datio in Solutum is a Latin legal term. It means “giving in payment” and it refers to the situation in which someone with financial difficulties and debts gives something else he owns instead of money to repay his debts. An example I remember from not too long ago in Romania was a bank that could not repay its depositors and offered to large depositors the ownership of their branches instead of their deposits.

Darea in Plata

At this moment the discussion in Romania is not about a bank that offers a depositor real estate instead of his money, but about bank clients who transfer the ownership of their apartment or house to the bank as repayment for their loans. This could be an acceptable solution if both parties would agree to this but that is not what the legislator intends. The proposed law – unsurprisingly called Darea in Plata – would give anybody with a loan that is guaranteed with a mortgage on a house, apartment or piece of land the right to repay the loan in full by transferring the ownership of the guarantee to the bank, at any time, regardless of the value of the loan.

Nowhere in the World

Although, as the London Economics study prepared for the European Commission suggests,  the principle of Datio in Solutum is centuries old, and many countries acknowledge it as a method of voluntary debt settlement, no country in the world has implemented this as a mandatory solution (a so called “strong” datio in solutum). The only country that has implemented a form of “weak” datio in solutum is Spain and this is extremely limited in its application.

In the USA are examples of mortgage contracts where payment in kind is included in the contract but this is in no way imposed by law.

What is the Impact ?

So, Romania intends to become the first country in the world to introduce a “hard” datio in solutum. You might wonder why, if this is such a good idea, no country in the world has introduced this. You also might expect that the initiators have produced an impact study showing all the pros and cons of such an approach …

Indeed, a major criticism has been that no impact study whatsoever was made and that the law was rushed through Parliament for reasons that I can guess, but am not going to comment on.

There are many aspects of this law that deserve a bit of attention and if I find the time I’ll write about these.

Credit Risk

For now, let’s consider what will change in the relationship between bank and borrowers in case this law would come into effect.

Until now, a bank grants a loan to a person and that person is obliged to repay the full value of the loan and interest. The borrower is personally liable for this and if he does not pay his creditors can gain access to his assets through legal procedures. Before granting a loan bank will analyse the financial situation and history of the borrower and assess the risk of non-payment. On the basis of this the bank will be willing to lend a certain amount under certain conditions to the borrower.

Under the proposed Darea in Plata law this all changes. The borrower can at any time repay the loan by transferring the ownership of the house/apartment to the bank. So, when assessing the risk, the bank needs to look at the risk that the borrower will stop repaying and “send the keys to the bank”. This risk depends mainly on the value of the apartment in relationship to the outstanding of the loan and less if the borrower can pay or not.

From Lending to Asset Financing

Simply put, the bank doesn’t grant a loan to an individual anymore, but finances an asset, and the main risk is not the individual borrower and his or her financial situation, but the value of the asset. This is a totally different risk and it would be naive to think that this would not be expressed in the terms and conditions of mortgage loans.

In order to assess this risk, the bank will look especially at the value of the financed apartment/house and make an assessment of the potential fluctuations in value and the discount that needs to be applied if the bank would have to sell the asset, once given in payment. There are all sorts of methods for this and there is no need to go into this now.

Down Payments

This is the simple reason why we decided to increase the standard down payment for mortgage loans from 15% to 35%. This is a simple matter of cause and effect. If the risk is increased, the prudent thing is to take measures to limit the risk to acceptable levels. That is what banking is about and what the bank I referred to at the beginning of the this post did not do very well.

Is This What We Need?

Increasing the down payment will limit access to mortgage financing in Romania. The effects of this can be dramatic in a country that has already the lowest number of m2 per inhabitant in Europe, where access for young families to good housing is limited and too many of them leave the country to search for a better life abroad.

Whose Interests?

The initiators of the Darea in Plata law are apparently not bothered by such details and see no need to address these by producing an impact study. According to Law 24/2000 on the legislative technique norms, any law draft must be accompanied by impact studies, along with the memorandum of reasons and the substantiation report. One might be forgiven for wondering whose interests these parliamentarians represent.

