euro and the european banking system: evolutions … · „this project has been funded with...

ANGELA ROMAN • SORIN GABRIEL ANTON • IRINA BILAN

(editors)

EURO AND THE EUROPEAN BANKING SYSTEM:

EVOLUTIONS AND CHALLENGES

„With the support of the LLP programme of the European Union”

„This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held

responsible for any use which may be made of the information contained therein.”

This event is an action of the project “Euro and the Banking Integration Process in an Enlarged EU”, Reference no.2012-2911/001-001, within the Jean Monnet Life Long

Learning Programme - Key Activity 1

This volume reunites papers presented at the INTERNATIONAL CONFERENCE “EURO AND THE EUROPEAN BANKING SYSTEM: EVOLUTIONS AND

CHALLENGES” that took place on 4-6 June 2015, at the “Alexandru Ioan Cuza” University of Iasi, Faculty of Economics and Business Administration.

The papers published in Proceedings are exclusively engaging authors. The publisher

and editors are not responsible for their content or for language proficiency.

ISBN: 978-606-714-142-9 © Editura Universităţii „Alexandru Ioan Cuza”, 2015 700109 – Iaşi, str. Pinului, nr. 1A, tel./fax: (0232) 314947 http:// www.editura.uaic.ro e-mail: [email protected]

ANGELA ROMAN • SORIN GABRIEL ANTON • IRINA BILAN (editors)

EURO AND THE EUROPEAN BANKING SYSTEM:

EVOLUTIONS AND CHALLENGES

EDITURA UNIVERSITĂŢII „ALEXANDRU IOAN CUZA” IAŞI 2015

Angela Roman (n. 1968, Mureș), absolventă a Facultăţii de Ştiinţe Economice din cadrul Universităţii „Alexandru Ioan Cuza” Iaşi, este în prezent conferenţiar universitar doctor în cadrul Departamentului Finanţe, Monedă şi Administraţie Publică, Facultatea de Economie şi Administrarea Afacerilor, Universitatea „Alexandru Ioan Cuza” Iaşi. A realizat stagii de documentare la universităţi, precum IUT Sceaux- Paris, Franţa (1992), Universitatea Baleare, Palma de Mallorca, Spania, (1992), Universitatea Paris-Dauphine, Franţa (2002), şi-a perfecţionat pregătirea profesională prin participarea la Forumul – dezbatere „Academica BNR” (2012-2014) şi a absolvit cursurile de Formator (2012) şi Didactician (2012). Sorin Gabriel Anton (născut la Paşcani, în 1979) este licenţiat în ştiinţe economice la Universitatea „Alexandru Ioan Cuza” din Iași (2002) şi a obţinut diploma de Master of Science la Universitatea Rostock, Germania (2005). În prezent, este lector universitar în cadrul Departamentului Finanţe, Monedă şi Administraţie Publică, Facultatea de Economie şi Administrarea Afacerilor, Universitatea „Al. I. Cuza” Iaşi. Din anul 2009 este doctor în Finanţe în urma susţinerii tezei cu titlul „Instrumentele pieţelor financiare derivate şi implicaţiile lor în gestiunea riscurilor economice”. A realizat stagii de documentare şi cercetare în domeniul financiar bancar la universităţi prestigioase din Europa, precum Universität Bayreuth, Germania (2008), Universite Paris-Dauphine, EURISCO LEDA, Franţa (2010) şi Tallinn School of Economics and Business Administration, Estonia (2011). A fost profesor invitat la Istanbul Arel University, Turcia (2013) şi Universitatea din Huelva, Spania (2012) în cadrul programului LLP Erasmus. Irina Bilan (născută în Iași, 1980) este absolventă a Facultății de Economie și Administrarea Afacerilor, specializarea Finanțe și Asigurări, din cadrul Universității „Alexandru Ioan Cuza” din Iași. În prezent este lector universitar doctor la Departamentul de Finanțe, Monedă și Administrație Publică din cadrul aceleiași facultăți. A urmat stagii de documentare și cercetare la Universitatea Paris Dauphine (Franța, 2010) și Universitatea din Poitiers (Franța, 2015) și stagii de predare la Universitat degli Studi di Perugia (Italia, 2014) în cadrul programului LLP Erasmus. A urmat programe de formare în domeniile „Managementul activităţilor terţiare” (2011), „SAP, ERP și Management Școlaritate” (2011-2012) și „Didactica predării disciplinelor socio-umane” (2012).

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TABLE OF CONTENTS

SCIENTIFIC COMMITTEE ........................................................................................... 11

LIST OF REVIEWERS ................................................................................................... 12

SECTION I. BANKS, FINANCIAL MARKETS AND MONETARY POLICY

Alina Georgeta AILINCĂ, POSITIVE AND NEGATIVE ASPECTS ON EVOLUTION OF LOANS AND DEPOSITS IN ROMANIA ....................................... 14

Andreia ANDREI, Adriana ZAIT, Elena-Mădălina VĂTĂMĂNESCU, YOUTHS' TRUST IN BANKING. AN EXPLORATORY STUDY AMONG ROMANIAN CONSUMERS................................................................................................................. 25

Adina APĂTĂCHIOAE, Vasile COCRIȘ, FINANCIAL INNOVATIONS, THEIR REGULATIONS AND FINANCIAL CRISES ............................................................... 35

Sabina Andreea CAZAN, Bogdan CĂPRARU, THE LENDERS OF THE REAL ESTATE RESIDENTIAL MARKET IN EUROPE ........................................................ 44

Dorina CLICHICI, QUALITY OF BANKING SUPERVISION AND ITS DETERMINANTS: THE CASE OF REPUBLIC OF MOLDOVA ............................... 55

Victoria COCIUG, Alesea ANDRONIC, THE EFFECTS OF A CREDIT BUREAU IN THE ECONOMY – THE CASE OF THE REPUBLIC OF MOLDOVA .................. 65

Victoria COCIUG, Olga TIMOFEI, FACTOR ANALYSIS OF THE MECHANISM OF MONEY CREATION IN THE BANKING SYSTEM OF THE REPUBLIC OF MOLDOVA .................................................................................................................... 80

Vasile COCRIȘ, Ioana-Iuliana TOMULEASA, RISK MANAGEMENT AND THE PERFORMANCE OF EUROPEAN FINANCIAL INSTITUTIONS ............................. 90

Ionuţ Marius CROITORU, MONETARY POLICY IN THE CONTEXT OF AN ENLARGED EUROPEAN UNION ............................................................................. 116

Liliana Eva DONATH, Veronica MIHUȚESCU CERNA, Ionela OPREA, IS THE BANKING UNION CATERING FOR SUSTAINABILITY ORIENTED BANKING SYSTEM? ..................................................................................................................... 125

Dalina DUMITRESCU, Liliana SIMIONESCU, TOWARD INVESTIGATING THE CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES IN THE BANKING INDUSTRY FROM ROMANIA................................................................................... 135

Bogdan Florin FILIP, DETERMINANTS OF NON-PERFORMING LOANS IN WESTERN EUROPEAN COUNTRIES ....................................................................... 146

Bogdan FIRTESCU, INFLUENCE OF SOME INSURANCE MARKET FIGURES ON GDP ........................................................................................................................ 156

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Marius Dan GAVRILETEA, Corneliu BENTE, THE ROLE OF SPECIAL CLAUSES WITHIN MOTORS’ INSURANCE CONTRACT ..................................... 163

Silvia GHITA-MITRESCU, Cristina DUHNEA, SHADOW BANKING IN ROMANIA. DOES’IT COUNT? .................................................................................. 170

Alina HAGIU, Marinela BĂRBULESCU, Roxana Mădălina POPA, THE INFLUENCE OF THE SWISS FRANC FLUCTUATIONS ON THE ROMANIANS AND THE ROMANIAN ECONOMY .......................................................................... 181

Simona Elena IAGĂR, REDEFINED BANKING ACTIVITY UNDER EUROPEAN SOVEREIGN DEBT CRISIS ........................................................................................ 194

Dan LUPU, MODELING INFLATION IN ROMANIA: A MARKOV SWITCHING APPROACH .................................................................................................................. 202

Lucie MEIXNEROVÁ, DEVELOPMENT OF THE CAPITAL MARKET AFTER THE INTRODUCTION OF MIFID IN THE CZECH REPUBLIC AND SLOVENIA 209

Larisa MISTREAN, USING CUSTOMER RELATIONSHIP MANAGEMENT TO INCREASE CUSTOMER LOYALTY IN BANKS ..................................................... 221

Mihaela NICOLAU, THE STUDY OF THE ASSET PRICE CHANNEL IN THE CONTEXT OF A MONETARY UNION ..................................................................... 233

