Crediting strategy for small and medium companies in Romania in 2007.

David, Oana ; Osiceanu, Sanda ; Mihai, Valia Maria 等

1. INTRODUCTION

One of the main activities of the commercial banks is the crediting of population and companies of either field, including the technical one. The analysis of such banking exercise has been performed since crediting entered economy, in order to make an assessment of this activity's evolution and profitableness.

In the field there are numerous statistics drafted for semesters and years, as well as for different credit categories for population and for small and medium companies (SMC).

This paper presents a statistics of the credit granted to the SMCs in Romania, in 2007 and attempts to show the situation of the Romanian banking market. In conclusion, the authors have tried to display the disadvantages on the Romanian banking market in the activity of crediting of both the population and companies, including the ones in the technical field.

2. CONTAIN PAPER

The credit relations generate the crediting as a method of financing the resources need. It is a modality of constituting the financial resources need as a completion of their own--but, most of the time, the credit represents the only financing source for a business. (Stroe & Armeanu, 2001) As still a sole financing source is the credit for formation of the abilities in order to be able to cover the financial needs during the year peak periods.

The essential requirement for calling and utilization of crediting, as means of completion your own financial resources, is the efficiency of using these agents, so that, upon the reimbursement time, all the loan amounts be returned and the relevant interest be paid accordingly.

The wide range of the crediting situations has imposed, from practical reasons, the classification of credits, as these are numerous: creditor, debtor, credit object, crediting source, method of available supply formation, crediting period, etc.

The Romanian banking market displays a multitude of credit forms, both for population and companies, including small and medium companies. Thus, various commercial banks grant the following credit categories to the small and medium companies:

* Transilvania Bank grants:

** 'Credit for small and medium companies, 0% interest', meant to cover the short term payment points;

** 'Credit for SMCs, 1 hour', designed to meet the expectations of the companies that are looking at a rapid and simplified access to the bank's financial support;

** 'Credit for SMCs START UP', meant to start a business;

** 'Credit for SMCs, Discounting 100%', for companies that need financing resources for the development and growth of their current activity;

* OTP Bank grants:

** 'Short-term cash credit for small and medium companies' and 'Credit line for small and medium companies' destined for current activity financing;

** 'Credit for small and medium companies from BERD and EU sources', utilized for financing both new projects and updating or extension of the existent business, with the following destinations: investments projects and operating capital;

* B.R.D. grants 'Export Credit' in foreign currency, representing a method of financing the small and medium companies needs derived from the current activity, which cannot be covered by the ordinary formulae of collecting the debts;

* C.E.C. grants 'Credit for small and medium companies from BERD and European Union sources', used to finance the investments credits, stocks, revolving credit line, etc, with the following destinations: investments projects, operating capital required for activity of production and services, new projects, the updating or extension of the existent businesses.

Romania's accession to European Union has favorably impacted the banking sector, as the investing activity in this field is extremely intense. More financial groups in the community region have considered that the local business environment is suitable for opening further units.

Besides the commercial banks in Romania before 2007, the accession lead to the opening a series of new branches of foreign banks focused on the crediting of the retail activity and companies'. (Draguta, 2004) Among these, Bank of Cyprus pledged to itself to focus on corporations that the mother-bank serves in Cyprus and Greece. At the same time, the bank is trying to attract clients from the medium companies sector.

Millennium Bank estimates that it will have total investments in Romania in the amount of 300 million euro until 2011. This bank wishes to set itself apart as a universal bank, the target clientele being represented by both small, medium and large companies and population.

The credits aimed at companies amount up to 70 billion lei, out of which more than half are foreign currency financing, namely 37.4 billion lei. The loans attracted from the banks only represent 8% of the companies' liabilities, when the financing from the mother-companies abroad keeps a high level, being a half of the corporate credit balance.

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Almost a half (49.05%) of the loans granted by the banks to the small and medium companies are treasury credits, having the company's cash flow as a guarantee, i.e. its income and liquid assets, and 31.5% of financing are meant to acquire equipment. Most of the treasury credits are current financing, but in the classification drafted by the Romanian commercial banks, the current credits are only 1.08%.

The data provided by the National Bank of Romania also show a high percentage for the credits granted to the small and medium companies for real estate, with 9.64% of balance, whilst the credits for export are only 0.07%.