As always, this post expresses my personal views.

Romanian version is available here.

Datio in Solutum este un termen legal provenind din limba latina. Inseamna “a da in plata” si se refera la situatia in care cineva care are dificultati financiare si datorii ofera ceva ce detine in schimbul banilor pentru plata acestor datorii. Un exemplu recent chiar din Romania este acela in care o banca ce nu-si putea plati deponentii le-a oferit celor cu depozite semnificative, in schimbul banilor datorati, drept de proprietate asupra agentiilor sale.

Darea in plata

In momentul acesta, in Romania, discutia nu este despre o banca ce ii ofera unui deponent proprietati imobiliare in schimbul banilor, ci despre clientii bancilor care transfera dreptul de proprietate asupra unui apartament sau al unei case ca forma de rambursare a creditelor contractate. Aceasta ar fi o solutie acceptabila daca ambele parti ar fi de acord, dar acesta nu este lucrul pe care legislatorul il doreste. Legea propusa – numita, deloc suprinzator, Darea in Plata – ar da oricarei persoane care are un credit garantat cu ipoteca asupra unei case, unui apartament sau teren, dreptul de a rambursa integral acest credit, transferand bancii dreptul de proprietate asupra garantiei, in orice moment, indiferent de valoarea imprumutului.

Niciunde altundeva in lume

Asa cum reiese si din studiul London Economics pentru Comisia Europeana, desi principiul Datio in Solutum este vechi de sute de ani si multe tari il recunosc drept o metoda voluntara de reglare a datoriilor, in nicio tara din lume el nu a fost implementat drept o solutie obligatorie (o forma asa-zis “dura” de datio in solutum). Singura tara care a implementat o forma “usoara” de datio in solutum este Spania, iar aplicarea ei este foarte limitata.

In Statele Unite exista exemple de contracte ipotecare in care plata in natura este prevazuta in contract, dar in niciun caz acest lucru nu este impus prin lege.

Care este impactul?

Asadar, Romania isi propune sa devina prima tara din lume care sa introduca o forma “dura” de datio in solutum. S-ar putea sa va intrebati de ce, daca este o solutie atat de buna, nicio alta tara nu a adoptat-o. S-ar putea sa va asteptati ca macar initiatorii legii sa fi produs si un studiu de impact aducand argumente pro si contra unei astfel de abordari…

Intr-adevar, o critica majora adusa este aceea ca nu a fost realizat absolut niciun studiu de impact, iar legea a fost trecuta in graba prin Parlament, din motive pe care le pot ghici, dar pe care nu o sa le comentez.

Sunt multe aspecte ale acestei legi care merita un pic de atentie si, daca voi gasi timp, voi scrie despre fiecare dintre acestea.

Riscul de credit

Pentru moment, sa luam in considerare modul in care ea va schimba relatia dintre banci si cei care iau credite, in cazul in care va fi aprobata.

Pana acum, o banca acorda un credit unei persoane, iar aceasta este obligata sa ramburseze intreaga valoare a creditului, plus dobanda aferenta. Debitorul este personal responsabil de acest lucru, iar daca nu isi plateste ratele, creditorii pot obtine acces la bunurile sale, pe cale legala. Inainte de acordarea creditului, banca va analiza situatia financiara si istoricul debitorului si va face o estimare a riscului de neplata. Pe baza acestor informatii, banca va fi dispusa sa ii imprumute acestuia o anumita suma, in anumite conditii.

Toate acestea se modifica in conditiile Darii in Plata. Debitorul poate, in orice moment, sa ramburseze creditul transferand bancii dreptul de proprietate asupra casei/apartamentului. Prin urmare, atunci cand estimeaza riscul, banca este nevoita sa ia in considerare riscul ca debitorul va inceta sa plateasca si “va trimite cheile casei la banca”. Acest risc depinde in principal de valoarea apartamentului in raport cu soldul creditului si mai putin de faptul ca acesta poate sau nu rambursa.

