AcasăGeneralWhat banks say about changing the provision regime

What banks say about changing the provision regime

“The decisions by the National Bank of Romania will have a positive impact, because provision-related expenses will be much lower. These measures will bring the Romanian accounting standards closer to international ones, and the main beneficiary will be the state, as revenues from taxes will increase. However, at the level of the local banking system there are voices saying that small banks are reluctant to adopt the International Financial Reporting Standards (IFRS),” said Adriana Marin, Head of the Analysis Department of UniCredit CA-IB Securities.

The Head of BNR’s Supervisory Department, Nicolae Cinteza, told Business Standard recently that talks have been carried out with the Romanian Banking Association (ARB), and the provision regime will be modified. Thus, if a loan was included in the questionable category and the client had requested the rescheduling of this loan for objective reasons, the bank had to categorize that loan as loss. This principle will not longer be applied, and will be replaced by the principle of refinancing, meaning that the loan will remain in its initial category. This way, banks are no longer forced to set up additional provisions. Also, Cinteza said that the rule of loan contamination will be abandoned. He explained that, previously, if a client had five loans and faced problems with one of these, that problem was applied to all five loans. “We are abandoning this [rule], and each loan will be analyzed separately,” Cinteza said.

Provisions set up by banks in Romania surged 49 percent in the first half of this year, to RON 11.3 billion (€2.7 bln), according to BNR data.

Melania Hancila, Head of the Research and Strategy Department of Volksbank Romania, said that this measure would have had a significant impact if the refinancing principle had been adopted immediately after the crisis broke out in Romania, because, most clients with financial difficulties have already requested the rescheduling of their loans and lenders have set up significant provisions for these loans.

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