Any legislative initiative that stipulates that borrowers can repay loans to banks with real estate secured for lending will deter crediting, believes BNR governor Mugur Isarescu, who wondered who will grant real estate financing in such conditions.
He recalled that the money granted by banks on loan is the money coming from depositors, who expect their money back with interest, not as a “window, houses, roofs”.
The governor pointed out that banks do not pursue the accumulation of real estate as collaterals, they are not developers or estate agents, nor charity institutions, Isarescu said on Tuesday during the conference “The future of banking business models”, part of the events celebrating 135 years since the establishment of the National Bank of Romania.
Depositors should look at real interest, it might be higher than in recent years
BNR Governor Mugur Isarescu urges bank depositors to look at real interest, representing the difference between the nominal interest rate and inflation, pointing out that it is higher now than a few years ago, when inflation was high and almost cancelled the gain.
“We should encourage depositors to look at real interest, not at the nominal one. A few years ago, when nominal interest was 6-7%, the inflation was at the same level, the difference between nominal interest and inflation rates gave a real interest rate of about 1%. Now we have nominal rate between 1% -1.5%, the inflation rate has fallen below 1% and tends to be negative for a few months or even quarters, while real gain is maintained, so the real interest might be higher than a few years ago,” Isarescu said on Tuesday during the conference “The future of banking business models”, part of the events celebrating 135 years since the establishment of the National Bank of Romania.
He said he is making a call for “realism”, to a careful reading of the figures.
He also noted that the banks’ commission policy should avoid discouraging deposits.
“We still have a problem with the commissions, which are large; a commission of 0.5% -1% for a banking transaction is felt. No bank should live when the deponent says: Why keep my money in the bank to get less money home? It is a call to realism and I must say that we, the National Bank, we are thinking about reducing commissions,” said Isarescu.
The governor said that there is no motivation for payments in Romania to cost more than in Europe.
“We must make a greater effort to accustom the public with the real interest rate, the difference between nominal interest and inflation. We must not let the audience in confusion, it is not healthy,” the head of the central bank concluded.
I pleaded for a smaller loan than EUR 20bn from the IMF. I realize it would have been wrong
Isarescu said he had pleaded for smaller loan from the IMF and the European Commission in 2009, smaller than EUR 20 billion, but he realized that it would have been wrong, because a high level of reserves deter speculative attacks. “It was necessary, under those conditions of uncertainty, of international spread rumours. Now conditions have changed, attacks to risk are much lower,” Isarescu said on Tuesday.
He added that by maintaining large international reserves the National Bank has significant costs, but it is “worth” due to the benefits for the economy.
In Romania we don’t do quantitative easing
The National Bank of Romania has no policy of quantitative easing, such as that adopted in Europe, said BNR governor Mugur Isarescu, adding that, in turn, it has left “some” market liquidity by reducing the obligatory minimum reserves for liabilities in lei.
In Romania we are not in this situation (as of the euro area), we don’t do quantitative easing, we don’t force anyone to buy government bonds. We have left some liquidity on the market, yet our intention is not to leave excess liquidity on the long term, it’s not good,” Isarescu said.
“Deflation means a state of mind, which I do not see installed in the memory of Romanians. It defers the purchasing decision, which lowers consumption and then reduce prices,” concluded the head of the central bank.