De la creditare la finantarea activelor

In termeni simpli, banca nu mai acorda credit unei persoane, ci finanteaza un activ, iar riscul principal nu este legat de debitor sau de situatia lui financiara, ci de valoarea activului. Acesta este un risc cu totul diferit si ar fi naiv sa credem ca el nu se va reflecta in termenii si conditiile de acordare a creditelor garantate cu ipoteca.

Pentru a evalua acest risc, banca se va uita la valoarea casei/apartamentului finantat si va face o estimare a fluctuatiilor potentiale ale valorii acestuia si ale discount-ului ce va trebui aplicat in cazul in care va fi obligata sa vanda activul, odata dat in plata. Sunt tot felul de metode pentru a face acest lucru si nu e nevoie sa intram acum in detalii.

Avansul

Exista un motiv simplu pentru care am decis sa crestem avansul standard la creditele garantate cu ipoteca de la 15% la 35%. Este o situatie de cauza si efect. Daca riscul creste, prudent este sa iei masuri pentru a-l limita la niste niveluri acceptabile. Despre asta este vorba in banking si este exact ceea ce banca de care vorbeam la inceputul articolului nu a facut prea bine.

Este acest lucru ceea ce ne trebuie?

Cresterea avansului va limita accesul la creditarea ipotecara in Romania. Acest efect poate fi dramatic intr-o tara care deja are cel mai mic numar de metri patrati de locuit pe cap de locuitor din Europa, in care accesul familiilor tinere la o casa buna este limitat, iar multi dintre ei parasesc tara in cautarea unei vieti mai bune in strainatate.

Interesele cui?

Initiatorii Darii in plata nu par a fi deranjati de astfel de detalii si nu vad nicio nevoie sa le adreseze prin realizarea unui studiu de impact. Conform Legii 24/2000 privind normele de tehnica legislativa, proiectele de acte normative ce sunt supuse adoptarii trebuie insotite si de studii de impact, alaturi de expunerea de motive si nota de fundamentare. Cred ca putem fi iertati daca ne intrebam ale cui interese le reprezinta acesti parlamentari.

Ca intotdeauna, acest articol reflecta parerile mele personale.

“Money for nothing” is the title of a song made famous by Dire Straits when I was young (we are talking 80’s here). The song refers to the easy way a rockstar makes his money compared to other “regular” people, and some of its lyrics – “money for nothing and chicks for free” – are often misheard as “money for nothing and checks for free”, which I find quite funny. The confusion came to mind when I was confronted for the umpteenth time with the opinion that cash withdrawals should be free of charge, but the association with chicks and checks really stops here.

There seems to be a lot of people of the opinion that cash withdrawals should be for free. “Why do I have to pay to take my own money out?”, I hear. Or “Romania is the only country in the EU that charges for cash withdrawals from ATMs”. It’s not the first time I read this. I haven’t done any research, but this is rather simplistic. I don’t know if the persons who claim this actually have accounts in other EU countries, but I do. My bank in the Netherlands indeed doesn’t charge me for cash withdrawals at ATMs but that doesn’t stop them from charging me 6.20 EUR per month for account maintenance. This charge obviously includes the cost for cash withdrawals at ATMs. Is this for free?

I don’t see why a bank, or anybody else for that matter, should be expected to offer its services for free. What I do see is that, if the cost for a service provided is lower, this will result in a lower charge for the service. The real problem is that the costs in Romania are high. A few comments:

Cash Costs

Cash itself costs money. Banks pay for (part of their) cash (BNR charges 0.3% for withdrawals) and from the moment it accepts or buys cash, the bank starts to pay interest over the amount to the depositor or BNR. But the cash, whether it is in a vault, in ATM or in transit doesn’t generate any interest itself. The cost of this is easily calculated by using a reference rate, let’s say a modest 2%. Banks have on a system level about RON 4.7 billion cash, so the cost of this is already more than RON 90 million. The real costs are much higher. Cash needs to be processed, stored and transported. So, the cash itself has a significant cost. It may be good to point out that because of the higher interest rates for RON, this cost is higher in Romania than it is in the EURO zone.

