ANALYSIS OF THE DEVELOPMENT AND CONSOLIDATION OF THE BANKING SYSTEM

Transcription

1 ANALYSIS OF THE DEVELOPMENT AND CONSOLIDATION OF THE BANKING SYSTEM Prof. Constantin ANGHELACHE PhD Bucharest University of Economic Studies / Artifex University of Bucharest Assoc. prof. Mădălina-Gabriela ANGHEL PhD (madalinagabriela_anghel@yahoo.com) Artifex University of Bucharest Cristian OLTEANU PhD Student (alexandra.olteanu.s1@anaf.ro) Bucharest University of Economic Studies Ec. Lucian ENE (lucian.ene78@yahoo.com) Abstract According to the evolution of the Romanian economy in step with the development of the process of consolidation of the Romanian national state by the act of January 24, 1859, consecrated later by the Great Union from 1 December 1918 in the Romanian economic system the problem of credit emerged. Of course, with some delay from other states now members of the European Union, this fi nancial category has emerged and developed in Romania in the most diverse forms. In this article, the authors intend to highlight the stages and periods Romania has experienced in the emergence and evolution of a banking system that in the fi rst phase was called the Central Bank of Issuance and Credit and has developed step by step to today s name, The National Bank of Romania, a term similar to the central bank of a country in Europe as this institution is usually called. Banks have emerged and developed differently from one historical period to another that Romania has traveled. Thus we can identify the period before the First World War, the interwar period, the restrictive period of the Second World War, then the banking system specific to the economized economy, which Romania traveled between Then in 1990 we can talk about the banking system that has reorganized and developed under the conditions of the free market. Of course, the factors that have determined the emergence and development of the Romanian banking system are known and in this article the authors seek to specify the specificity that the evolution of the Romanian banking system had in all these periods. Always, in Romania, regardless of the period it has undergone in its socio-economic evolution in the banking fi eld, it has raised the question of the existence of a central bank, regardless of the name, which has the main attribute of control and supervision of the commercial banking system, not to have too much slippage from the need for evolution of each of these economic activities pursued in the banking system. The authors Revista Română de Statistică - Supliment nr. 3 /

2 emphasized the interpretation of some aspects related to the period , then to the communist system and later to the system after 1989, when the banking system acquired a new confi guration and a new structure and in this context are presented a series Evidence of Evolution, the synchrope of the banking system, especially during , when some banks left the banking system but also strengthened by legislation closer to the market needs of this economy. Keywords: banking institution, bank deposit, material guarantee, account, bank capital JEL Classification: G21, G24 Introduction In this article the authors emphasized the role of the banking system, its evolution also presenting some synthesized data to show the Romanian banking system. Thus, in a series of data from 1930 to 1939, it is revealed how the number of banks in the years increased because of the crisis this number has diminished, etc., reaching the Romanian banking system during the communist period and the way banks strengthened by increasing assets, increasing the control over the banking system by the central bank of the country, the National Bank. After the transition of Romania s economy to the market economy, an analysis is under way to reveal how a number of banks have emerged, confirming that the bank s assets and liabilities have continuously increased so that the central bank has consolidated and become a decisive factor in terms of the evolution and implementation of the principles and functions of the banking market. Literature review Aizenman (2010) addressed issues related to macro-prudential oversight in the open economy and the role of central banks in emerging markets. Anghel (2015) developed a model for analyzing the evolution of Internet Banking services in Romania, in terms of number of users, number and value of transactions. Anghel (2014) studied the impact of the Romanian banking system in the whole economy, analyzing the value and evolution of the main indicators characterizing this sector of activity. Anghelache (2017) conducted a complex analysis of the Romanian economy, studying the evolution of the financial market, both banking and non-banking. Anghelache, Sfetcu and Bodo (2017) analyzed the evolution of the regulatory framework provided by the standards developed by the Basel Committee. Anghelache, Marinescu and Mirea (2017) studied aspects related to the insolvency risk manifested in banking institutions. Anghelache, Anghelache and Sfetcu (2009) studied 112 Romanian Statistical Review - Supplement nr. 3 / 2018

