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Banking sector's strong points in the pandemic context

The Romanian banking sector has fared well during the first year of the COVID-19 pandemic, relying on several strong points. The soundness of the banking sector, the absorption of customers' liquidity problem, enhancing lending on a sustainable basis, the acceleration of digitalization and a strong advance in saving are the strong points of the banking sector in this pandemic context.
The negative effects of the pandemic have left no mark on the banking sector’s stability, a sector  so far resilient before challenges and, at the same time, proactive when it comes to solutions. The Romanian banking sector is above European averages in terms of soundness ratios. From the very beginning of the pandemic, the banking sector's soundness ratios have allowed for a proactive approach, namely the absorption of customers’ problems and the enhancement of lending at an alert pace. The banking sector’s solvency ratio stood at 22% at the end of last year and went up to 22.76% at the end of September 2020. The quick liquidity ratio stood at almost 44% at the end of 2019, while the NPL rate was below 4% in October.
One of the lessons of the pandemic crisis is the need for a fast reaction in order to avoid potential negative effects. The banking sector reacted proactively by absorbing customers’ liquidity problems. About 22% of the individual customers and 28% of the corporate ones have benefitted from the suspension of their payment obligations for a period of up to nine months.
Currently, the discussions indicate a continuation of the moratorium on payment of loans for customers affected by the COVID-19 pandemic, but until the completion of some clear enforcement principles, we need a clarification of the regulatory framework. A potential moratorium should not transfer customers’ solvency problems to banks. Transferring customers’ solvency problem to banks could lead to affecting their capital base and, implicitly, the banking sector’s solvency and thus its capacity to finance the economy.
During the next stage, we will witness the second round effects of the healthcare crisis with consequences whose negative potential depends on the pandemic’s duration and amplitude. Banks have already seen the credit risk go up, with the deterioration of the macroeconomic framework, but we continue to witness a legal risk as well, a risk which could negatively influence credit risk and the development of lending. Even in this difficult context, banks have managed to increase the non-government loan balance by over 4%. Moreover, as they communicated during the ‘Dreptul la Banking’ campaign, in the first ten months of 2020, Romania's banks granted new loans to households and to companies amounting to 67.42 billion lei.
The new loans granted in the first ten months represent almost a quarter of the non-government balance for the month of October. The non-government balance is calculated as the difference between total loans to households and corporations and partial and full reimbursements as well as loan selling. This high weight of the lending balance shows a high new loan growth rate and a relatively short maturity of the loans taken especially by corporations. The corporate segment gave momentum to lending this year, in line with banks’ forecast trends.
The statistics for the period since the beginning of the pandemic, i.e. March-October, show a 12-15% increase in deposits, saving advancing very strongly compared to the months before the start of the pandemic.
We could witness a change in consumption habits and an awareness increase with regard to the importance of saving money. In addition, everybody should save the equivalent of at least two-three salaries to cover future needs brought about by potential crises. The loan-to-deposit ratio under 70% shows us that there are enough resources to continue enhancing lending on sustainable basis.
The pandemic has supposed an ampler interaction with customers via digital instruments, being actually one of the positive points of the healthcare crisis. We have been witnessing the exacerbated and beneficial phenomenon of digitalization. The benefits for bank customers are  notable and, in this respect, we hope the digital signature bill is passed, as it could enhance - taking into account social distancing - banks relationship with their customers. 
The banking industry will participate to the rebound of the Romanian economy. The measures have to be calibrated adequately via dialogue with the authorities and by prioritizing those solutions and industries which have the potential to dynamize economic growth.

This is also available in our print edition of Business Arena.

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