IT Costs

We also have the cost of the IT systems in the back, including card management. In Romania there are about 210 million card transactions per year or which the vast majority are cash withdrawals. In the Netherlands there are 2.5 billion card payments per year and the number of card POS payments is 5.8 times higher than that of cash withdrawals. I would bet the cost per transaction is much lower in the Netherlands, where I nevertheless pay 6.20 EUR per month in account maintenance fee.

The idea is to make the cost per transaction as low as possible. First, this means having as many transactions as possible per system. The second is to use the most cost-efficient alternative. In Romania, like in other countries, the cheapest way for an individual to pay is to use the card on a POS terminal. It doesn’t cost the client a thing. Banks charge a fee for cash withdrawals because it costs them money. Banks in other European countries have a totally different proportion between cash and cashless POS payments transaction than we have in Romania. Charging for more expensive, less efficient payments like cash and not charging for more efficient payment methods makes perfect sense.

Have you ever have had the pleasure of killing some time at Otopeni, Henri Coanda Airport, waiting for someone in the arrivals hall? Next time you do, count the number of ATM machines you can find and note how many different banks they belong to. When travelling abroad, check the number of ATM machines you can find in, say, Amsterdam Schiphol, Vienna Schwechat, London Heathrow, Paris CdG or any other airport. Compare the results.

Last time I checked there were 9 ATMs from 9 different banks in Otopeni which is already less than a year ago. In the other, much bigger, airports, most of the time you have to look for an ATM if you need one. There are only a few and most of them from the same bank or provider. It is not difficult to understand which “solution” has a lower cost.

The story is certainly more complicated than I present it here. Over time we will be able to lower costs by changing the mentality about cash in Romania, by increasing the number of transactions and reducing the number of banks. One day Romanian banks might no longer charge for cash withdrawals at ATMs. Still the real cost of it, high or low, will be paid for by the users, be it directly or indirectly through account maintenance fees, lower interests rates on deposits or other fees. So, instead of arguing about who should pay for it (always someone else), we should try to understand what can be done to lower the cost.

I much prefer to offer my shareholders a reasonable return based on lower costs with lower fees than on higher costs with higher fees.

By the way, I was last week in New York and withdrew money from an ATM three times. Each time the cost was USD 3, regardless of the amount.

*some figures in this post are approximations. The real figures will not be far off and will not change the argument.

(You can find the Romanian version here.)

“Should I Stay or Should I Go?” is the title of a song made famous by the British rock band The Clash in the early eighties. I remembered the title of the song and looked up the lyrics the other day.

It is not a question I ask myself a lot (I intend to stay), but one that inevitably comes to mind when meeting young and talented Romanians. This is mostly in a setting where there is no opportunity for one-on-one dialogue on the topic and my telling of the following story is how I now respond to it.

Some time ago I had lunch with a successful Romanian. I have known him for a long time and appreciate him. Let’s call him Bill. (I just want to avoid using any Romanian name for obvious reasons). After discussing the state of affairs in Romania, the subject of our children came up, as it so often does. Bill’s children were approaching the age that required decisions about their university education and he was facing a dilemma. He admitted freely that he was not very proud about the way he had made his money and now he had the following choice. He could teach his children “how things are done in Romania”, something he didn’t really want to do, or he could send them to study abroad risking that they don’t return to Romania.

Bill realised that he was part of the problem and that he wanted a better world for his children. Not better in terms of material aspects, but better in terms of human values. I felt he wanted his children to be happy and successful, but not by having to make the same compromises he had made himself and he doubted they would be able to do this in Romania.

