Another €1 bln from bank pockets to the state budget

The state will borrow over €500 million from commercial banks in the first week of December, through a "club loan" arrangement, sources on the banking market told Business Standard.

"There will be a new club loan before the second round of elections, on 6 December. The banks could lend up to €1 billion to the state, from reserves released by the National Bank, to ensure extra liquidity at the end of this year," said sources, who added that the loan will be short-term, of six to nine months. The National bank of Romania (BNR) recently decided to lower the cash reserve ratio on foreign currency liabilities to 25 percent from 30 percent, which will raise the liquidity of banks by some €1.2 bln. The central bank's decision comes after the International Monetary Fund (IMF), the European Commission (EC), and the World Bank decided to postpone the €2.8 bln bailout loan tranches for Romania until next year.

The nine largest lenders with operations in Romania met the representatives of the IMF, EC, and BNR in Brussels yesterday to discuss the agreement drafted in March and signed two months later, regarding exposures of the financial groups on the local market. BNR recently admitted that the nine foreign financial groups reduced their exposure in Romania by two percent between March and September 2009, which means €700 mln.

Sources close to discussions say that the Romanian subsidiaries of these lenders will participate in the December loan. The "club loan" comes as an alternative to state bonds, given that some local lenders reached the maximum bond exposure allowed by their mother banks. Initially, the money will remain in the state budget, and will then be used to cover expenses, especially investments, a source in the central bank indicated.

In August, BNR Governor Mugur Isarescu, said that the Ministry of Finance did not need another "club loan." At that time, the Governor said that money released through cutting the cash reserve ratio will return into BNR's foreign currency reserves. "We are applying what we agreed upon. We are releasing the borrowed reserve and replacing this with the acquired reserve. When we buy the foreign currency reserve, we do an issue and put back into circulation part of the lei that were withdrawn when we sold. There is also a process of vitalizing the real economy," said Isarescu at the beginning of August.

By that time, the Ministry of Finance had borrowed RON 48.5 mln (€11.3 mln) through local currency state bonds, a level four times higher than in the whole of 2008. Most bonds will mature in six months. The budget deficit estimated for October is of 5.2 percent of gross domestic product, namely some €6 bln.

standard.money.ro