3 the main banking risks faced by the Romanian banking system. Bianchi and Melosi (2018) have developed and estimated a pattern of general equilibrium in which monetary policy may deviate from active inflation stabilization, and agencies face uncertainty about the nature of these deviations. Eicher and Leukert (2009) analyzed the heterogeneity of parameters in institutional approaches and economic performance, finding that it is so strong that it requires a new set of tools to control endogenity. Levine, Lin, Wang and Xie (2018) assessed the impact of credit conditions facing companies on the environment. Riboni and Ruge-Murcia (2008) studied aspects related to the dynamic efficiency of monetary policy. Research methodology, data, results and discussions The problem of credit appeared in Romania much later than in Western and Central Europe. Of course, the consolidation of the Romanian state was made under particular conditions, taking into account the existence of provinces which, although they were populated by the same Dacian-Roman ethnicity, had different objectives, perceptions and forms of organization. At the formation of the Romanian state for the first time, on January 24, 1859, the market we could call credit in Romania was dominated by ushers who used amazing interest rates of 20-30% for the amounts they borrowed. The evolution of the banking institutions in the Western legislation was strengthened for the first time by Alexandru Ioan Cuza, who, in his reform plan, introduced the necessity of forming a domestic banking system to serve the Moldovan and Wallachian economic units. In this way, after 1859, banks, important economic centers in Bucharest, Braila, Galați, appeared, only in their bloody way they went bankrupt, and those who were the so-called initiating bankers disappeared with the proceeds of profit. On the banking system with modern valences we can talk when the state, through legislation, guarantees and equity, has been able to give a foundation to the banking system that will be created and strengthened. The first State Banking Institution was founded in 1864, which was called the Deposit and Consignment House, and in 1898 it became the Savings House and Postal Checks. This is, in fact, the cornerstone of the CEC, which was to unify and consolidate all these savings houses and postal checks. In the private domain, landowners, in order to avoid the system, have acted and set up two-tier banking systems. The first company was the land-credit credit, established in 1873, and then the financial-urban credit companies that were made in 1874 in Bucharest and in 1881 in Iasi. In this way, but with the support of the state, a number Revista Română de Statistică - Supliment nr. 3 /

4 of banking institutions have also been set up, among which we mention: the county agricultural credit houses, the viticultural credit, the county and communal credit that helped finance the urbanization works, the development of the credit co-operatives, of popular banks. The Central Bank of Issuance and Credit, also known today as the National Bank of Romania, was established in 1880 and was constituted as a private bank with state capital participation and assured the currency circulation of the country, the domestic credit based on the rebate securities from the main banks. The Romanian economy, as it grew stronger, led to the consolidation of the solid domestic currency, convertible into gold (1 leu equaled gr. Gold). We mention that the value of the Romanian leu was then equal to the value of the French franc, the Italian lira and other European national currencies. From two private banks in 1880, the banking network developed and reached 197 banks in 1913, with a capital of 216 million gold-gold. Banks thus set up with external financial resources were able to offer cheaper loans, with 10-12% interest, to the National Bank s official discount, which at that time was 6%. The emergence of credit was a decisive factor in stimulating the development of the Romanian economy. Throughout this time the Romanian bank system appeared and developed, which, of course, had different stages. In 1914, the banking system was structured according to the economic potential of that period. There is a central bank of issue and credit and only two storage and saving institutions. There were 4th land-based credit institutions that served the big landowners, landowners. Subsequently, two specialized institutions for credit in the field of viticulture and urbanization have developed. At the same time, there were 32 credit houses for mediumsized farmers, 2933 popular and low credit banks serving the peasant rural environment. There were 215 small, medium and large commercial banks that emerged and developed without state support. Thus, the system of state loans and of the bonds entered into bonds has developed. In 1914, this system was about 2800 million lei and the accounts of the private banks had resources of about 282 million lei capital and 780 million lei deposits and re-accounts. We can state that in 1914, the Romanian system was in a period of prosperity, flowering and development. The private banking system developed between 1889 and 1939, as this period was also covered by some economic and other seizures. 114 Romanian Statistical Review - Supplement nr. 3 / 2018