I thought this was a very sad story and it kept coming back to me. (Note for those who don’t have children: please skip the following part!) When you have children it is as if you get a second chance and one of the secret wishes of, I guess, all parents, is that their children will be better/more successful etc. (however we measure success) and not make the same mistakes they made in life.

Whoever asks me the “Should I Stay or Should I Go?” question I tell them about Bill’s dilemma. I tell them that I am convinced they can be successful in Romania while respecting their personal values and suggest they should at least try to make Romania a better place rather than some other country. But whatever they do, they should NEVER find themselves in Bill’s situation once they have children themselves. We should strive to make the world a better place for our children and the next generation. Success is not measured in money, but in terms of respect and the appreciation we hope to receive from our children.

The hope that this will be possible keeps us sane and prevents us from becoming cynical. The moment I become cynical about the future of (the young people of) Romania I am out of here. So, now I also answered my own should-I-stay-or-should-I-go question.

Writing this text I couldn’t help thinking about how (most) politicians measure success. Do they not care about the future, about the debts they are piling up without visible impact on the infrastructure of the country, to be repaid by the next generations? What is success to them? Don’t they care about what history will write about them? Does it matter to them that millions of Romanians have left in search for a better life, that youngsters are considering a better future abroad?

Too many questions….

(You can find the Romanian version here.)

Comebacks are risky and, more often than not, they refer to ambition rather than achievement. After 18 months of absence, my ambition is to post at least twice a month on my blog again. I hope this will also translate into achievement.

Why I stopped

The easy answer is: not enough time. This is not really an answer, but a way of saying that there were other things more important. Although I enjoy the process of writing blog posts, it does take a bit of time. Time that I cannot use for other things. The last years I spent quite some time on activities with the Foreign Investors Council and, more recently, the Coalition for the Development of Romania, as well as some other activities outside the bank. I felt this was not only necessary, but also my obligation to do so. Now it is up to others to take their turn and I want to spend more time on other things, including my blog.

What has changed?

Before restarting I asked a few people whose opinion I value for input, and I decided to change a few things. The most obvious change is that my new posts will also be in Romanian. I like to think that my Romanian is pretty good, but I still find it easier to write in English, so that is what I’ll keep doing. Someone will help me translate them into Romanian.

What has remained the same?

Nothing has changed about the reasons I started my blog in the first place. I still feel I have things to say and prefer to say them directly, using my own words. Real dialogue about important issues in Romania is still lacking and I want to share my opinion in the hope to contribute. This doesn’t mean that I’ll only write about serious issues. I’ll write about what I feel too and this blog will stay a mix between banking-related and more personal topics. I’ll try to write about things that interest me or about subjects where I feel that a contribution to a discussion is needed. Sometimes I’ll write to clarify my own point of view and to force myself to think things through to the end. At times I’ll write because I want to get something out of my system.

Social media

Not only have I revived my blog, I have also revisited my presence on other social networks. There also I needed to take a break and reflect upon my experience. It wasn’t fun opening Facebook to find endless invitations to play @$%&? games, to like pages (925 as of today), respond to messages (24) and manage friend requests (999). LinkedIn is not much better with 431 pending invitations. I’ll need to get this sorted out as well.

I apologise to those that tried to get in contact with me through social media. I simply couldn’t manage the flow and have had to archive a lot of messages and requests without looking at them. I am moving as much as possible over to my Facebook page and will not be active on my account anymore.

One more thing…

Another thing that has not changed: please don’t try to use this blog to address issues that concern my employer. I would like to keep things separate and if you want to get in contact with me or the bank about bank related matters, please use the designated channels for this.

I look forward to the continuation of my journey and am curious to see where my blogging will take me.

Non Performing Loans (NPLs) are loans that have payment delays of more than 90 days. NPL’s lead to provisions and to credit losses. That is why the level of NPLs, expressed as percentage of total loans, is an important indicator for the health of the financial system in a country. They are closely monitored within banks, reported to regulators, discussed in meetings with IMF officials, presented at international conferences and analysed by rating agencies.