Oana NIŢU, Claudiu Valentin NIŢU, Cosmin TILEAGĂ, PEOPLE`S ATTITUDES REGARDING CONSUMPTION AND SAVINGS ...................................................... 247

Dumitru-Cristian OANEA, INTERCONNECTEDNESS OF FINANCIAL INSTITUTIONS: A POSSIBLE CAUSE FOR SYSTEMIC RISK .............................. 256

Andreea Nicoleta POPOVICI, THE DIFFERENCE OF PRODUCTIVITY BETWEEN SOCIETE GENERALE AND ERSTE GROUP ........................................................... 271

Mihaita-Cosmin POPOVICI, RESHAPING EUROPE`S FINANCIAL SYSTEM: IMPLEMENTATION OF THE BANKING UNION AND FUTURE STEPS ............. 278

Victoria POSTOLACHE (DOGOTARI), THE ROLE OF FINANCIAL INNOVATIONS IN DEVELOPMENT OF SHADOW BANKING ............................ 287

Ramona RADU, Cosmin-Octavian CEPOI, Alexandru Toma STĂNILĂ, VALUE AT RISK BASED ON INTRA-DAY DATA FROM BUCHAREST STOCK EXCHANGE ................................................................................................................. 297

Andrei RĂDULESCU, ROMANIA – THE WAY TOWARDS THE EURO AREA . 305

Irina SAV, THE RECENT CRISIS OF SWISS FRANC LOANS IN THE EUROPEAN COUNTRIES ................................................................................................................ 312

Marius George TASCA, THE MAJOR RISKS IN IMPLEMENTING NEW BANKING PRODUCTS ............................................................................................... 328

Mihaela TOFAN, PRESENT ACTIONS TO IDENTIFY THE OPTIMAL EU BANKING REGULATION .......................................................................................... 334

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József TÓTH, THE SINGLE RESOLUTION FUND AND ITS UPLOADING ......... 341

Galina ULIAN, Lucia CASTRAVEŢ, Silvestru MAXIMILIAN, THE DEPENDENCE OF THE EXCHANGE RATE ON THE COST OF ENERGY RESOURCES ................................................................................................................ 349

Ion VOROVENCI, The EVOLUTION AND COLLAPSE OF THE MARMOROSCH-BLANK BANK ............................................................................................................. 360

Iulian WARTER, Liviu WARTER, IMPLICATIONS OF M&AS FOR BANKING INDUSTRY. FROM CULTURAL FIT TO CULTURAL CLASHES ......................... 367

Liviu WARTER, Iulian WARTER, CAN MERGERS AND ACQUISITIONS IMPROVE BANKING INDUSTRY? ........................................................................... 377

SECTION II. EUROPEAN PUBLIC POLICIES FOR THE BUSINESS ENVIRONMENT

Sorin Gabriel ANTON, Anca Elena NUCU, AN ANALYSIS OF FINANCIAL ASSISTANCE PROVIDED BY MULTILATERAL DEVELOPMENT BANKS TO CEE COUNTRIES ........................................................................................................ 388

Irina BILAN, Elena CIGU, LOCAL FINANCIAL AUTONOMY AND LOCAL ECONOMIC GROWTH - AN EMPIRICAL ANALYSIS FOR ROMANIAN COUNTIES ................................................................................................................... 396

Valeriu DORNESCU, THE ENTERING OF EURO ZONE BY ROMANIA – CONDITIONS AND CHALLENGES FOR THE ROMANIAN ECONOMY ............. 405

Natalia BRANASCO, EVALUATION OF THE ECONOMIC EFFECTS OF REMITTANCES: CASE STUDY REPUBLIC OF MOLDOVA ................................. 413

Mihaela CATANĂ, THE LABOUR MOBILITY – VECTOR OF DEVELOPMENT IN EUROPE – LEGAL FRAMEWORK............................................................................ 423

Adina DORNEAN, Dumitru-Cristian OANEA, THE CAUSAL RELATIONSHIP BETWEEN FISCAL POLICY AND ECONOMIC GROWTH: EVIDENCE FROM EMU COUNTRIES ....................................................................................................... 430

Veronica GARBUZ, Ana-Maria BERCU, YOUTH EUROPEAN PUBLIC POLICY ON EMPLOYMENT AND ENTREPRENEURSHIP .................................................. 441

Lucia IRINESCU, WHY DO WE NEED A COMPETITION POLICY? ................... 449

George IVĂNESCU, Florin-Alexandru MACSIM, Dumitru-Nicușor CĂRĂUȘU, KEY PROBLEMS OF FISCAL AUTONOMY: EVIDENCE FROM ROMANIA ...... 456

Alpar LOSONC, Andrea IVANISEVIC, Mladen PERIC, IS ‘DEVELOPMENT-NETWORK’ STATE POSSIBLE IN EASTERN AND CENTRAL EUROPE? .......... 465

Florin-Alexandru MACSIM, WHAT IS FISCAL INTEGRATION? A FUNDAMENTAL APPROACH .................................................................................. 474

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Irena MUNTEANU, Dana Elena HOLBAN, ELECTRIC ENERGY MARKET IN THE EUROPEAN UNION - CHALLANGES AND PERSPECTIVES ....................... 487

Alina NUTA, Alexandra IVAN, ANALYSIS OF THE POPULATION AGEING IMPLICATIONS ON FISCAL POLICY IN SOME COUNTRIES OF CENTRAL AND EASTERN EU ............................................................................................................... 498

Olimpia Elena Mihaela OANCEA, THE ROLE OF THE INTEGRATED MARKETING COMMUNICATION MODELS IN THE CONTEXT OF ECONOMIC, FINANCIAL AND MONETARY INTEGRATION .................................................... 504

Anca Sofia POPESCU, Felicia Elisabeta RUGEA, THE ANALYSIS AND ASSESSMENT OF SUSTAINABLE DEVELOPMENT IN THE EUROPEAN UNION ....................................................................................................................................... 514

Valentina Diana RUSU, Mihaela Brîndușa TUDOSE, BENCHMARKS FOR THE INTERNATIONAL COMPETITIVENESS OF ROMANIA ....................................... 526

Carmen SANDU (căs. TODERAȘCU), THE CONTEMPORARY COMPETITIVENESS AND ITS MAIN DETERMINANTS ....................................... 537

Tudor Gherasim SMIRNA, THE EFFECTS OF NEGATIVE NOMINAL INTEREST RATES ON ECONOMIC INTEGRATION ................................................................. 545

Brankica TODOROVIC, ECONOMIC ASPECTS OF INTEGRATION OF SERBIAN WITH EU COUNTRIES ............................................................................................... 552

Dragos Ovidiu TOFAN, BUSSINES INTELLIGENCE TOOLS – PRACTICAL ASPECTS ON IMPLEMENTATION IN EUROPEAN ORGANIZATIONS .............. 563

Bogdan-Gabriel ZUGRAVU, Anca-Ştefania SAVA, R&D TAX INCENTIVES DESIGN: INTERNATIONAL PRACTICES AND LESSONS FOR ROMANIA ....... 571

SECTION III. THE IMPACT OF EUROPEAN INTEGRATION ON CORPORATE AND ENTREPRENEURIAL FINANCE

Ciprian APOSTOL, CORPORATE SOCIAL RESPONSABILITY IN ROMANIA BETWEEN DECLARATION AND IMPLEMENTATION......................................... 584

Marinela BĂRBULESCU, Alina HAGIU, Radu VASILICĂ, THE INSOLVENT COMPANY: BANKRUPTCY DIFFICULTIES ........................................................... 591

Ana-Maria BERCU, PERFORMANCE AND PROMOTION OF FIRM’S EMPLOYEES. AN EMPIRICAL RESEARCH ............................................................ 602

Dumitru BUCĂTARU, INVESTMENT OPPORTUNITIES IN THE CONTEMPORARY ROMANIAN ENVIRONMENT ................................................. 610

Brîndușa Maria BUZILӐ (MOCANU), THE IMPACTS OF FINANCIAL LIBERALIZATION ON THE FINANCING STRUCTURE OF FIRMS..................... 618

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Dumitru-Nicușor CĂRĂUȘU, THE LINK BETWEEN EUROPEAN INTEGRATION AND THE CAPITAL STRUCTURE OF LARGE UNLISTED EASTERN EUROPEAN COMPANIES ................................................................................................................ 625

Carmen - Elena COCA, Romeo BOŞNEAGU, FINANCIAL BALANCE IN ECONOMY - ROMANIAN CONCEPT ...................................................................... 638

Mihaela DIACONU, USING OF IPRs AS MECHANISMS FOR MAINTAINING OR INCREASING THE COMPETITIVENESS: RECENT TRENDS IN THE EU FIRMS AND RESEARCH AGENDA ....................................................................................... 647

