Cash boost in defiance of Brussels ruling

Defying the European Commission’s ruling that a multi‑million Euro Government cash boost for CEC Bank is state aid, bank president Radu Ghetea talks development in a crisis economy. Interview by Alexandra Pehlivan

October 2009 - From the Print Edition

Clocking up 145 years since its establishment, Romania’s savings bank CEC is one of the few institutions to have withstood republicans, kings, fascists, communists and free-marketeers, while retaining its status as a safe-house for Romanians to place their fortunes - of whatever size.
Now the state-owned bank intends to boost its capital share in a long-term investment worth over 700 million Euro – but there are fears that the European Commission could torpedo its plans.
As president of the bank since 2007, Radu Ghetea has steered the institution through a full-scale rebranding and increased the bank’s market share by a third to reach 5.5 per cent.
But to maintain this momentum the bank needs more cash from its main shareholder – the state. This year the bank was supposed to receive its first 180 million Euro tranche of a massive capital increase. But the European Commission (EC) has forbidden this cash boost, unless the Government admits this is state aid.
Another option offered by the EC was for the bank to attract an additional 30 per cent of the sum, around 60 million Euro, from the market to guarantee this was an investment and not a bail-out.
But Ghetea does not accept either of these alternatives.
“Brussels is shocked that Romania has a healthy banking sector,” he says, “and that in Romania there is a state-owned bank which, in 2007, set up a plan of action to raise the share capital by the shareholder in order to achieve some objectives like gaining market share. We have changed our image and strategy and need more capital to grow. In a difficult year such as 2009, a bank cannot stay in the market without money. But Brussels is incapable of understanding the realities in Romania.”
The CEC president says there is no reason to characterise his bank as in need of ‘state aid’ as the bank has proven its dynamism by increasing its position in the market from ninth to seventh among the top banks. Such a label would hurt its image. “We will proceed with the capital increase as planned,” he says.
If Brussels demands, Ghetea says the bank can pass the test of a ‘prudent investor’, which shows that any other investor, private or the state, is able to increase its share capital of the bank to ensure future development.

Switch to business
In the last two years, CEC has switched its strategy from targeting only individuals to focusing on small and medium enterprises (SMEs), farmers and public authorities and administrations. Even in the first six months of this year, the bank increased its exposure on these sector with 2,160 new credits valued at about 200 million Euro. During the same period, CEC Bank has also financed up to 2,114 projects eligible for accessing European funds, valued at about 150 million Euro.
“We are the only bank which has increased lending to businesses by up to 26 per cent since the beginning of 2009, compared to the same period in the previous year,” says Ghetea. “We financed mainly SMEs and farmers because they have a special place in the country’s economy. I have seen a very positive trend among farmers to implement modern methods of intensive agriculture and processing.”
Bucking the trend of many analysts, Ghetea sees potential in property, but is suspicious of alternative energy as a finance target. Real estate, for the banker, will grow because of the massive need for houses and offices. But he says alternative energy is “high risk”. Despite its clear promise, Ghetea argues that the industry is only at the beginning, that its developers do not have a lot of know-how.
Ghetea believes that Romania’s accession to the Eurozone in 2014 is not only on target, but may technically be possible at an earlier date. The crisis has not delayed convergence, he argues, even with the RON’s acute depreciation against the Euro this year. However he believes the EU may have to change the conditions imposed on countries who want to convert their local currency into Euro. “Due to the economic context, the conditions imposed by the EU are anachronistic and cannot be sustained,” he argues. According to him the Romanian banking community has taken measures to be ready from a technical and IT perspective for Eurozone accession even before 2014.

Who is Radu Ghetea?

“I cannot conceive of doing something else that is not related to mathematics,” says Radu Ghetea. “Maths was always very dear to me and gave me a certain orientation and thinking process.” For 22 years Ghetea worked at the Romanian Bank for External Commerce, where he moved up from the IT department to accountancy, before becoming one of the bank’s five directors. “As a programme analyst I learnt every operation of a bank without actually practising it,” he says.
In 1994 he was offered the job of vice president of the newly set-up Banca Bucuresti, which was later swallowed by Greece’s Alpha Bank. Ghetea worked here for 13 years and became the vice president of Alpha Bank Romania’s administration council. In 2007, he took over the state’s CEC Bank with a mandate to revitalise the ugly duckling of the Romanian banking sector, which could not sell itself to a foreign buyer for an acceptable price. Since then the bank has undergone a widely-praised rebranding programme highlighting the bank’s heritage, stability and Romanian sensibility. But it also had to cut costs and slash the workforce. For the president, the only problem with his job is “doing some things” that he does not like – such as restructuring personnel and sacking people.
But the man’s passions are not monopolised by slide rules and dilemmas of trigonometry – a keen fisherman and chef, Ghetea intends to spend his retirement undertaking a masterclass in cookery. Married with one son, the banker is an avid traveller, who has trekked the world – to dangerous Andean peaks and has an ambition to face the fierce Arctic wastes. “I want to see as many things as possible,” says Ghetea. “I would like to one day go to Alaska and have a fishing contest with a grizzly bear.”

What is CEC Bank?

Only a few years younger than the Romanian state itself, savings bank CEC was established in 1864 offering clients five per cent interest on deposits. One of the only functioning finance institutions through Communism, by the 1990s the bank had a market share of almost 33 per cent. By the mid 2000s, rival Banca Comerciala Romana (BCR) led the finance sector and competition from abroad forced down CEC’s market share to four per cent. CEC was put up for sale in 2006. Only the National Bank of Greece was willing to buy the bank, but the final offer was below the Government’s expectations and the privatisation was shelved. After Radu Ghetea took the helm in May 2007, his long term plan was to make the bank efficient by 2009 and gain a six per cent market share by 2011. There is no immediate plan to sell the bank.
In August 2009 the bank’s assets stood at 4.3 billion Euro and its profits for the first seven months of the year at 4.48 million Euro.