Paradoxically, although Romanian banks are the most profitable at the European level, Romanians have the most expensive bank loans. In an interview for “Adevărul”, university professor Bogdan Glăvan explains why we have the highest interest rates, how the economy and the population are affected, but also how things could be resolved.
Romanians pay higher rates at banks than Bulgarians. PHOTO: The Truth Archive
Romania is the country in the European Union with the most profitable banking system, although credits are difficult to access for the population and small and medium-sized companies. At the same time, Romania has a country rating only one step above “junk” and paid, in 2023, some of the highest interest rates in the European Union, in “competition” only with Hungary. All as a consequence of a high country risk premium, but also of a high financing requirement.
High rates condemn to poverty
University professor in Bucharest, expert in macro and microeconomics, development economics and monetary economics, Bogdan Glăvan is director of the “Murray Rothbard” Romanian-American Center for Political Economy and Business and the author of articles in Western academic journals.
In an interview for “Adevărul”, Glăvan explained why Romanians pay the highest interest rates and how this problem could be solved, since, since the Revolution, no government has been able to do it. This is despite the huge bank rates, combined with the extremely low incomes of Romanians, affecting the already low standard of living. Not by chance, millions of Romanians do not have access to loans, while local companies are underfinanced, and Romanian capital is almost non-existent.
One of the main reasons why Romania has the largest loans is the lack of competition between banks, says Bogdan Glăvan. In addition, many small firms are barely making ends meet and would not even be interested in loans.
“The banking market is small. In addition, we only have a very small number of bankable companies in Romania compared to the total companies. And companies are not even looking to borrow. So, we still have a tribal, feudal structure, we are not yet a modern state. Because there are a lot of family companies, which employ family members, which avoid being transparent. So this radical uncertainty only keeps us underdeveloped. And then, the banking market is small,” he says.
Banks make huge profit with the state
Besides, banks have found a way to produce money and are profitable. They take full advantage of the state’s appetite for borrowing, and this guarantees them high profits at the smallest risks. And I do it perfectly that way. According to the National Bank of Romania, the profitability of the Romanian banking system has been increasing in recent years, being double the EU average.
“Banks are happy to lend money to the state and live off the First Home program. And their elbow hurts from the rest of the customers. They here also make money from commissions”says Glăvan.
Inflation and country risk, the highest in the European Union (along with Hungary), are other causes, the professor adds.
Bogdan Glavan. PHOTO: The truth
And this is not all. The lack of a financial culture, the abject poverty of a large part of the population makes us uninteresting for the big banks in the West.
“We don’t have a financially inclusive economy, we have a lot of people who don’t have cards, don’t have bank accounts, are completely illiterate, and some of them don’t even have a bulletin. So, we are not like the Czechs, to compare with the Eastern Europeans, not to mention that we are not like the Germans. And then, being a small market, the banks address a “cream”, a “cream”, which is on top of the jar. And the thick milk remains unaddressed, so to speak“, continued Glavan.
The trap we walked into alone
To all this, says the professor, is added the position of the National Bank of Romania, but especially of the successive governments since Romania’s entry into the EU and which avoided, even when we would have qualified, to adopt the single currency.
At the beginning, the excuse formulated many times even by the governor Mugur Isărescu was that the BNR can, having as leverage the local currency, the leu, protect Romania’s economy from some turbulences. In addition, BNR officials, as well as many economists, have stated every time that the population could suffer with the switch to the euro, when prices would automatically rise, as has happened in many countries.
However, Bogdan Glăvan believes that the benefits would have been infinitely greater than the risks. But now Romania is caught in its own trap and would not even qualify to enter the euro zone.
In fact, he continues, even the banks in Bulgaria offer lower rates, because the neighbors to the South have secured and fixed their exchange rate, and with that they have taken a huge step towards the euro. In other words, when Romania enters the euro zone, bank rates would automatically decrease and approach those of other countries.
“If we wanted to have lower interest rates, we had to do like the Bulgarians or the Croatians, we had to do everything in our power to enter the euro zone. I was eligible in 2015 but didn’t get in. So, we entered the euro zone and then the currency risk disappeared and as a result we also had new interest rates aligned very closely with the euro interest rates”, concludes Bogdan Glăvan.