Lilia DUMBRAVANU, TERM FINANCING OF NATIONAL ENTERPRISES BASED ON TECHNIQUES OF INTERNATIONAL FINANCING ........................... 659

Costel ISTRATE, EVOLUTIONS AND TRENDS IN THE REGULATION OF THE FINANCIAL REPORTING IN EU ............................................................................... 668

Iuliia KORNIEIEVA, DIRECTIONS FOR IMPROVING THE FINANCIAL MANAGEMENT IN STATE-OWNED CORPORATIONS IN UKRAINE ................ 682

Imen MAHJOUB, Anthony MILOUDI, EARNINGS MANAGEMENT: A REVIEW OF LITERATURE ........................................................................................................ 691

Nicoleta MIHĂILĂ, REDUCTION OF SMEs VULNERABILITY BY ADOPTING MEASURES IN TAXATION AREA ........................................................................... 704

Mirela-Claudia MIŢAC, DEVELOPMENTS IN ENTERPRISES’ACCESS TO FINANCE ACROSS EURO AREA COUNTRIES AND ROMANIA ......................... 714

Mihaela ONOFREI, Florin OPREA, Sorin Gabriel ANTON, COMPARATIVE ANALYSIS OF THE IMPLEMENTATION OF THE CORPORATE GOVERNANCE PRINCIPLES IN THE CENTRAL AND EAST EUROPEAN COUNTRIES ............. 728

Daniela POPA, QUALITY MANAGEMENT SYSTEM ............................................ 742

Angela ROMAN, Mihaela ONOFREI, CONSTRAINTS IN BANK LENDING TO SMEs IN THE EUROPEAN UNION AND MITIGATING MEASURES ................... 748

Inesa TOFĂNICĂ, IFRS ADOPTION IN ROMANIA AND THE IMPACT ON REPORTED DATA ...................................................................................................... 762

Mihaela Brîndușa TUDOSE, Valentina Diana RUSU, RISK MANAGEMENT AND THE FIRM’S VALUE .................................................................................................. 775

Georgeta VINTILĂ, Alexandra Elena NENU, COMPARATIVE APPROACHES ON CORPORATE PERFORMANCE MEASUREMENT SYSTEMS ............................... 783

SECTION IV. THE EUROPEAN ECONOMIC LEGISLATIVE LANDSCAPE – CHALLENGES AND PERSPECTIVES

Monica BUZEA, WAYS TO HARMONIZE THE ROMANIAN CRIMINAL LAW WITHIN THE EUROPEAN SYSTEM ......................................................................... 797

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Mirela Carmen DOBRILĂ, ELIMINATING DISTRUST BY MODERN APPLICATIONS OF BONA FIDES: OFFENSES AGAINST PROPERTY BY BREACH OF TRUST IN THE NEW ROMANIAN CRIMINAL CODE .................... 805

Ancuța Elena FRANȚ, THE ABORTION ISSUE: A MIRROR FOR THE WEAKNESSES OF OUR SOCIAL BEHAVIOR ........................................................ 818

Sandra GRADINARU, LIABILITY OF THE PUBLIC SERVANT IN AN EUROPEAN CONTEXT .............................................................................................. 826

Diana-Loredana HOGAS, CONSIDERATIONS ABOUT THE PECUNIARY RIGHTS OF THE ARBITRATORS IN INTERNATIONAL ARBITRATION ........... 834

Anca Andreea MANEA, THE CONCEPT AND CHARACTERISTICS OF UNDERGROUND ECONOMIC ACTIVITIES ........................................................... 843

Carmen-Mariana MIHALACHE, THE SOCIAL-ECONOMIC VALENCE OF CIVIL SERVANT’S LIABILITY ............................................................................................ 849

Mihaela ONOFREI, Florin OPREA, Ioana COSTEA, ADMINISTRATIVE REGIONALIZATION IN ROMANIA – A FUNCTIONAL PERSPECTIVE ............. 856

Rodica PANAINTE, THE NEW ROMANIAN BANKING REGULATION ON SANCTIONING FRAUDULENT CONDUCT IN THE USE OF PAYMENT INSTRUMENTS ........................................................................................................... 869

Ada- Iuliana POPESCU, WHISLEBLOWER PROTECTION IN A CORRUPT PRIVATE SECTOR – A CHALLENGE ...................................................................... 877

Mihaela TOFAN, ENFORCEMENT OF TAX CLAIMS. JURISPRUDENTIAL HIGHLIGHTS ............................................................................................................... 884

Ionuț TUDOR, STRICT LIABILITY AND INSURANCE SCHEMES OF COMPENSATION- A STUDY IN COMPARATIVE LAW ....................................... 892

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SCIENTIFIC COMMITTEE

• Dr. Dinu AIRINEI, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Taoufik BOURAOUI, ESC Rennes School of Business, France • Dr. Dumitru BUCĂTARU, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Silviu CERNA, West University of Timișoara, Romania • Dr. Cristina CIUMAŞ, „Babes-Bolyai” University, Cluj-Napoca, Romania • Dr. Vasile COCRIŞ, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Luis COELHO, University of Algarve, Portugal • Dr. Liliana DONATH, West University of Timișoara, Romania • Dr. Dalina DUMITRESCU, Academy of Economic Studies, Bucharest, Romania • Dr. Vasile IŞAN, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Jürgen JERGER, University of Regensburg, Germany • Dr. Mihaela ONOFREI, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Cornel OROS, University of Poitiers, France • Dr. Gabriela PASCARIU, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Jenica POPESCU, University of Craiova, Romania • Dr. Adriana PRODAN, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Maria PRISACARIU, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Constantin ROŞCA, Executive Manager, Economic Sciences Faculties

Association of Romania – AFER, Romania • Dr. Elena Cerasela SPĂTARIU, Ovidius University of Constanta, Romania • Dr. Cristi SPULBĂR, University of Craiova, Romania • Dr. Ovidiu STOICA, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Ramona ŢIGĂNAŞU, Centre for European Studies, „Alexandru Ioan Cuza”

University of Iaşi, Romania • Dr. Diane Paula VANCEA, Ovidius University of Constanta, Romania • Dr. Georgeta VINTILĂ, Academy of Economic Studies, Bucharest, Romania • Dr. Adriana ZAIŢ, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Daniela ZĂPODEANU, University of Oradea, Romania • Dr. Angela ROMAN, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Dan CHIRLEŞAN, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Sorin Gabriel ANTON, „Alexandru Ioan Cuza” University of Iaşi, Romania • Dr. Irina BILAN, „Alexandru Ioan Cuza” University of Iaşi, Romania

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LIST OF REVIEWERS

• Dr. Alin Marius ANDRIEȘ, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Sorin Gabriel ANTON, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Anișoara APETRI, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Mircea ASANDULUI, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Ana-Maria BERCU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Irina BILAN, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Taoufik BOURAOUI, ESC Rennes School of Business, France • Dr. Bogdan Sebastian CĂPRARU, „Alexandru Ioan Cuza” University of Iași,

Romania • Dr. Viorica CHIRILĂ, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Elena CIGU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Adina DORNEAN, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Cristina DUHNEA, “Ovidius” University of Constanta, Romania • Dr. Bogdan FILIP, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Bogdan FÎRȚESCU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Sandra GRĂDINARU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Andreea IACOBUŢĂ, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Mihaela IFRIM, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Iulian IHNATOV, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Sebastian LAZĂR, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Dan LUPU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Silvia GHIŢĂ-MITRESCU, “Ovidius” University of Constanta, Romania • Dr. Simona MUTU, Babes-Bolyai University of Cluj-Napoca, Romania • Dr. Florin OPREA, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Bogdan PETRIŞOR, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Ada POPESCU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Bogdan Ioan ROBU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Angela ROMAN, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Diana Valentina RUSU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Anca SAVA, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Carmen TODERAȘCU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Mihaela TOFAN, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Silviu Gabriel URSU, „Alexandru Ioan Cuza” University of Iași, Romania • Dr. Bogdan Gabriel ZUGRAVU, „Alexandru Ioan Cuza” University of Iași,

Romania

SECTION I

BANKS, FINANCIAL MARKETS AND MONETARY POLICY

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POSITIVE AND NEGATIVE ASPECTS ON EVOLUTION OF LOANS AND DEPOSITS IN ROMANIA

ALINA GEORGETA AILINCĂ

Centre for Financial and Monetary Research “Victor Slăvescu”, of the “Costin C. Kiriţescu” National Institute for Economic Research, Romanian Academy

Bucharest, Romania [email protected]

Abstract Although it isn’t felt as a serious problem in terms of financial stability, the analysis of the evolution of deposits and bank loans can reveal eventual tensions and vulnerabilities of the supply and demand for loans and deposits, being, by amplification, possible threats, on the one hand to the certain categories of customers and on the other hand, to the macroeconomic situation of an industry, a region or even a country. A possible consequence of poor structure of lending and deposit formation process is the inability to resume lending to the real sector in a sustainable manner, representing an element of inhibition regarding the normal banking operation and the economy functioning as a whole. Lowering the cost of credit and the phenomenon of removing from bank balance sheets the irrecoverable receivables could lead to the improvement from structural point of view of lending; however, in order to provide a balance banking system and economy, also the formation of deposits must support important changes in a similar manner as the loans. For this reason1, this article aims at analyzing in the period 2007-2014 the positive and negative aspects of the lending process and the setting up of deposits in Romania, suggesting at the same time ways to improve the current status. Keywords: Lending, deposit formation, monetary stability, monetary market JEL Classification: E51, E65, G21 1. INTRODUCTION

Frequently discussed and analyzed by many studies and reports, the financial stability issue has captivated media attention, politicians, analysts and researchers. Although not seem to have a direct connection, the evolution and the composition of loans and deposits may outline eventual threats to financial stability by highlighting some vulnerabilities to certain key branches of the economy, to certain categories of banking customers or even to the economy as a whole.

