Luminita Runcan, Deputy CEO – Chief Risk Officer, BT, explains in an interview for BankingNews why you shouldn’t take on more financial risk than you can afford and why it’s best to keep a close eye on your debt burden when it comes to borrowing costs. You can read the full interview below. Enjoy! 😊

1. How did the risks that feed into Romania’s funding costs evolve during the pandemic, and what impact did the health crisis have on the actual cost of new loans?

Because the COVID-19 pandemic is unprecedented, the market’s reaction on funding costs was different from other crisis situations — I would call it atypical. Central banks and governments worked together to mitigate a potential liquidity risk in financial markets, which could have amplified the negative effects of the lockdown. Under these conditions, funding costs stayed low and even declined. According to analysts and even European supervisors, interest rates will remain low for another 1–2 years. Moreover, rating agencies acknowledged that borrowers needed additional time to recalibrate their plans for the future, so we saw, for example, delays in sovereign rating review actions.

2. How do you expect 2021 to unfold in terms of risks, and how will lending and funding costs evolve, at both bank and market level, given the uncertainties created by COVID-19?

We are already seeing signs of a rebound in loan appetite among certain customer segments, which is a positive signal — it means people have plans, and plans mean confidence and optimism. We remain focused on calibrating credit appropriately to the income of the person who comes to BT for a loan and, likewise, on ensuring companies are financed correctly in terms of the types of products we provide. Funding costs will remain low over the period ahead, which is precisely why we are cautious about customers’ debt burdens, to avoid over‑indebtedness if interest rates rise.

3. How aware are Romanians of the risks that come with financing, and what role does financial education play in this regard?

Unfortunately, still quite little, I believe. Credit remains a tempting option and, from a cost perspective, an increasingly attractive one. This is where financial education comes in: instead of channeling sources such as borrowing and savings primarily toward profitable, non‑volatile investments, all too often they support less essential needs — perhaps even spur‑of‑the‑moment whims.

4. If you were to choose one pillar of development for Romania’s economy — especially now, when the pandemic is redefining the way of life we were used to up to March 2020 — what would you bet on?

Productive investment — in development, retooling and, above all, adapting processes to the new reality — could be a pillar of growth. Infrastructure investment could also be a major bet, an area where, unfortunately, we are still deficient. Last but not least, while defensive sectors can be expected to remain important drivers of the economy, it wouldn’t be surprising to see “surprises” from segments that at first glance were deeply affected by the pandemic context: road freight transport or even tourism/leisure. It all depends, however, on how bold we are prepared to be with the measures we adopt, of course in a controlled way.

5. Which key indicators should Romanians track, given their potential to significantly influence a household budget, and within what limits could we still talk about normality in their evolution?

I think the debt burden remains an extremely important element, one that each person needs to control carefully. I believe the time for non‑essential investments and spending — the so‑called “consumer discretionary” — has passed, and each of us should focus not necessarily on saving as an end in itself, but on putting savings and financing to work judiciously and profitably.

6. The pandemic has shown we are exposed to risks we cannot anticipate. What advice do you have for people to maintain a healthy financial life, and which risks should they benchmark their budgets against to cope with future uncertainty?

If I were to give one piece of advice, it would be this: don’t take risks you can’t afford.