Volksbank Romania's strategy: overdrafts and lei

Volksbank Romania, the third-largest lender in the local system in terms of assets, with 95 percent exposure on real estate, has granted no mortgages in this year's first two months, as the player turned from its aggressive mortgage strategy to overdraft and from foreign currency to lei-denominated loans.

"We have granted no mortgages since the beginning of the year. It is said that banks are not granting loans but how many people are applying for loans in this period? Clients are scared of the cost of financing. It is normal that approval for loans be much more conservative," said the Chairman of Volksbank Romania, Gerald Schreiner.

If the monthly average of Volksbank's newly granted loans was some €100 million in 2008, the crisis sharply cut into client appetite, and the bank posted a contraction of €30 million in balance, considering reimbursements, in January and February. Due to the crisis, the lender is facing large payment delays and foreclosures. "Foreclosures increased as of the fourth quarter of 2008, but these represent less than one percent of our portfolio, some 0.7 percent. The payment delay rate will rise to six percent from the present four percent," added Schreiner.

Although the capitalization of the Romanian subsidiary poses no problems, with a 17 percent solvency index, the bank plans to request its majority shareholder to raise share capital by €25-50 mln.

The lender's profit before taxes surged 54 percent last year, to €37.85 mln, and it expects this to increase by some 22 percent in 2009, to €46.25 mln. "Increasing profit will be made through efficientization projects, by cutting costs, but we will not lay off people, and will not close branches," said the Vice Chairman of Volksbank Romania, Herwig Burgstaller.

The bank raised risk provisions to €34 mln in 2008 from €19 mln in 2007, and could double these this year to €68 mln. The value of assets rose 51 percent last year, to €5.3 billion, and is expected to rise to €5.4 bln.

Business Standard