Reviving lending, so vital for the functioning of the banking system is still a crucial issue of world economies and also of our country. Understanding the structure and evolution of loans and deposits can make manageable in a


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sustainable manner, the lending process, so useful for the unlocking the national economy potential for growth.

Therefore, the article seeks to address an important topic regarding the structure of the Romanian banking system from the perspective of deposits and loans developments, also emphasizing the positive and negative aspects which may raise issues in terms of financial stability.

The novelty and the importance of the paper consist in capturing, as in a snapshot, the positive and negative conjectural aspects of the process of the formation of deposits and lending. Although, for a particular part of academics it may be somewhat uninteresting, for the practitioners and especially for the monetary policy makers may be an important starting point to review their policies or even their goals.

The paper is structured as it follows: section 2 presents a concisely literature review on the loans and deposits subject, section 3 describes the applied methodology, section 4 highlights the positive and negative aspects of the loans and deposits, section 5 presents the main conclusions. 2. LITERATURE REVIEW

The literature abounds in studies regarding the situation of loans and deposits, especially in terms of their costs or interest rates. Iuga (2011) states (in her study on the determination of the share held by BRD - Groupe Societe Generale in terms of the volume of attracted deposits and granted loans in the overall Romanian banking system and the analysis of the influence of the interest rate over the volume of deposits and loans in the Romanian banking system) that regulation plays an important role in the establishment and operation of the banking system. The issue was examined in studies such as those of Merton (1977, 1978), Fries et al. (1997), Bhattacharya et al. (2002), Lehar (2005), and Dangl and Lehar (2004), they having rather an exogenous vision on the structure of banking deposits.

It should be noted also the latest information on the situation and the structure of the banking system. For example, at European level, the Report “European Banking Sector Facts & Figures 2014” states that the European Union (especially the Euro Area) is far behind Australia, United States, Canada and Japan regarding to the economic growth, considering the deleverage process from the financial sector, from the public and private sectors, including corporate sector and household. In this respect, the report notes that the financing of the banking system relies more on deposits. Thus, “the share of deposit liabilities over total assets has increased significantly since 2007. In particular, an increase from 49.2% to 51.4% was observed in 2013”, trend observed also in the case of non-bank deposits.

Noteworthy that, in Europe, bank financing is extremely heterogeneous also due to different banking models. For example, the Scandinavian model has used predominantly the financing through bond, hence the result was a the modest funding through deposits of the North European banking system, while

EURO AND THE EUROPEAN BANKING SYSTEM: EVOLUTIONS AND CHALLENGES

16

Central and Eastern European countries such as Slovakia, Slovenia and the Czech Republic, have used mainly financing based on bank deposits (more than 65%). Moreover, it is worth noting heterogeneity of the concentration of deposits, for example according to the mentioned report in 2013 “the 76.2% of all EU deposits are held by banks headquartered in the euro area. […] strong growth in the stock of deposits was registered in Latvia (44.5%), Bulgaria (8.5%) and Hungary (4.8%). In terms of the geographical share of the outstanding deposits, Germany alone holds the 20.5% of the total.”

In terms of lending, the European banking system contributes over 80% to the financing of the economy and SMEs are highly dependent on bank financing. This situation is even more obvious in Romania, where access to finance, particularly for SMEs, is made with great difficulty mainly due guarantees, interests and fees. The situation could be improved by a relaxation of lending standards for companies (especially SMEs) due to increasing competition between banking and non-banking sector in Europe and in our country.

3. METHODOLOGY

The analysis in this paper was conducted over a series of monthly data from January 2007 to September 2014, trying to capture the period before the triggering of the global financial and economic crisis, the climax and the return or the tempering of world economies and also the impact of the sovereign debt crisis (period 2010 - 2014), with short periods of relaxation, and escalation. Data source is the statistics of National Bank of Romania.

The article aims at achieving a practical and analytical study on the most important indicators of describing the structure and the functioning of loans and deposits. Although the paper doesn’t use the econometric tools, however is still able to show in a synthetic manner the pros and cons of the evolution of loans and deposits by using statistical analysis, comparative in time, describing the most relevant developments of the analyzed subject. Thus, the article focuses on: the deposits structure of Romanian banking system on currencies, the loans structure of Romanian banking system on currencies, the structure of Romanian banking system loans according to the type of borrowers, the structure of Romanian banking system loans granted to households depending on the loan destination, the structure of deposits by categories of the deponents, the deposits of households, non-financial corporations and non-monetary financial institutions on maturity in Romania.

Based on the above mentioned indicators, pointing out the advantages but also the areas that need to be improved, it should be easier to correct and refine the process of the deposit formation and the process of credit granting in Romania, thus making credit more accessible for the economy.


17

4. LOANS AND DEPOSITS DEVELOPMENTS - POSITIVE AND NEGATIVE ASPECTS Romanian banking system, like many European banking systems, is still

under the impact of financial deleveraging and under a blockage of the lending process. Beyond these issues, it can be seen a strong structural gap between assets and liabilities of the banking system, both regarding currencies and maturities (e.g. long-term assets being supported by short-term liabilities).

Thus, when analyzing the structure of deposits by currencies in Romania (fig. 1), it can be found that in January 2007 - September 2014, bank deposits were formed mainly in RON (about 80%), while deposits in EUR did not exceed 19%.

Figure 1. The structure of Romanian banking system deposits on currencies in the period January 2007 – September 2014

(Source: NBR data, author’s processing)

Looking in the mirror, for a good stability of the banking system also the

credit should follow the same proportions as the evolution of deposits by currencies. However, regarding the situation in Romania, we find a clear element of vulnerability in that the lending process takes place almost equal both in RON and in foreign currency (see fig. 2). It should be noted that in the analysis period (January 2007 - September 2014) the financial intermediation process and, afterwards, the deleveraging process have acted primarily on the segment of foreign currency lending, particularly of euro. A positive aspect is that in recent years has increased the supply of credit in lei simultaneously with a reduction in the stock of foreign currency loans. Note that considerable financing through loans in foreign currency exposes borrowers to an excessive exchange rate risk, especially since the population must take into account that

0%

20%

40%

60%

80%

100%

Jan-0

7

Apr-0

7Ju

l-07

Oct-0

7

Jan-0

8

Apr-0

8Ju

l-08

Oct-0

8

Jan-0

9

Apr-0

9Ju

l-09

Oct-0

9

Jan-1

0

Apr-1

0Ju

l-10

Oct-1

0

Jan-1

1

Apr-1

1Ju

l-11

Oct-1

1

Jan-1

2

Apr-1

2Ju

l-12

Oct-1

2

Jan-1

3

Apr-1

3Ju

l-13

Oct-1

3

Jan-1

4

Apr-1

4Ju

l-14

Share of deposits in RON in the total deposits Share of deposits in EUR in the total deposits Share of deposits in other currencies in the total deposits


18

its revenues aren’t often denominated in foreign currency and did not cover even the equivalent of the minimum or medium income from countries whose currencies are used to borrow.

The same time, it should be followed the pace of lending in relation to the growth rate of the economy or the rhythm of credit growth in relation to the growth of monetary aggregates. A too rapid lending growth relative to economic fundamentals should signal for macroeconomic policy managers, especially central bankers and rulers of regulatory institutions, major slippages from economic sustainability principles, indicating accumulation of tensions, vulnerabilities and even risks to the financial stability. Figure 2. The structure of Romanian banking system loans on currencies in

the period January 2007 – September 2014


If we turn the attention to the correlation between loans and deposits, the

ratio of the two elements (LTD) expressed as a percentage, is still high, although declining (since September 2012), standing at 99.65% in September 2014, according to NBR data. Currency component, as noted earlier in analyzing loans and deposits on currencies, continued to put additional pressure on the indicator during the analysis, although decreased in the period 2011-2013.