5 Evolution of the banking system in the period Table no. 1 Year Number of banks Social capital million Credits Assets million lei million lei lei , ,7 25, ,6 780, ,4 681, ,5 1587, ,8 990, ,0 738, Source: Archive data and statistical yearbooks The data in this table reveals what happened in about half a century, in which the development and maturing of the banking system took place. There are some value indicators, expressed in golden lei, comparable. We would point out that there was no deflation but, by expressing all the goldgold indicators, comparability was ensured from one period to the next. Until 1914, when the First World War started, the Romanian banking system functioned, but after 1920 until 1939, although specialized banks of industrial credit emerged, the Romanian economy at that time was hit by postwar inflation. Between , the number of loans doubled, the number of banks, the balance sheet asset is increasing, and the expansion of social output. Another interesting interval is , during which, except for some state-owned state-owned institutions such as the National Bank of Romania, the CEC and others, there are restrictions on the banking system, a number of banks unviable were bankrupt. Thus, from 1097 bank units, the number drops to 491 bank units in just 10 years. The banking asset drops by around 40% and credit operations are diminishing because banks, unable to increase and have high profitability, increase interest rates by causing lenders to give up this source. The banking crisis followed, which began in 1929, amid the general economic crisis. This has resulted in the weakening of the banking system, which has become intolerable, has led to currency speculation and trade in goods. A period of trial of the recovery of the credit system followed, which was based on the entry into force in 1934 of the Law on the organization and regulation of the bank trade. In April 1935, the new law was promulgated, to facilitate and restore the credit. These two laws were the basis for the reorganization of the banking system, which led to the National Bank of Romania s statute in Revista Română de Statistică - Supliment nr. 3 /

6 The law of 1934 was also the moment when the body of law enforcement was created by establishing the Banking Superior Council. It oversees the application of banking regulations and controls this activity. Any bank could operate only through authorization, this time provided by the Superior Banking Council. The authority of this national council was important because it also had the possibility to sanction some banks for the deviations they might have committed in applying bank rules. The Banking Superior Council had the capacity to go through the abolition of the respective banks. The Superior Banking Council functioned alongside the National Bank of Romania and thus achieved a good co-existence between the activity of the central bank of Romania and the system of the Romanian banks that were under the control of the Superior Banking Council. Banks were supposed to have a capital, have liquidity, and have everything they need in order to secure the guarantee of good. Based on the legislation that established the establishment of the Superior Banking Council, three banks of banks were set up by size: small banks with up to 10 million lei gold; medium-sized banks with capital ranging from 10 to 100 million lei-gold; large banks with over 100 million lei gold. The Superior Banking Council aimed at selecting and reducing the number of banks that were more numerous than the lending activity required by the economy. The banking crisis has influenced the ability of commercial banks, creating a balance of balance between the level of output in Romania and the supply of credits and the other systems that existed. During the Second World War ( ) and the next 3 years ( ) a credit compression was achieved as a result of a galloping inflation, which determined the diminishing of the banking system s capacity in the context of an underdeveloped economy and affected by the consequences of the war. We can state that the banking system had a constant participation in the formation of the National Product (indicator calculated at that time), but then it was consolidated. Between 1948 and 1989, the Romanian banking system was staged, under the control of the National Bank of Romania and synthesized at a national level in a small number of banks (the Investment Bank, the Agricultural Bank, the Romanian Foreign Trade Bank, the CEC), all of which have a different territorial structure and some are represented in the smallest localities. Thus, the CEC had a multitude of subsidiaries, going to the last unit in the smallest locality. In the planned system, the Investment Bank granted state allocations for investments, through the Agricultural Bank it was distributed the amounts of the Total Social Income / National Income (another indicator calculated 116 Romanian Statistical Review - Supplement nr. 3 / 2018

