Retail loans, engine of bank credit growth - World Bank tells Romanians

Publish date: 21-10-2009
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The retail credit was the engine of the bank loans' growth, says the World Bank, with its 20 per cent share of the GDP being similar to the situation in other Central European countries, according to 'Romania - Evaluation Report on Consumer Protection in Financial Services' presented in Bucharest, yesterday, by Arntraud Hartmann, country director of the WB Office for Romania, Agerpres informs.

54.1 per cent of the retail loans were in RON in 2004, the ratio reversed in 2008, as loans in RON were representing 41.3 per cent of the total credit and those in other currencies were representing 58.7 per cent, which increases the vulnerability of Romanian financial services consumers. On the other hand, the Romanian financial sector doubled its weight in the GDP from 2002 to 2008, making the protection of financial services consumers even more necessary. In 2008, banks and credit cooperatives accounted for 62.4 per cent of the Romanian GDP (compared to 31 per cent in 2002).

At the same time, leasing companies went up to 2.1 per cent, insurance companies to 3 per cent, financial investment companies to 1.2 per cent, other non-banking lending organizations to 6.7 per cent (compared to 0.4 per cent they had in 2002). In total, financial service providers represent 75.7 per cent of the GDP (35.9 per cent in 2002), and the securities market represents 11.5 per cent of the GDP in Romania.

The report also stresses the fact that 56 per cent of Romanians keep their savings in bank deposit accounts (compared with 36 per cent of Poles and 40 per cent of Hungarians), and only 3 per cent of Romanians hold a life insurance policy (compared with 16 per cent in Poland and 15 per cent in Hungary).

Consumer literacy and protection models and solutions

The idea of regaining trust by protection and education is central to the study and Arntraud Hartmann, the head of the World Bank Office in Romania said: 'consumers must be informed, but that is not necessarily the task of the state, but also the task of the private structures that provide information.'

For example, one of the issues Romania has, with its 100 per cent rise in retail lending in just a few years, is that the borrowers are not knowledgeable enough to be capable of planning their family budget and they simply do not know how much debt they can take on. In Slovakia, too, the population indebtedness is 25 per cent, although the level of eligibility would have only been 12.5 - 15 per cent. Another proposal the World Bank makes in its study is the setting up of a financial ombudsman, because people are disoriented when they wish to report an irregularity and don't trust the banks to deal with the matter in a fair way.

ANPC should set up financial services department

The National Consumer Protection Authority (ANPC) has about 700 members of staff, with the help of which it should set up a special department for financial services, the WB report further states. 'With not even one single financial expert on its staff, ANPC is unable to provide effective financial protection,' says the World Bank. 'In Romania - the WB further notes - a dedicated department could be set up by a partnership of ANPC and the Romanian Banking Institute.' Another way would be the twinning with experiences financial services consumer protection agencies in other countries, such as the Swedish Consumer Agency.

The World Bank also suggests a co-operation among ANPC, the Romanian Banks Association and the Association of Leasing and Non-Banking Organisations.

Another topic addressed was the one regarding the cost of pursuing legal action. In Romania, 32 cases have taken 537 days of proceedings, with legal fees amounting to 19.9 per cent of the value of the claim. In Germany, the legal cost represents 11.8 per cent and in The Czech Republic 33 per cent of the claim.

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