Reporting financial indicators that are significantly worse than they appear in reality is not good for the country. Still, that is exactly what we are doing with NPL levels in Romania. This is an old problem and this is not the first time I draw attention on this matter. Recent meetings made it clear to me – yet again – how the NPL levels affect Romania’s image abroad. So then, what do we do about this? Simple: adopt the international standards so that the Romanian indicator is based on the same method as the one in other countries.

International Standards

International practice is to stop accruing interest for the provisioned part of a loan. How much of a NPL is provisioned depends on a number of factors, especially collateral. This means that banks no longer show revenues for these (parts of these) loans by means of stopping interest accrual. This practice does not affect the relationship between bank and client. Legally speaking the bank still has the contractual right to claim the full amount, including the accrued interest and penalty interest. The bank just reflects a more appropriate value for this loan in its books.

Romanian Regulations

Romanian regulations oblige banks to keep accruing interest for these already provisioned (part of) loans even though it is increasingly unlikely that this interest will ever be collected.  The Romanian indicator contains therefor higher levels of accrued interested which increases the NPL levels in Romanian banks in comparison with other countries. Please note that this accrued interest is immediately provisioned, so this does not affect the Profit and Loss account.

A Simple Example

Let’s take two hypothetical  banks with identical portfolios and identical customers that have identical loans with identical behaviour. The only difference is that the banks are in different countries and different rules apply.

In order to keep it simple, we will take one loan in both banks that at the moment the client stops paying has an outstanding balance of  10.000 with an interests rate of 10% and a penalty interest rate of another 10%.

Bank INT stops accruing interest after 180 days  which means that the amount of the loan in their books is 11.000, consisting of 10.000 remaining principal and 1.000 interest ((10.000x180x(10+10))/36000) From that moment on the amount of the loan in their books will not change.

Bank ROM does not stop accruing interest and after 360 days the amount in their books is already 12.000. If we now assume for both banks a total loan portfolio of 100.000, Bank INT has a NPL ratio of 10% but Bank ROM has a NPL ratio of 12%.

It is also easy to see that, as time goes by, the NPL level will keep increasing for Bank ROM while it remains stable for Bank INT. After 2 years Bank ROM has a non performing loan of 14.000 with a ratio of 14% and after 3 years of 16.000 with a ratio of 16%. If we were to compound interest the amount would be even higher.

Is there a difference in quality, soundness between these banks? Is Bank ROM in a worse shape and deteriorating over time?  Of course not, there is no difference. Even the profits will be identical because the additional interest that Bank ROM accrues is provisioned at the same time.

It is easy to extrapolate this mechanism from an individual loan to a loan portfolios, from the portfolio to a bank and from the bank to the entire banking system.

There Is More….

This is not the only difference between Romanian regulations and international standards that influence NPL levels. The other is in the so called write off policy. It is easy to see that the sooner a loan is written of by a bank, the lower the NPL level will be. This is especially the case in our Bank ROM, where loans keep accruing interest until they are written off. Romanian banks may not write off loans unless they have “exhausted all legal means”. If they nevertheless do so, the expense is considered non tax deductible and some even argue that this would be a gift from the bank to the client that needs to be taxed as income. It is not very difficult to see that the cost of  “exhausting all legal means” is in many cases not justified by the expected amount to be recovered. This not only increases the costs of credit in Romania, it also inflates the NPL levels.

Nothing New

Some analysts might be aware of these differences but in my experience most people are not and I have explained this many times over to officials, analysts, head office representatives, politicians, regulators and rating agencies. Banks have been asking for years for a solution and I dedicated a blog entry tackling the issue after yet another unfavourable comparison in the international press in 2010.

How Big Is The Difference?

The real question is of course how big the difference is. The only one that can find out is the National Bank of Romania (BNR) because they are the ones that have access to consolidated data. In my view something needs to be done. Otherwise Romania will soon hit 20% NPL ratio which looks really bad in comparison with neighbouring countries. Countries we are competing with when we want to attract investment and financing.