Lending to households is mainly in foreign currency (over 60%), while deposits of households consist mainly in RON (over 60%), which describes a net negative foreign currency position of households. The aspect is confirmed also in the case of non-financial corporations, where the net position between deposits and loans in foreign currency is still negative, although in recent years the situation has improved. In order to improve the internal structure of lending

0%

20%

40%

60%

80%

100%

Jan-0

7

Apr-0

7Ju

l-07

Oct-0

7

Jan-0

8

Apr-0

8Ju

l-08

Oct-0

8

Jan-0

9

Apr-0

9Ju

l-09

Oct-0

9

Jan-1

0

Apr-1

0Ju

l-10

Oct-1

0

Jan-1

1

Apr-1

1Ju

l-11

Oct-1

1

Jan-1

2

Apr-1

2Ju

l-12

Oct-1

2

Jan-1

3

Apr-1

3Ju

l-13

Oct-1

3

Jan-1

4

Apr-1

4Ju

l-14

Share of loans in RON in the total loans Share of loans in EUR in the total loans Share of loans in other currencies in the total loans


19

and saving, taking into account the foreign currency criterion, the banking system as a whole (but especially commercial banks system) should focus his attention on the one hand, reducing foreign currency lending or/and increase the attractiveness of saving’s instruments in foreign currency, and on the other hand, stimulating the use of credit in lei, especially by offering more and better services in order to valorise more the relationship between banks and economic agents (e.g. including tools related to payments facilitation). A major vulnerability of the Romanian banking system (and not only) is the inability to properly use the “deposits” tool in the sense that in banks’ balance sheet the financing sources are mainly composed of short-term (while crediting often means a longer maturity) and the dependence on the sources of funding attracted from parent banks makes this negative aspect to be amplified.

Besides the constraints regarding funding sources, another negative aspect of delaying the resumption of lending in a sustainable manner is the monetary and financial market fragmentation in Europe, aspect noticed also in Romania. On the other hand, lending suffered in the latter part of the period of analysis also because of the demand-side factors such as: - the need to reduce indebtedness (both of the population and the companies) - companies need to adjust balance sheets - difficulties in economic recovery and sluggish employment growth - the persistence of credit risk - daunting prospects of the internal market - economic disparities (both vertically and horizontally - between regions of the country or between branches of the national economy), etc.

It should be noted that financial intermediation was driven both positive and negative by the developments in lending to non-financial corporations and households and only marginally, by the evolution of lending to non-residents. Public administration and non-monetary financial institutions were not relevant debtors for Romanian banking system (see fig. 3).

A gratifying aspect regarding lending to households was diversification of loan portfolio based on the purpose of the loan. However, there may be a reduction in time of consumption loans of households, while it can be seen a significant increase in the share of housing loans of households in the period January 2007 - September 2014 (fig.4). This may be an additional explanation for the high share of foreign currency loans, given that the real estate market mainly encourages the use of foreign currencies (mainly euros) and banking institutions do not provide sufficient viable alternatives to boost lending in lei for housing purchase.

Note that although the NPL in March 2014 was 22.26%, in September 2014 decreased to 15.33%, according to National Bank of Romania data. This reduction is a good thing for the Romanian banking system, but in a European context is still a very high value, being twice the European average for this indicator. A contributing factor to the increase in non-performing loans is the obvious behaviour of elusion from the macro prudential measures by an excessive “flexibility” of the lending process (e.g. by offering promotional


20

interest rates, by a more lax assessment of the necessary guarantees, or by artificially “adjusting” of the income of borrowers so as to comply with the requirements imposed by the desired loan). The existence of a significant share of low-income borrowers and hence a high degree of indebtedness or of borrowers with income in national currency which require foreign currency loans without the possibility of hedging currency risks are significant vulnerabilities for the commercial banking system in Romania which can contribute to the increase the share of non-performing loans to total loans.

Figure 3. The structure of Romanian banking system loans according to

the type of borrowers in the period January 2007 – September 2014


37.7

1

39.6

1

38.9

6

40.2

9

38.2

6

37.8

2

40.5

9

42.5

37.8

4

38.7

6

43.3

1

43.2

9

42.1

9 44.1

5

0%

20%

40%

60%

80%

100%

Jan-0

7Ap

r-07

Jul-0

7Oc

t-07

Jan-0

8Ap

r-08

Jul-0

8Oc

t-08

Jan-0

9Ap

r-09

Jul-0

9Oc

t-09

Jan-1

0Ap

r-10

Jul-1

0Oc

t-10

Jan-1

1Ap

r-11

Jul-1

1Oc

t-11

Jan-1

2Ap

r-12

Jul-1

2Oc

t-12

Jan-1

3Ap

r-13

Jul-1

3Oc

t-13

Jan-1

4Ap

r-14

Jul-1

4

Share of loans granted to households in total loans Share of loans granted to non-financial corporations in total loans

Share of loans granted to non-monetary financial institutions in total loans Share of loans granted to the public administration in total loans

Share of loans granted to non-residents in total loans


21

Figure 4. The structure of Romanian banking system loans granted to households depending on the loan destination in the period January 2007 –

September 2014


If we turn our attention to the situation of deposits, we find that the

structure of deposits considering the categories of depositors is relatively satisfactory. Thus, in January 2007 - September 2014 it increased the share of household deposits; while deposits by non-residents and non-financial corporations declined as a share in total deposits in the same period of analysis (see fig.5). However, it should be noted that there is a considerable gap between the share of deposits of non-financial corporations (below 20%) and loans granted to non-financial corporations (over 40%), a position that should be improved in time in order to prevent the accumulation of tensions that affect the internal balance of the Romanian banking system.

78.6

4

78.7

6

79.2

78.4

1

76.6

3

75.8

8

75.8

2

75.1

4

73.6

73.7

9

74.1

5

73.1

5

72.4

9

71.5

4

64.6

8

63.4

7

62.5

62.2

2

61.8

9

60.4

3

59.4

4

58.5

6

57.5

5

56.2

3

55.2

2

54.6

7

53.4

6

52.1

6

51.6

6

51.1

4

47.3

7

19.6

4

19.4

8

18.5

6

18.9

8

20.1

19.9

7

19.3

1

19.9

9

21.7

21.4

7

22.4

4

23.4

4

24.3

3

25.3

6

26.8

27.7

2

28.6

4

28.8

1

29.5

2

30.8

4

31.9

8

32.8

5

34.0

2

35.0

3

35.6

9

36.5

3

37.6

2

38.7

1

39.8

4

40.4

5

41.7

542

.01

49.9

6

1.72

1.76

2.24 2.6

3.27

4.15 4.88

4.87

4.69 4.74

3.4

3.41

3.18 3.1

8.52

8.81

8.86 8.

98

8.58 8.73

8.58 8.6

8.43

8.74 9.09

8.8 8.92

9.13 8.5

8.41

8.29

10.6

2

0%

20%

40%

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100%

Jan-0

7

Apr-0

7Ju

l-07Oc

t-07

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Apr-0

8Ju

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9

Apr-0

9Ju

l-09Oc

t-09

Jan-1

0

Apr-1

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t-10

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Apr-1

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2

Apr-1

2Ju

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3

Apr-1

3Ju

l-13Oc

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Jan-1

4

Apr-1

4Ju

l-14

Share loans granted to households for other purposes in total households loans Share of loans granted to households for housing in total households loans Share of loans granted to households for consumption in total households loans


22

Figure 5. Structure of deposits by categories of the deponents in the period January 2007 – September 2014


Another positive aspect regarding deposits may be found when we analyse

the situations on maturities. Thus, we can say that a significant share of deposits, if we refer to an analysis by category of depositors, are built on long-term (more than 70%, even 80%), especially for households and non-monetary financial institutions (see fig. 6). Non-financial companies are however in distinct situation, maybe because of considerable need for liquidity and having a low profitability, holding a large extent of their deposits (by over 50%) in overnight deposits. However, this aspect should be improved, banking system requiring finding some solutions to attract non-financial corporations in order to form deposits with a longer maturity which to accommodate with the need for a medium or even long term lending so needed for companies’ investment process.

