Romania's Finance Ministry will come up with incentives to convince local companies to increase their capital, minister Florin Citu announced.

The initiative comes in the context of many Romanian companies having negative equity - a situation that breaches the law but has been tolerated by the authorities.

The Government will discuss a bill with this end in one of its next meetings, minister Citu assured. The process of capitalization is expected to last for about five years, he added.

The finance minister explained that the Government has helped companies weather through the liquidity crisis triggered by the coronavirus pandemic by deferring the tax payments while making payments to companies on time. But it's time that the companies also help themselves and consolidate their capital, Citu implied. The negative equity of a part of the companies makes them ineligible for the Government-backed bank loans program IMM Invest, he explained.

The same reason prevents them from qualifying for bank loans, in general, forcing them to seek public sources for financing. "I must admit, I am interested in reducing the pressure on the budget in the future, I want bankable companies that seek financing from the private system," Citu said, quoted by Agerpres.

Earlier last year, Florin Georgescu, first deputy governor of Romania's National Bank (BNR), explained that that 277,000 companies in Romania (38% of all companies in the country) have negative capital, therefore are practically bankrupt companies allowed to operate. He estimated that the negative equity of Romanian companies totaled EUR 34 billion (15% of GDP, roughly).

Later in 2019, the Social Democrat Government of prime minister Viorica Dancila drafted, before being overthrown, a bill that would have converted to equity the loans extended by owners to their own companies. The capitalization would have been operated by default for companies whose net assets were lower than half of the equity.

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editor@romania-insider.com