I wanted to write about the cost of fraud in the banking system but because I have taken the rest of the year off, I decided to pick something that is totally unrelated to work, namely fasting. Before Christmas I did a six day water fast, that means that for six days I didn’t eat at all, I only drank water, no tea or juices.

Not My First Time

This was not the first time I went on a fast. It is not so hard and it seems as if my body adapts faster to it the more I do it. Normally I would start on a Friday and use the weekend to adapt. So Monday I can go to work and stick to my normal schedule, which includes attending lunches and dinners. This takes a bit of explaining but most of the time people not only understand but they also find it interesting. It might seem like a bit of self torture to sit a dinner table watching others having good food and wine but honestly, it is not really that hard. This time I started on the first day of my winter holidays.

Why Now

For some time I wanted to do another fast. This year I have not been very disciplined about food and lifestyle (yes, everything is relative in life). At least not like in 2011 when I participated in the European Ironman Championship. That took a lot of preparation and discipline. Still, I cannot keep it up like this forever and alternate periods of intense physical activity with periods when I have to take it easier. Yes, It might be better, or even healthier (who knows)  to keep a reasonable level all the time instead of these fluctuations, but then I would never do an Ironman. Anyway, increasing body weight, less sleep, more coffee, less attention to the quality of my food, it all adds up and I knew I was moving in a direction I didn’t want to go. So I needed a “reset”, a recalibration of my body and the way to do it was to fast.

Benefits

The idea is not so much about weight loss but to give the body a period of rest and a cleansing. The fact that (all) religions have periods of fasting also shows that the benefits of fasting have been known to mankind for ages. I had contemplated fasting for some time but it was the book “Fasting and Eating for Health” by Joel Fuhrman that gave me the understanding I needed. Fasting provides the body the rest it needs to undergo important maintenance and clean up. Some call it detoxification. This process is most effective once the body changes its metabolism and goes into protein saving mode. This happens after all sources of carbohydrates are depleted, usually after two days and is called ketosis. In this phase the body will be actively looking for tissue that is not essential and that can be burned for energy.

How Does It Feel

I felt cold during the fast. This is normal. Digesting food is hard work for the body and this takes up a lot of energy and generates heat. No digestion, less heat. So you feel cold.

Blood pressure is lower, so you have to pay attention and get up slowly but even so, I felt lightheaded from time to time.

Headaches are usual during the first few days, I attribute mine to caffeine depravation. Only a minor issue in my case.

Strange taste in my mouth and my tongue turned almost white, this seems to be normal.

I was not hungry nor thirsty and had to make sure I drank at least a litter of water a day.

Energy levels are lower than usual. This doesn’t mean I couldn’t work or that I had to stay in bed all the time. It is just better to do light administrative work.

My only problem were my legs at night. The backside of my upper legs hurt so much that I couldn’t lie down comfortably. A hot shower helped, bath probably would have been better but we don’t have a bathtub. I searched the internet a bit  and there are some indications that this might be linked to caffeine depravation. Not impossible, I drank a lot of coffee in the weeks before I started my fast. Next time I’ll make sure I don’t take any coffee at all or only modest amounts before I start fasting.

Weight Loss?

I lost almost a kilo a day. I guess most of this is water and loss of muscle mass but this will be reversed. Still a few kilos less, no more sugar cravings, no more need for caffeine to get through the day, a cleaner and leaner body. I feel good about it and am motivated to build on these achievements by maintaining a healthy lifestyle. In my experience only a healthy life style will bring my weight down, not keeping diets, starving myself. I see fasting in that context and not as a method of sustainable weight loss.

Final Note

As a 55 year old with a history of high performance in sports I like to think I know my body well. If you are interested in fasting and how it might help you I highly recommend the book “Eating and Fasting for Health” by Joel Fuhrman as a fist step. I just wanted to share my experience and that should not be taken as advice.