27.7

6

29.1

6

30.9

8

29.3

6

30.9

7

31.5

4

32.0

5

30.2

8

31.0

2

32.1

7

30.3

6

30.5

7

31.3

4

30.8

8

30.9

4

30.3

6

30.1

4

31.1

3

31.0

8

31.8

4

31.8

8

31.2

1

32.6

4

32.9

4

33.5

5

34.8

8

34.8

2

34.7

3

35.7

2

35.7

6

37.0

936

.77

24.8

8

23.5

2

23.7

8

22.8

1

23.8

3

23.4

5

22.6

5

21.1

3

20.1

18.8

1

17.4

6

17.7

5

17.6

2

16.8

8

16.9

5

17.2

3

17.0

3

16.8

16.7

7

17.3

9

17.0

8

16.0

4

16.1

4

16.2

6

16.2

7

17.0

9

16.8

5

17.8

5

18.6

8

18.8

4

19.1

19.5

32.5

5

32.1

5

29.1

32.3

4

34.0

9

33.8

1

35.4

6

38.7

8

39.5

6

38.8

9

39.7

6

40.8

7

39.2

2

39.4

5

41.7

7

41.5

9

42.9

3

41.5

2

41.1

3

41.9

6

41.9

6

39.8

7

40.3

9

39.9

1

36.0

7

35.0

6

33.4

6

30.5

9

28.5

2

26.4

5

24.8

824

.01

0%

20%

40%

60%

80%

100%

Jan-0

7

Apr-0

7Ju

l-07

Oct-0

7

Jan-0

8

Apr-0

8Ju

l-08

Oct-0

8

Jan-0

9

Apr-0

9Ju

l-09

Oct-0

9

Jan-1

0

Apr-1

0Ju

l-10

Oct-1

0

Jan-1

1

Apr-1

1Ju

l-11

Oct-1

1

Jan-1

2

Apr-1

2Ju

l-12

Oct-1

2

Jan-1

3

Apr-1

3Ju

l-13

Oct-1

3

Jan-1

4

Apr-1

4Ju

l-14

Share household deposits in total deposits Share of non-financial corporations deposits in total deposits

Share of non-monetary financial institutions deposits in total deposits Share of the public administration deposits in total deposits

Share of non-resident deposits in total deposits


23

Figure 6. Deposits of households, non-financial corporations and non-monetary financial institutions on maturity in Romania in the period

January 2007 – September 2014


5. CONCLUSIONS

Looking at the structure of deposits by currency in Romania, we find that in January 2007 - September 2014, bank deposits were considered mainly in RON, while deposits in EUR did not exceed 19%. To confer resilience to banking system also the lending process should meet the same proportions as the evolution of deposits on currencies, but lending process takes place almost equal in both RON and in foreign currency.

It should be noted that during the analysis, the financial intermediation process and afterwards the financial deleveraging, acted primarily on foreign currency lending segment, particularly in the euro. A positive aspect of this view is that in recent years has increased the supply of credit in lei simultaneously with a reduction in the stock of foreign currency loans.

It may be noted, however, that the structure of deposits considering the category of depositors is relatively satisfactory, the share of household deposits in January 2007 - September 2014 increasing, while deposits formed by non-residents and non-financial corporations as a share of total deposits declined in the same period analysis. Note that there is a considerable gap between the share of deposits of non-financial corporations (below 20%) and loans to non-financial corporations (over 40%), fact which will be enhanced in order to prevent the build-up of tensions which might affect the internal balance of the Romanian banking system.

Another positive aspect of the deposits may be found on maturity, a significant share of deposits being formed on long-term (over 70%, even 80%),

29.9

8

70

29.2

2

69.1

3

21.8

4

78.1

4

48

51.9

9

14.7

2

83.5

7

21.1

3

78.8

7

52.7

8

47.2

2

16.6

3

82.6

8

52.6

7

47.1

50

10

20

30

40

50

60

70

80

90

100

Share of overnighthouseholds depositsin total households

deposits

Share of termhousehold deposits in

total householdsdeposits

Share of overnightnon-financial

corporations depositsin total non-financial

corporations deposits

Share of term non-financial corporationsdeposits in total non-financial corporations

deposits

Share of overnightnon-monetary financialinstitutions deposits innon-monetary financial

institutions deposits

Share of term non-monetary financial

institutions deposits innon-monetary financial

institutions deposits

%

Jan-07 Oct-07 Jan-08 Oct-08 Jan-09 Oct-09 Jan-10 Oct-10 Jan-11 Oct-11 Jan-12 Oct-12 Jan-13 Oct-13 Jan-14 Sep-14


24

situation remarked especially in the case of households and non-monetary financial institutions.

If we will turn the attention to the correlation between loans and deposits, the LTD ratio is still high, standing at 99.65% in September 2014.

A negative factor regarding the functioning of the Romanian banking system is the inability to properly use funds through “deposits” instrument because in the bank balance sheets sources of funding are mainly composed on short-term and there is still a significant dependence of funding sources attracted from parent banks which amplifies this negative aspect, considering also the slow process of strengthening domestic savings.

In order to improve the internal structure of lending and saving, taking into account currency criterion, the banking system as a whole, but especially commercial banks should focus their attention on the one hand, on the reduction of foreign currency lending or/and the increase of the attractiveness of foreign currency savings instruments and on the other hand, on the stimulation of the use of credit in lei, especially by diversifying the portfolio of services focused towards customer needs.

References

[1] Bhattacharya S., Plank M., Strobl G., Zechner J. (2002). Bank capital regulation with random audits. Journal of Economic Dynamics and Control, vol. 26, 1301–1321.

[2] Dangl T., Lehar A. (2004). Value-at-risk vs. building block regulation in banking. Journal of Financial Intermediation, vol. 13, 96–131.

[3] Fries, S., Mella-Barral P., Perraudin, W. (1997). Optimal bank reorganization and the fair pricing of deposit guarantees. Journal of Banking and Finance, vol. 21, 441–468.

[4] Iuga, I. (2011). Comparative study on the evolution of loans and deposits between the Romanian Bank for Development (BRD) – Groupe Societe Generale and the Romanian banking system. Annales Universitatis Apulensis Series Oeconomica, vol. 13, issue 2, 451-460.

[5] Lehar, A. (2005). Measuring systemic risk: A risk management approach. Journal of Banking and Finance, vol. 29, 2577–2603.

[6] Merton, R.C. (1977). An analytic derivation of the cost of deposit insurance and loan guarantees: An application of modern option pricing theory. Journal of Banking and Finance, vol. 1, 3–11.

[7] Merton, R.C. (1978). On the cost of deposit insurance when there are surveillance costs. Journal of Business, vol. 51, 439–452.

Notes 1. The paper is a partial valorization of the project „Tensions of the monetary market in Romania” (coord. Alina Georgeta Ailincă) conducted in 2014 at the Centre for Financial and Monetary Research „Victor Slăvescu”.

25

YOUTHS' TRUST IN BANKING. AN EXPLORATORY STUDY AMONG ROMANIAN CONSUMERS

ANDREIA ANDREI

Alexandru Ioan Cuza University of Iasi Iasi, Romania

[email protected]

ADRIANA ZAIT Alexandru Ioan Cuza University of Iasi

Iasi, Romania [email protected]

ELENA-MADALINA VĂTĂMĂNESCU

National University of Political Studies and Public Administration Bucharest, Romania

[email protected]

Abstract The current research uses an exploratory analysis based on 34 in-depth interviews conducted with Romanian graduate students to investigate consumer trust in banking and banks. Results indicate that a low level of trust emerged mostly from consumer doubt regarding banks' intentions to develop win-win relationships with their clients. The paper highlights consumers negative feelings and trust erosion, suggesting potential directions of improvement, based on the two-fold nature of trust and the connections between trust and economic growth. Keywords: Romania, consumer trust, bank reputation JEL Classification: M31, G21 1. INTRODUCTION

Recognized in the last years for both advertisements effectiveness (eg. Effie awards and nominees, 2014) and the large marcomm budgets spent, banking and insurance services ranked in 2014 as one of the top 10 media buyers in Romania (Initiative: Media Fact Book, 2014).

Still, despite of the high advertisement quality, media coverage and budget spending, banking sector was found to suffer from a profound lack of consumers trust in Romania, according with Järvinen's (2014) results generated from a 41,308 participants survey conducted according European Commission


26

directions in 29 European countries: Norway, Iceland and EU members Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom.

In Järvinen's (2014) study Romania was found to belong to the low trust cluster of European countries, alongside three other Eastern EU states (Bulgaria, Hungary, Poland) and those struggling with indebtedness such as Greece, Italy, Portugal, Spain, Iceland and Ireland.

While most of Eastern EU countries are placed in either high trust cluster (Estonia and Latvia) or medium trust cluster (Czech Republic. Lithuania, Slovenia and Slovakia), Romania belongs to the group of lowest level of trust, signaling the potential presence of some additional factors (such as distrust readiness or consumer disappointment) that probably amplified the negative effects of the economic crisis. As results revealed, Romanians distrust towards banks and banking services signals consumer disappointment to a greater extent than a potentially generalized less trusting predisposition induced by the post-communist condition of the Romanian society (post-communists were labeled (Bjornskov, 2006) as less trusting than other societies).

