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Lisbon Strategy Signals for Romania and Romanian Banking Sector

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Title: Lisbon Strategy Signals for Romania and Romanian Banking Sector


1
Lisbon Strategy Signals for Romania and
Romanian Banking Sector
Dr. Nicolae DanilaCEO
2
Lisbon Strategy ? its substance a European
Social Paradigm
Briefly, Lisbon Strategy
Growth
Employment
?
The 4th Report is a complex analysis with several
findings and conclusions
Our view
Lisbon Strategy
- A concept with very demanding targets
- With many players and centres of
responsibilities
- Coordination of efforts and states policies
Europe is facing strong competition
- Significant players USA, Japan, China ? they
have the very same goal To be competitive
Europe is the youngest large family, still in its
early days and it should increase its profile of
large family
The 4 largest competitors different features
(ownership, economies, foreign affairs)
3
Revised Lisbon Strategy 4 priorities
1. Investing more in knowledge and innovation
Turn RD into products and services with impact
on economic growth and jobs creation
2. Unleash Europes business potential
Focus - SMEs development they should
significantly improve their competitiveness
profile at global level - Creation of a free
market with no barriers and red tape where
regulations are predictable and dynamic
companies flourish
3. Work force should increase ? Flexicurity
concept
Emphasis Labour markets better adapted to change
in a global competitive environment (labour
market flexibility)
Focus - Protecting the workers while helping
them deal with rapid change (employment security)
4. Energy, increasingly important
Focus Renewable, non-polluting sources secure
supply at affordable prices
4
EU attaches high importance to SMEs
Several features
SMEs are crucial to economic growth and
employment in Europe
SMEs are the founding base of the European economy
Community programs support SMEs by means of
available financial instruments
SMEs support
Governments should take an interest in ?
Structural funds, an important source
Critical to SME development
A fully integrated financial market
Access to funding
Supporting SMEs
Traditional funding instruments
New instruments JEREMIE ? joint initiative of
European Council, EIB, EIF
Specific products equity investments guarantee
schemes, micro-loans
Eligible institutions banks, venture capital
funds, guarantee funds, micro-financing companies
5
Overall challenges related to the National Reform
Programmes
Budgetary discipline long term sustainability
in a changing society
?
Increasing the efficiency of public
administration ? Quality of spending
?
More details on the budgetary implications of
proposed measures
?
Modernising public and private retirement and
pension systems prerequisite for public finance
sustainability
Improve Europe as a location to do business
?
Investing more in knowledge and innovation
?
Facilitating access to funding sources
?
Sustainable use of resources (renewables and
energy efficiency), transport connections
?
Necessity of a more positive attitude towards
SMEs and entrepreneurship
?
Better regulation and removing obstacles to
innovation (taxation, social security, regional
planning at local level) a more integrated
approach is needed
More comprehensiveness and coordination in
implementing different microeconomic policies
will generate much greater benefits
6
Romania National Reforms Program
Objectives
Major targets in 2007
GDP increase
6.5
? Economic Stability and public finance
sustainability
Inflation
4.0 1
C/A deficit
-10.5
Budget deficit
-2.8
? Improved competi-tiveness and eco-nomic
productivity
Government debt/ GDP
14.6
GDP/capita PPS - EUR
9,400
? More functional labour market
Qualitative elements
A factor driven economy
An innovation driven economy
From
To
7
Six National Priorities Sustain the Lisbon goals
Aimed at ensuring strong economic growth and
convergence with EU member states
Economic competitiveness
Economic stability and sustainability of public
finance
Transportation infrastructure
Environmental infrastructure
Improved competitiveness and economic
productivity
Regional development
Human resources development
Employment quality
Rural development
3 main resources will support the achievement of
these priorities
National (government co-financing)
EU Funds (Structural funds)
Private funding (IFI banks)