7 during the centralized economy) in the places and the localities where it was required. There is the possibility of individual accounts with the Romanian Foreign Trade Bank and its subsidiaries throughout the country, and the ROL savings at CEC, the most widespread and well-known banking entity in this centralized period. In the modern economy, the provision of capital and other financialbanking instruments has become a necessary practice. The system of pledges, mortgages, goods and many others that have played an important role in establishing the system have been developed. We continue to present data, which highlights in time the main data regarding the Romanian banking system. These are summarized in Tables 2, 3 and 4. Balance Sheet of authorized insurance companies Table no. 2 millions of lei 1913 Year Number Capital Technical reserves Estate ,6 13,6 0, ,4 29,2 16, ,1 62,6 40,1 Source: Statistical Yearbooks Main indicators (gross output, intermediate consumption and gross added value) in banking and insurance activities in the selected years of the period Table no. 3 - lei Year Gross production thousand lei Intermediate consumption thousand lei thousand lei Gross value added Share in value added of services , , , , , , , ,8 Source: Statistical Yearbooks Revista Română de Statistică - Supliment nr. 3 /

8 The structure of the added value of the gross banking and insurance business, by category, in the selected years of the period Table no. 4 - lei Year Total The National Bank of Romania % thousand House of Savings and Consignments Banks and other banking institutions Insurance companies thousand % thousand % thousand % thousand lei lei lei lei lei % , , , , , , , , , , , , , , , , , , , , , , , ,6 Source: Statistical Yearbooks In the period after 1990, the banking system has entered a deepening process of consolidation. Thus, a banking system where the National Bank resumed all its central bank responsibilities was transferred to the newly established Bank of Commerce Bank. In 2004, Law 312 on the Statute of the National Bank of Romania was promulgated. This law provided that the NBR ensures: the development and implementation of monetary policy and exchange rate policy, the authorization, regulation and prudential supervision of credit institutions, the promotion and modernization of the smooth functioning of the payment system, financial stability, the issuance of banknotes and coins as a legal means of payment in Romania, the stability of the currency regime and the supervision of its observance and the management of Romania s international reserves. In this way, the bank strengthened its role as a pillar, on the basis of which from 4 banks that existed in 1989 it reached 45 banks in 1998 and after the events that took place, with the bankruptcy of some insufficiently consolidated banks, the banking system sat at 38 banks in The Romanian banking system during this period had a big problem, meaning that the technical apparatus consisting of bank employees with special experience in the system that existed, the effects were sometimes bad because there was no possibility of consolidating a consistent banking activity. Between 1999 and 2003, 9 banks left the banking system. In 1999, Albina Bank s authorization was withdrawn, and BANCOREX was taken over by the Commercial Bank and bankruptcy proceedings were opened against Albina Bank. In 2000, Columna, BANCOOP and the International 118 Romanian Statistical Review - Supplement nr. 3 / 2018

9 Bank of Religions were withdrawn and bankruptcy proceedings were opened for BANKOOP and Credit Bank is the year of withdrawal of the authorization of the Romanian Bank of Scont, of the Investment and Development Bank, of the Turco-Romanian Bank and the bankruptcy procedure of the International Bank of Religions, of the Romanian Bank of Romania and of the Turco-Romanian Bank. The bankruptcy procedure of Columna Bank was launched in A series of regulations emerged, all of which, in particular Law 33 on Banking Activity, Law 34 on the Statute of the National Bank of Romania, formed the foundation for the Romanian banking system. The post-1989 period was marked by the following events in the banking system: the massive influx of foreign capital, the most relevant element that led to the consolidation and development of the banking system; 4 Romanian banks entered, in turn, in privatization, being adjudicated by foreign capital; The Romanian Development Bank was taken over in December 1998 by the French Societe Generale Bank; Bankpost was privatized in the first quarter of 1999 when General Electric Capital Corporation and Banco Portugues do Investimento acquired 45% of the bank s capital, injected well enough, and then Eurobank Ergases in Greece bought more shares in several stages, managing to hold the majority with 62.74% of the bank s capital; The Agricultural Bank was taken over by a consortium consisting of the Romanian- American Investment Fund and Reiffeisen Zentral Bank in Austria for only 52 million dollars; Banca Comerciala Romana, the last major transaction for Romania, was won by Erste Bank, which provided EUR 3.76 billion for the 62% stake. In 2006, the structure of the banks in Romania was 39 credit institutions, including 38 banks and one credit bank - Creditcoop. Revista Română de Statistică - Supliment nr. 3 /