Without neglecting the contribution of the global financial crisis that diminished people's welfare and trust (Shim et al., 2013), or the impact of the recent turbulent events from European region (e.g. Greece or Ukraine), we assumed that deeper reasons of the trust loosing and incidents that have fueled Romanians disappointment might result from an in-depth investigation of consumers perceptions, feelings and attitudes towards banks and financial services.

Therefore, beyond macro-events and numbers, the current research pursued an in-depth investigation of the consumer mind, in the attempt to provide additional insights that might be helpful in the process of Romanians trust recovery in banks and banking. In this regard, the first part of the paper revise the literature to highlight the importance of rebuilding the trust in banking, given the impact of trust on the general wellbeing and the linkage between trust, the financial system stability and the economic growth. The second part of the paper explains the two-fold nature of trust and the importance of knowing what type of trust is more affected. The third part of the paper reports results from our exploratory study of consumer perceptions, in the attempt to find out which type of consumer distrust is more characteristic for banks and banking services in Romania. Finally, the fourth part discuss results and presents conclusions. 2. LITERATURE REVIEW

The importance of trust between transactional parties is unquestionable, being recognized in the literature as a key element of successful business relationships (Arrow, 1972; 1974, Morgan and Hunt, 1994), being of first importance especially in the services area (Palmatier et al., 2006).


27

The concept of trust has raised lots of research and debates because it is a complex phenomenon with multiple meanings and a profound future orientation (Williamson, 1993) that involves the fact that people will find out only in the future whether the events they are trusting in will occur as they anticipated, or as they had hoped to happen.

2.1 The importance of rebuilding the trust in banking

Previous research have shown that people decide to trust when they voluntarily accept to risk and to make themselves vulnerable (Hardin, 2006) offering trust to a partner that might act opportunistically (Williamson, 1993).

From a customer perspective, banking relationships entail that the client accepts the risk to trust the bank (and implicitly the financial sistem) because he expects that he can rely on bank's promise, although bank might prove to act opportunistically, deceiving his expectations and trust.

Analising trust versus oportunism in the relationships between banks and their clients, Dahlstrom et al. (2014, p. 271) have shown that opportunistic intentions might exist and they are usually manifested by “the incomplete or distorted disclosure of information meant to mislead or confuse the trading partner”. Authors pointed out that banks have to be committed to build trust and long term relationships in order to be able to resist the temptation of making abuse of their position to obtain higher levels of immediate profits resulting from the opportunities generated by the lack of transparency and the “inevitable asymmetry in customer's ability to understand financial information”. For rejecting the temptation of behaving opportunistic to gain immediate profits, banks should be aware that opportunism and trust are mutually exclusive and the building of trust represents a priority for service sector in general, but for financial industry in particular. The top importance of trust building for the case of banking industry is grounded on the high level of perceived risk involved by the financial transactions, requiring trust between trading partners for reducing the perceived risk to a level that enables the transaction occurrence (Dahlstrom et al., 2014).

As researchers have shown, banks oportunistic behaviors have shattered customer trust and institutional reputation, eroding banking sector stability. Further, an extended instability was triggered in 2008 by the fall of trust in the financial system and bank institutions, damaging investments and economic growth (Dia, 2011 and Armstrong, 2012 cited in Dahlstrom et al., 2014). Highlighting the linkage between trust, the financial system stability and the economic viability, researchers pointed out that trust recovery in the banking sector is vital, “since financial markets hinge on trust” Stiglitz (2008, p. 30).

2.2 The two-fold nature of trust

Despite of the fact that trust represents a central topic in the scholar literature for more than 150 years, since Mill (1848) wrote about the beneficial impact of trust on every aspect of life, the measurement of the trust concept is


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still debated in social sciences, while interdisciplinary efforts were called to find a more complete approach that would integrate results from economics, sociology, psychology and so on.

While economic related works have discussed trust versus opportunism (Williamson, 1993; Hardin, 2006), and some of these used utility maximization theory to explain trust behavior (Coleman, 1990), some other lines of research analyzed the interplay of rational expectations and emotions to explain trust decisions (Berg et al., 1995; McAllister, 1995; Dunning, 2012). In this vein, trust behavior was found to have a two-fold nature (McAllister, 1995): emotional (affect based trust, or perceived intentions related), and rational (perceived competence or abilities related).

Although the emotional and rational dimensions of trust were named differently by various researchers - e.g. “integrity” and “reliability” to denote the confidence that the partner is honest and credible (Morgan and Hunt, 1994); a belief in the “benevolent intentions” and “credibility” of the partner (Doney and Cannon,1997); faith in partner’s openness and truthfulness (Kumra and Mittal, 2004); –, or some other studies considered three or more components of trust, it seems that most of the scholars have investigated trust as an expectation of partner's good intentions, cooperation and honesty on one hand, and the faith in partner's future performance at the promised level.

Thus, we adopted the aforementioned two-fold approach of trust (emotional and rational) in our consumer investigation, considering emotional trust as the decision to trust based on the perceived intentions, and the rational trust as the decision to trust based on the perceived ability.

Our research sought to find out which type of consumer trust (intentions related or competence related) was affected to a greater extent in consumer – bank relationship in Romania. In this regard we remind that banking was found to suffer from the lack of consumer trust to a greater extent in Romania than in most of the other Eastern EU countries (Järvinen, 2014).

Since emotional trust was found to influence people's decisions to a greater extent than rational expectations (Dunning, 2012), people being more prone to trust on those seeming to care about common welfare (Hurley, 2012), our pursuit represents an attempt of providing additional inputs that might direct banks' efforts of spreading away consumers suspicions and rebuilding Romanians trust in banking industry.

3. EXPLORATORY STUDY OF CONSUMERS TRUST IN BANKING

Our exploratory study regarding Romanian consumers trust in banking was conducted in the fall of 2014. The study comprised a qualitative research based on in-depth interviews conducted with Romanian graduate students (N=34 participants, 23-33 years old).


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3.1 Procedure The qualitative research procedure was based on ZMET semi-structured

interviews centered on the visual images that have been selected as most relevant for the discussions topic, and brought to the interview by each participant. The in-depth interviews were conducted according with literature indications for the patented method of triggering information from customers known as ZMET - Zaltman Metaphor Elicitation Technique (Zaltman, 1995). Since the metaphor (the representation of one thing in form of an other) was found to be central to human thought (Lakoff & Johnson, 1980), we have chosen ZMET to reveal the unconscious reasons of the deep grounded thoughts about banking that might be embedded in the images that each participant has collected.

The number of interviewees in our study (34 participants) was significantly higher than the number of participants usually required in ZMET investigations (12 interviewees), although ZMET interviews are known to provide from 4 to 5 participants 90% of the data extracted from large set of interviews (Coulter & Zaltman, 1995).

Both sample size and participants profile (graduate students, 23-33 years old, Romanian nationality) were meant to depict the common shared patterns from individual perceptions of highly educated young adults from Romania, the representants of a population segment that we consider to be of first importance for banks if they consider the long-term process of trust building.

Thus, 34 Romanian graduate students (23-33 years old) participated in our qualitative research based on ZMET in-depth interviews regarding banks and banking services.

In the first step participants received the task to collect withing one week a set of 6 - 12 images they consider to best describe their feelings, sensations, impressions and thoughts towards banks and banking services. After one week each participant brought his own collection of images, and they were invited to a face-to-face discussion regarding the deep thoughts and motives that have prompted them to select each image from the chosen set.

The image collection was used to surface participant's thoughts during a 2 hours, one-to-one semi-structured interview.

In the beginning of the interview participants were invited to tell the story of each collected image and how it relates with his thoughts and feelings about banks and different banking services.

The storytelling for each image was followed by the usual ZMET steps: investigation the meaningful grouping of the collected images; the identification of sensory metaphors for the color, sound, smell, taste and touch associated with participant's feelings and thoughts towards banks and banking; the indication of the most representative image, the description of those relevant thoughts or feelings for which the participant couldn't find a representative image (so called missing images); the expansion of the frame to reinforce participant's ideas; the


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unveiling of the metaphor and participant's overall thinking about banks and banking services.

In the end of the 2 hours interview, each participant was invited to use his imagination to create a very short story-like vignette, expressive for his thoughts on the topic, and to pick and organize his collection of images into a digital canvas that would summarize his thoughts and feelings towards banks and banking services.

Computer assistance was used during the interviews to store, display, group, select, organize images, and respectively to create the digital canvas.

For data analysis purposes, all interviews were voice recorded with participants consent.

3.2 Results

The analysis of the data resulted from the in-depth interviews revealed that the overall feelings towards banks and banking services were mainly negative, such as: distrust, suspicion, worry, fear, frustration, anxiety, disappointment, customer's hopelessness and the feeling of being manipulated.

