The fine trap of Balkans banking

I am writing this post in English, as I am pretty sure the trend I will discuss is valid for any emerging market, including for other Central-European countries.

As we were driving downtown yesterday morning, I accidentally overheard on the radio this idiotic jingle that was promoting bank loans for BCR – Erste Bank. Something along the lines: “Honey, let’s buy this 15 inch computer screen?” “But why? When we can get a bigger loan and buy a 20 inch one” “Tananana… BCR… We think alike: incredible rates for an incredible loan”. And the same ridiculous dialogue then promoted a 150 litres fridge (bought through a loan) instead of a 70 litre one Seconds later, a very nice young lady that was distributing flyers in the middle of the traditional morning traffic jam in Bucharest came to our car with a leaflet from Unicredit Tiriac Bank (proud new entry in ORICUM’s online mentoring program). We thus found out about Duet, a new product launched by Unicredit – a combination between a regular deposit and an investment scheme administered by an investment fund. Half of the flyer was explaining how an investment fund works and what risks it involves. No big words, no glossy slogans. Needless to say the latter’s a rare commodity in  Romanian banking marketing.

The average European owns 8 banking products. The average Romanian owns 2. Less than half of the Romanian population owns debit cards, and 70% of the ones that do have such instruments use them once a month for withdrawing their monthly sallary. The banking sector has an average yearly growth of 16%. However, with a consumption-based economy and low productivity rates, 88% of the profitability of Romanian banks derives from credits. Romanians are heavily indebted. The case of the Romanian woman who had made 55 bank loans for buying home appliances and satisfying other personal needs is quite famous.

Globally, the former president of the American Federal bank is warning that the world economy is undergoing its greates recession since World War II. The subprime mortgage crisis in the US might have a similar equivalent in the banking practices of the Balkans… with consumption on the rise (at least in Romania and Bulgaria), the only way for banks to make money is to offer ever more dangerous loan schemes. Which endangers and ensures their survival at the same time.

And why is all that? Because neither banks, nor governments are warning us about the dangers of excessive consumption. For ourselves and for our economies. There’s virtually no effort on behalf of banks and financial institutions to educate the public. Romanians are finance-illiterate and in the long run banks will be the ones suffering the consequences of their own mismanaged growth schemes.