Although the financing for the small and medium companies represent 63% of the volume of credits granted to the companies in Romania, only 14% of the small and medium companies have filed for bank loans. The small and medium companies sector has a great growth potential, but its evolution is dependent on the inclination of these banks towards these companies and the feasibility studies quality.

Along the implementation of Basel II capital agreement, which represents the capital adjusting regulation depending on the risks related to the bank activity in effect since 01.01.2008, the risk associated with the small and medium companies is lowering, a decision that is based on the large exposure variance.

In reality, both small and medium companies and population are facing a series of incorrect practices, from a legal point of view, of the commercial banks and the other financial institutions. (Jurvale, 2000)

A separate category of the incorrect commercial practices in Romania is constituted by the stipulation of abusive clauses in the pre-formulated standard contract concluded with the population and the companies, starting from the privileged position that the banks and the other financing institutions towards the consumers. Thus, we may enumerate:

* the right of the bank or of the financial institution to unilaterally modify the contract clauses without a proper reason;

* the interdiction or restriction of the consumer right to terminate the contract or unilaterally renounce, when the bank or the financial institution is entitled to it;

* the right of the bank or the financial institution to raise the service price, without granting to the consumer the right of terminating the contract, in case the final price is too high in comparison to the price convened upon the contract conclusion.

One of the widely used elements in the incorrect practices of the commercial banks or other financial institutions is the credit interest, which includes two aspects:

* former, the income of capital, i.e. the equivalent of the credit usage, and the interest in this case has been assimilated with the capital specific income;

* latter, is the one of penalty or reimbursement for the damage caused to the creditor by a late honoring the credit rate. In this case, it is about credit related penalty interests, which in the contract is similar with the delay penalties calculated by applying the value of the outstanding amount of a percentage between 0.5 and 2% per day.

As far as the interest in the role of a price for the granted credit is concerned, the sale of credits with promotional interests, fixed and initially low, but which become variable and rise suddenly or progressively, based on the contractual clauses--an incorrect practice by deceiving omission, in the sense that the sponsor omits an essential information required for the consumer to take a decision related to the credit or offers this information in an illegible way, in an ambiguous method or a rushed one, which makes the consumer request the credit, a decision which he would have not taken otherwise.

As far as the penalty interests applied to the consumers who are late with payments, parties may also determine, by contract, the extension of the damage that the creditor will bear as a consequence of late payments honoring, as well as the damage percentage that will cover it, before the damage occurrence. (Bistriceanu,, 2007)

These interests may be considered abusive when the paid amounts are out of proportionally high. In this sense, in the bank system entirety, the yearly average of the penalty interests is between 5 and 7% over the credit base interest (unlike European Union, where the average is 1%). Under conditions of adding these percentage points to the interest-cost of the credit of 7-9%, this issue may lead to a double penalty amount compares to what normally pays a client for a credit.

These penalties may not be considered disproportionate, since they are aligned to the international practices and because the banks have various costs, 'which may be quantified, at any moment', for a late rate payment, 'costs that may harm the image of a bank

3. CONCLUSION

Upon analysis of the credits for small and medium companies, there is ascertained a diversification of them compared to the previous years, the majority being held by the treasury credits and the credits meant for equipment acquisition, which represents 50% of the total credits granted to small and medium companies in 2007.

The penalty interests are way over the ones practiced in the European Union, and the banking officials should understand that they need to align themselves to the new codes of good practice in European Union and to self-regulate regarding the costs. A species of the credit cost is represented by the prepayment commission, whose quantum is also considered to be abusive in comparison to the one adopted by the EU (on average, 2-3% versus 1%).

4. REFERENCES

Bistriceanu, Gh. (2007). Little encyclopedia in finance, money, ensuring, Publisher Universitara, Bucharest

Draguta, V. (2004). Practical landing in the firm finance, Publisher IRECSON, Bucharest

Jurvale, V. (2000). Fiscal methods and technics, Publisher Rokris, Bucharest

Stroe, R.; Armeanu, D. (2001). Finance, Second Edition, Publisher ASE, Bucharest

***, (2007). Static Dates of the National Institute of Statistic from Romania