Erste builds EUR 230 mn provisions after losing lawsuit related to housing bank in Romania

Austria’s Erste Group, the owner of Romanian second-largest lender BCR, has built a provision of nearly EUR 230 million to cover potential losses related to a lawsuit in Romania, according to local Ziarul Financiar.

Romania’s High Court (ICCJ) recently ruled that BCR’s mortgage subsidiary BCR Banca pentru Locuinte (BpL) illegally accepted deposits from people not meeting the legal requirements for a government-financed programme. Moreover, BCR BpL didn't instruct its clients to use the loans granted under the same programme (including Government grants) for the purpose stipulated in the contract. The decision is final.

Romania’s Court of Auditors went to court against the two local housing banks, BCR BpL and Raiffeisen Banca pentru Locuinte, arguing that the two lenders had illegally accepted children under 18 and elderly over 65 as participants to a state-financed programme aimed at encouraging people to save money for buying or building a house. As a result, these participants illegally received state grants worth up to EUR 250 per year, according to the Court of Auditors.

In March 2017, the Bucharest Court of Appeal decided that the two housing banks had acted correctly when granting state benefits to minors and senior citizens and did not request justification for how beneficiaries used the state bonuses. However, the High Court overruled that decision.

The law was changed recently to also allow minors and seniors to participate in the program, but all beneficiaries must come up with documents to justify that they used the state grants for house purchase or improvement.

BCR BpL is the largest player in the savings-credit system in Romania, with about 200,000 clients currently. Raiffeisen BpL has about 130,000 customers. The two banks haven't attracted any new clients since 2015 when the Court of Auditors started its investigation.

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