Efficient utilisation of resources - prerequisite
for reducing the gap in the next years
8
EU economic funds for Romania a major economic
benefit
ADVANTAGES SI OBLIGATIONS
EU FUNDS ? effect of the European cohesion policy
? they are still prospective
ROMANIAS CONTRIBUTION mandatory requirement
for the member states
Source Ministry of Finance, National Strategic
Reference Framework 2007-2013
Requirements
1. Turning these funds into real investments
2. Their contribution to fill the gaps on medium
terms (EUR 27 billion 2007-2013)
3. Drawing on the experience gained to better use
the EU funds
9
Investing more in knowledge and innovation
Romania low level of RD/GDP (0.6)
?
2007 0.7 of GDP (planned) 2010 ? 3 (1
public 2 private)
Innovation finance sustained by public sector,
banks, private finance sources
RD Funding Sources
?
Private sector has larger contributions in more
developed countries in terms of RD funding
Romanian ITC on an upward trend turnover 24
yoy in 2006, reaching EUR 6.7 billion and 4 times
higher as against 2000 4 contribution to GDP
with the tendency of increasing 0.2-0.3
annually exports more than EUR 1 billion (30)
FDIs stimulate rapid restructuring of the economy
(know-how), but without much local RD input
10
A paradox of the economy the need for loans and
the management of external imbalance
?
Financial intermediation in Romania is below
regional average and EU average
?
Upward trend of loans, particularly in retail ?
(CAGR 2004-2006 81.9)
But 50 of consumer loans are actually housing
loans
?
The economy needs funding and effective
competition improves access to finance by
lowering costs of borrowed funds
?
The risk of widening C/A deficit generated by
fast loan growth impact on external imbalance
and macroeconomic stability
?
Tightening monetary policy
Impact Higher costs for banks
supported by narrowing profit margins
Competitive disadvantage for local banks and
potential growth of foreign private debt
A trade-off solution is needed in order to foster
the development of the banking system since
countries with more developed banking sector grow
faster
11
Lisbon Strategy The role of banks
Three basic dimensions of how banks are involved
in economy
Through good expertise they provide
Through high funding capabilities
As operators for all financial flows
- All the players in the market use bank accounts
to run their businesses
Banks distribution network well adapted to
customers requirements using funds
EU Offices are specific structures designed to
better absorb EU funds
BCR has an well positioned EU Offices network (8
regional centres)
Structural funds cannot reach destination without
banks ? they use specific means
The role of banks in terms of modernising
economies and societies in a global world is
essential
12
A solid financial banking sector prerequisite
for sustained economic progress and achievements
of Lisbon goals
The Romanian Financial System is the most dynamic
sector of the economy
It is dominated by banks
Directly services provider
Banks assets/GDP 50
Indirectly through non-bank subsidiaries
Mutual funds/GDP 0.2
BSE capitalisation/GDP 21
It is sound and sustainable
Capital adequacy 17.3
Ratio of bad loans/total loans 2.8
It faces the toughest competition in the economy
True A concentration of assets at the level of
TOP 3 players (50.5)
But A fierce competition between well known
brands
33 high profile names in the European and world
financial market a large number of European
passport players (42 notifications filed with
NBR so far)
In other industries maximum 6 players
13
Lisbon Strategy The role of banks
TOP priorities of the Lisbon Strategy can be
found in the nowadays banks agenda
Support for investments in innovation
Banks are experienced in financing later stages
of RD projects (Basel 2 emphasises the need for
banks to produce a thorough risk assessment of
their customers)
Facts
Venture capital in Romania are also more oriented
towards expansion and replacement than towards
early stage investments
Banks provide corporate finance for business
capital increase
However
In 2006, banking funding for equipments rose by
64, the highest growth rate by product type
Banks encourage RD within the knowledge triangle
(business, universities, research centres) as
part of their corporate social responsibility
commitments
14
Lisbon Strategy The role of banks
Banks sustain business potential for SMEs
?
Currently, SMEs account for 48 of the total bank
loans (97 of total companies)
Bank loans represent around 8 of SMEs total
liabilities and shareholders equity
?
Increased interest of banks in funding SMEs (both
startups and mature businesses)
Tailor made and flexible financial solutions
Focus Innovative SMEs innovative companies are
3 - 4 times less in total companies as compared
to EU
Banks should refine their risk management systems
to better sustain an expanding SMEs segment
SME access to soft loans
Adaptive pricing paradigm
Consultancy for preparing investments projects
financed by EU funds
Micro-finance market in Romania is estimated at
around USD 500 million/year
About 80 of the new incorporate companies in
Romania are micro-companies insufficient
coverage in terms of funding 70 ? commercial
banks provided 55 of the financing needs
Micro finance encourage entrepreneurship,
competitiveness and social inclusion
15
Lisbon Strategy The role of banks
There are around 449 thousand SMEs in Romania
Of which almost 400 thousand are micro companies
Structure of SMEs by size
Source NIS
Progress has been made in starting up new business
Still there are regional disparities in terms of
banks presence ( as against the country average)
Source NBR and own calculation
Banks are expanding now more and more towards
rural areas
Development of rural credit mechanisms ? which
will support better absorption of EU funds
16
Venture capital in Romania at an early stage
?
10 venture capital funds are currently
operational in Romania (mainly regional funds)
Investments 2002 2006 ? EUR 150 million
(doubled) EUR 30 million in new companies
?
SMEs gain additional support from business angels
through investments
80 in existing companies and 20 in startups
?
Most projects that venture capital funds have
been involved into were buy-out type or private
equity investments based on the acquisition of
majority stakes in companies (resold after 3, 5
or 7 years)
?
Competition will increase among venture funds
based on the new opportunities
Investment opportunities ITC, consumer goods,
services, construction materials,
healthcare
Venture investments in European companies
amounted to EUR 4.12 billion in 2006
17
Is the banking sector outperforming the economy?
A POSSIBLE POSITIVE ANSWER
Greater adaptability to a market economy
conditions and a streamlined regulatory frame work
Increased focus on developing IT operational
platforms
TOP 2 Romanian banks (BCR BRD) invested more
than EUR 100 million in IT and distribution in
2006
Investment potential in infrastructure human
capital and distribution networks
Branch network expanded by 45 in the last 2
years
Banks staff 17 2004-2006 recent issue
shortage of banking experts due also to work
force migration
Significant FDI inflows (know-how and expertise)
over 88 of the banking assets are controlled
by foreign banks
Austria is a major investor with 23.9 of total
capital banking sector
(Greece 16.4, Netherlands 7.4, Italy 6.7,
Hungary 4.7, France 4.4)
However, banking sector development largely
depends on the actual growth of the real economy
18
Romania 2007 First year of EU Membership
Challenges
Self monitoring of the integration process
prerequisite for Romanias future
Lisbon Strategy and Maastricht
Treaty - great challenges
Structural instruments must operate adequately
National Programme of Reforms
Convergence Programme
EU Cohesion Policy
Sustainable growth stimulation
Job creation
Regional policy the 5 structural funds major
role
TARGET Economic and social cohesion
Romania Highly interested in using the
opportunities created by the EU funds
Romania must make the most of its strength and
opportunities macroeconomic stability and
strong economic growth
19
THANK YOU !
Dr. Nicolae DanilaCEO
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