FinMin and top banks in club loan deal for €1 bln

Some bankers said that the deal was to be inked at the Finance Ministry. However, contradicting rumors were circulating on the market regarding this agreement between the banks and the state, as other bank representatives said the deal will be signed in the coming days.
The Competition Council greenlighted a document stating that the club loan financing is in accordance with competition regulations, so that the Finance Ministry can sign the loan, according to sources close to the talks between the ministry and representatives of the club-loan banks. Sources added that talks on the issue were held on Monday on the issue. Contacted by Business Standard, part of the concerned bankers declined to provide specific answers regarding to the date of the contract signing and the borrowed funds. However, most of them said that, in the past few days, they were preparing the documents needed for the deal.

The interest rate mentioned by sources is 5 percent for the money borrowed to the state, while the maturity is medium-term, namely 3 to 5 years. “In the beginning, the funds will be kept in the state budget, and they will later be used to cover spending,” a source within the National Bank of Romania (BNR) said.

Banks are now borrowing funds to the state to finance deficit with the money released on the market - some €1.3 billion - due to a cut in the cash reserve ratio (CRR) recently.

Sources within Banca Transilvania lender confirmed that the institution is interested in participating in the club loan, but said that the sum is not high and that significant numbers are mentioned by subsidiaries of international banks that signed a gentlemen’s agreement with he International Monetary Fund (IMF) that they would not repatriate profits. Romania borrowed some €19.5 billion earlier this year from the IMF, the European Union, the European Bank for Reconstruction and Development (EBRD) and the World Bank.

The club loan option is an alternative to state titles, given that some of the local lenders reached the ceiling of exposure on bonds allowed by their mother-banks. As the state kept financing its needs by borrowing funds from banks, many lenders asked the groups they are part of to increase exposure on state titles.

Some bankers repeatedly asked for foreign currency state bonds and increased maturity for leu denominated state titles.

On Monday, the Finance Ministry announced that Romania’s total public debt rose 10 percent in Many compared to the end of 2008, to RON 120.717 billion (€28.5 billion), or as much as 22.7 percent of the gross domestic product (GDP) estimated for 2009.

Finance Minister Gheorghe Pogea recently changed forecast regarding the gross domestic product (GDP) contraction this year and said that the economic decline could amount to 6.5-7.1 percent. This is the most pessimistic estimate made by a Government member so far.

Sources close to the International Monetary Fund (IMF) said that the institution’s forecast is a 7-8 percent economic decline and budget deficit amounting to as much as 7 percent of the GDP.