Cash for state bank remains blocked

A Government cash injection for state-owned bank savings bank CEC has been blocked by the European Commission (EC), unless the bank admits the funding is state aid

October 2009 - From the Print Edition

However the bank’s president Radu Ghetea has hit back at the EC accusations, stating that CEC is a profit-making bank with a dynamic growth ahead of many of its private competitors.
“Brussels is incapable of understanding the realities in Romania,” Ghetea told The Diplomat.
In 2007, the Government set-up a long-term plan to capitalise CEC with over 700 million Euro. It targeted to allocate the first 180 million tranche by the end of 2009, but this must receive approval from the European Commission.
This June EC officials stated that the increase in capital from the Government must be viewed as state aid.
Mediating between the EC and the Government, Bogdan Chiritoiu, president of Romania’s Competition Council, presented two solutions: admitting the cash is state aid or demonstrating that the state is a ‘prudent investor’ in CEC, which means proving that a private owner would also make a capital injection at this stage.
Ghetea argues that his bank is healthy. In the last two years the bank increased its market share by 1.5 per cent to reach 5.5 per cent and climbed two positions among the largest banks in Romania in assets. Labelled as the receiver of a ‘bail-out’ would hurt CEC’s image. Ghetea favours the ‘prudent investor’ path.
According to Chiritoiu, the advantage of being a ‘prudent investor’ means that if, in the future, the Government wants to inject cash into other state companies, it has a precedent in CEC.
If Romania decides that CEC’s capitalisation is state aid, the EC will impose tough restrictions. The sum of the aid must not be more than the minimum amount necessary to ensure CEC’s survival and the bank must not adopt an aggressive sales strategy. The EC threshold for capitalisation is also much lower than the increase desired by CEC Bank. The bank would also be monitored by the EC and the Ministry of Finance and obliged to send the EC regular reports on its activity.
The downside of applying the ‘prudent investor’ scheme is that it is hard to prove to the EC that, during this financial crisis, CEC is an exception to the trend of banks performing badly. This process also takes a long time, and the EC may reject CEC’s request. If the Romanian authorities and CEC admit this is state aid, the cash could be absorbed at a quicker rate.