10 Banking system in Romania by ownership form Table no. 5 Indicator Number Assets billions of lei % Credit institutions Banks ,7 State majority capital ,4 Local private capital Foreign private capital, out of which ,3 o Branches of foreign banks ,8 - CreditCoop ,3 Source: BNR Report The following period highlighted a number of issues that led, in the context of Basel I, II and III, to the consolidation of the Romanian banking system. Thus, in 1998, the number of commercial banks is the highest , compared with 38 as it diminished in State-owned banks have declined steeply, from 71% in 1998 to 5.4% in 2006, and private-equity banks have risen to 94.2% in In Romania, banks with private equity held 20% of the banking system s assets in 1998, reaching 88.3% in The banking system has grown and several factors contributed to its consolidation. I think that 4 of them played a significant role and I would mention here the improvement of the banking management with a good training in the risk system; adequate capitalization; the concern of banks to improve their ROI; central bank regulations (NBR) that have increasingly come close to the EU s banking rigor and the impact of the major international banks present on the Romanian market, notably through the know-how brought on and the impact on the clientele. The banking system upon the accession of Romania to the European Union was strengthened and had high capitalized values, having a structure of assets and liabilities well established. 120 Romanian Statistical Review - Supplement nr. 3 / 2018

11 Banking assets and liabilities in 2006 Table no. 6 Assets Value Liabilities Value Total assets, of which: ,1 Total liabilities, of which: ,1 - external assets, out of which: 4635,4 - external liabilities, of which: 39456,2 deposits with foreign banks 2991,1 loans from foreign banks 20484,6 - internal assets, of which: ,7 deposits of foreign banks 8522,2 cash 2226,5 - internal liabilities, of which: ,9 government credit 93283,4 deposits of non-bank clients 96581,0 o retail loans 39271,1 o retail deposits 44319,5 o corporate loans 54012,2 o corporate deposits 52261,5 Government credits 2812,9 government deposits 5423,5 Interbank assets 61303,8 capital accounts 20777,9 other assets 11198,0 interbank liabilities 6248,4 other liabilities 6973,0 Source: BNR Report In the period after 2006, the issuance of domestic bonds in domestic currency has developed, the issuance has increased, the participation of the issuers on the international capital market has changed, BRD being the first to be in this situation. Interest rates on the market must be interpreted in three directions. Depositors interest, which constitutes credit - source attracted; it had an oscillation lately in a situation that is not really great. It is also about interest on loans and deposits of depositors with commercial banks. The banking system is quite deficient in the sense that there is a difference between interest on credits taken in lei on the Romanian market compared to the interest on loans taken from the foreign market. At the end of 2006, commercial banks reached 4401 territorial units. The CEC continues to have the largest bank network units. The share of the CEC in the national banking network in 2006 was 31.6%. Also, the Carpathian Commercial Bank has strengthened, as well as Banca Transilvania and other banks that have appeared in the meantime. Revista Română de Statistică - Supliment nr. 3 /