While 16 participants (47% of the total sample) reported exclusively negative thoughts and feelings and 9 participants proved to mix negative with positive thoughts towards specific banking services and banks, only 9 from 34 participants (26% of the total sample) reported mainly positive feelings, such as trust, fairness, respect, satisfaction, safety and fulfillment regarding their bank and banking services.

The major part of the negative thoughts expressed in participants' storytelling were related to the disappointment regarding the terms and conditions for credits and savings. “Unfair”, “insincere”, “insidious” and “deceptive” were the words frequently used to describe banking in conjunction with credits or saving plans, no matter if participants recalled their own frustrating experiences or the experience of a family member or an unsatisfactory attempt of a close connection.

The main explanation for reported disappointments have made reference to the many downsides and disadvantages hidden under the banking services that are being presented exclusively in the light of consumer benefits instead of being honestly shown, with all details and explanations.

The interviews have revealed that participants perceive banking services as being full of traps, especially in the case of credits. Participants ilustrated their suspicions regarding banks and banking using eloquent images (see fig.1) such as: a mask of virtue on a faceless darkness; a two-faced man, or a liar.

The negative thoughts are related mainly with credits. Frustration appeared as a consequence of the bureaucracy and the lack of transparency in the communication between bank and clients.

The mix of negative with positive thoughts was expressed regarding a special line of credits granted to young people for buying their first home.


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Although participants were unwilling to take such a credit, they admitted that they would consider it as an option in the absence of any other possibility.

Most of the positive feelings and favourable opinions reported by interviewees were associated with e-banking. In this regard, they talked about satisfaction and fulfillment to express their thoughts regarding the comfort and promptness of online payments, and the safety of using their bank facilities for on-line transactions and money transfer.

Figure 1. Image metaphors: banks and banking services

The sensory metaphors emphasized the predominance of the negative connotations. Thus, the higher number of entries for the associated colour were found for red (11 participants) and gray (6 participants), suggesting customer's anger and hopelessness, disappointment and distrust. Excepting 9 participants that mentioned optimistic colours (orange, yellow, pink, blue, green), all the rest provided bad connotation alternatives (black, brown, violet). Most mentions for taste were bitter (10 participants), followed by bittersweet (5 participants) and piquant (5 participants). Pungent smell (14 participants), unpleasant tactile sensations such as sharp and harsh (10 participants), cold and slippery (8 participants), and disturbing sounds (26 participants) such as klaxon, horn, bell ringing, alarm, alarm-clock, tick tock clock, whistle or woodpecker noise, all indicated negative associations and feelings.


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Not surprisingly, the interviewee statements and exemplifications indicated that almost all participants that reported positive thoughts, feelings or sensory metaphors, had reffered specific banking services and also certain bank names.

With no intention to debate on how different banks seems to be positioned on the mental map of our youth participants, we have to notice the significant differences resulted between trust towards different brands. While some banks are seen as deceptive, crafty and greedy, very few other banks are considered reliable, respectful, cordially and opened.

4. CONCLUSIONS

Results suggest that the most positive feelings of the participants towards banks are related with e-banking. They experience satisfaction and fulfillment to enjoy the comfort of online payments. They feel safety and reward to use time-saving and secure facilities of their banks for on-line transactions and money transfer.

The credits granted to young people for buying first home are also appreciated, although positive feelings are mixed with negative thoughts, most participants rejecting the idea of taking such a credit unless they have no other choice. They are afraid of becoming indebted on a higher level than they expected. Consumer disappointment regarding the terms and conditions for credits and savings, frustrating experiences generated by hidden costs, bureaucracy and the lack of transparency leads lots of negative perceptions towards banking. In this regard, 47% of the participants reported exclusively negative thoughts and feelings, perceiving banks as being unfair, insincere, insidious and deceptive. Only 9 participants (26% of the total sample) reported mainly positive feelings towards their bank, such as trust, fairness, respect, satisfaction, safety and fulfillment, while 9 participants reported a mix of negative feelings with positive thoughts towards specific services or institutions.

As our in-depth investigation revealed, emotional trust erosion represents the main problem of banking sector in Romania. Consumers have no doubts regarding banks expertise, knowledge or efficiency, but most of them are skeptical regarding banks intentions of developing win-win relationships with their clients. Banks in general are seen as being interested exclusively of their profits, disregarding customers. Some banks in particular are seen as especially false, wily and rapacious, while very few other banks are considered fair, reliable, behaving respectful, friendly and opened to client.

On one hand, the high level of suspicious feelings regarding banks' intentions explains why Romania was found to suffer from the lack of consumer trust to a greater extent than most of the other Eastern EU countries in Järvinen (2014) study. On the other hand, the presence of better perceptions towards some of the banking services and banks offer some hope for the trust recovery on Romanian market.


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From a managerial perspective, findings about the main type of consumer mistrust are valuable information for banks in their reputation nurturing efforts, since suspicions regarding company’s intentions were found to be more damaging and harder to dispel than suspicions regarding competence faults (Kervin et al., 2014), needing a long-term comprehensive strategy of trust restoring at both organizational level and industry level. Knowing that behavior proofs associated with positive competence were found to be more effective in restoring a reputation affected by suspicions regarding intentions (Kervin et al., 2014), each bank would be able to adjust its reputation management based on the presented results.

Revealing the way of thinking of a population category that represents the main decider of tomorrow (highly educated educated, 23-33 years old), our study has shed a light on the type of consumer distrust that threatens to detract banking (or at least the operations of most banks that operates today on the Romanian market), making a first step to understand bank's weaknesses and to indicate an important direction for the efforts that should be made for taking care of the most valuable capital of financial markets: consumer trust.

ACKNOWLEDGEMENT This work was partly supported by the strategic grant POSDRU/159/1.5/S/133652, co-financed by the European Social Fund within the Sectoral Operational Program Human Resources Development 2007- 2013.

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FINANCIAL INNOVATIONS, THEIR REGULATIONS AND FINANCIAL CRISES

ADINA APĂTĂCHIOAE

University of Alexandru Ioan Cuza Iasi, Romania

[email protected]

VASILE COCRIȘ University of Alexandru Ioan Cuza

Iasi, Romania [email protected]

Abstract The modern financial system is characterized by a permanent innovation that is manifested in all its components: markets, institutions, instruments and regulations. Financial innovations are made in order to obtain benefits such as lowering costs, improving the efficiency of the financial system, economic growth and achieving social welfare. However, some financial innovations have been proven over time to be inefficient and have adversely affected the financial system and the entire economy by contributing to the manifestation of the crisis events. The aim of this article is to present the position that it occupies innovations in the financial system, the barriers faced by the financial regulations in front of these new elements and how they contributed to the appearance and development of financial crisis. The mutations of financial economy have posed new challenges in terms of financial regulation and supervision, and their adjustment to the current circumstances is intended to ensure the financial stability of at national and international level. Keywords: financial innovations, regulatory, financial crisis JEL Classification: G00, G01, G010, G20 1. INTRODUCTION

The entire financial world can be seen as an innovation obtained over time. Financial innovation is different from that undertaken in other industries, but its main feature is that a new financial element is the starting point for another, thus forming a spiral innovative performed at the financial sector level. The purposes for which the financial innovations are made are different, but it is the responsibility of regulatory authority to ensure the responsible transfer thereof to the customers and their proper utilization in order to improve their current situation and to ensure financial stability and efficiency.


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2. PLACING INNOVATION IN THE FINANCIAL WORLD Financial innovation can be defined as the act of creating and disseminate

new financial instruments as well as new technologies, institutions and financial markets. Financial innovation refers to the institutional component but also to the innovative products and processes. Institutional innovations may affect the financial system whereas involves creating new types of financial firms, such as specialized credit cards, brokerage firms, internet banks, etc., but also some changes in the legal and supervisory framework. Financial innovations at the product level involving the creation of new products such as derivatives, securitized assets, foreign currency mortgages, etc. The introduction of innovative products is intended to respond appropriately and in a more efficient manner to market demand. Innovative processes relates to new ways of achieving the financial business, such as internet banking, phone banking; in order to increase efficiency or market expansion.

Financial innovation has been defined as a process of creation (development) of new financial products; in a broader sense, are embedded new ways to mobilize funds or to place money, or the development and evolution of new financial institutions. Consequently, financial innovation is manifested not only in the context of capital market, but also at the level of the entire financial market: NOW accounts or credit derivatives, together with the financing of some acquisitions (like leverage, buy-out), electronic funds transfer and credit cards, securities; are all the result of financial innovation.

William Silber (1983) considers that financial innovation can occur in three different forms: 1) the emergence of new financial instruments (product i

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