12 Situation of the number of banking units of the main banking operators Table no. 7 Source: banks websites BRD 600 BCR 473 Banca Transilvania 341 Raiffeisen Bank 265 Banca Comercială Carpatica 215 Number of units Efficiency indicators of the banking system increased, as the first 10 banks held 79.1% of the assets of the entire system to be BCR, BRD, Riffeisen, HVB Țiriac, Transilvania, Bankpost, ING Bank, Alpha Bank, ABN Amro and Volsbank. Their assets and market share are shown in the following table. The top ten banking operators on the Romanian market Table no. 8 Assets Billion lei Market share (%) BCR 13,33 26,2 BRD 8,28 16,3 Raiffeisen Bank 4,09 8,0 HVB-Țiriac 2,60 5,1 Banca Transilvania 2,39 4,7 Bancpost 2,28 4,5 ING Bank 2,14 4,2 Alpha Bank 2,11 4,2 ABN Amro 1,56 3,1 Volksbank 1,38 2,7 Source: BNR Report The degree of concentration in the banking system continued to grow, but remained in the bottom area of the concentration demanded by developments during this period. The Herfindal Hirschman (HH), indicator, used to assess the degree of concentration, shows that in Romania it continues to grow. This is due to the improvement of the position of the first two banks in the national system, namely BCR and BRD, which strengthened their market position to 26.2% and 16.3%, respectively. 122 Romanian Statistical Review - Supplement nr. 3 / 2018

13 Conclusion From the authors study, it is concluded that a country s banking system is a fundamental necessity to ensure a country s economy evolves in terms that do not affect macroeconomic stability. The Romanian banking system has developed since the 1860s so far, and has gone through all stages of the Romanian society. On this background, without denying the necessity of a banking system, some contradictory developments appeared, most of them referring to the structure of the banking system, the growth or decrease of the number of banks, most of them being assimilated or bankrupted depending on the capacity and strategy used. the banking system of a country must be strictly in line with the provisions of the Basel I, II and III agreements, which have nothing but the consolidation of the banking system. Also, in European and wider international terms, we are talking about the emergence of Basel IV that will be brought to the reality that they are going through and the economies of the countries we are discussing. References 1. Aizenman, J. (2010). Macro Prudential Supervision in the Open Economy, and the Role of Central Banks in Emerging Markets, Open Economies Review, 21 (3), Anghel, M.G. (2015). Model of Analysis of Electronical Instruments Services in Romania. Theoretical and Applied Economics, XXII (4) (605), Winter, Anghel, M.G. (2014). Study on Romania s Banking System during the period ART ECO - Review of Economic Studies and Research, 5 (4), Anghelache, C. (2017). România Starea economică la un deceniu de la aderare, Editura Economică, Bucureşti 5. Anghelache, C., Sfetcu, M. and Bodo, G. (2017). Analysis of Banking Risks in the Context of The Basel Agreements. Romanian Statistical Review, Supplement, 12, Anghelache, C., Marinescu, I.A., Mirea, M. (2017). Models of Insolvency Risk Analysis in Financial and Banking Institutions. Romanian Statistical Review, Supplement, 11, Anghelache, C., Anghelache, C.S. and Sfetcu, M. (2009). Analiza riscurilor în contextul pieței bancare româneşti. Supliment al Revistei Române de Statistică, 6, iunie, Bianchi, F. and Melosi, L. (2018). Constrained Discretion and Central Bank Transparency, Constrained Discretion and Central Bank Transparency. The Review of Economics and Statistics,100 (1), Eicher, T. and Leukert, A. (2009). Institutions and Economic Performance: Endogeneity and Parameter Heterogeneity. Journal of Money, Credit and Banking, 41 (1), Blackwell Publishing, Levine, R., Lin, C., Wang, Z. and Xie, W. (2018). Bank liquidity, credit supply, and the environment, NBER Working Paper no Riboni, A., Ruge-Murcia, F. J. (2008). The dynamic (in)efficiency of monetary policy by committee. Journal of Money, Credit and Banking 40(5), Revista Română de Statistică - Supliment nr. 3 /