This paper has like objective to present the main aspects concerning strengthening romanian banks' role in the european funds absorption. So, we organized our paper in two sections: the role of banks in the absorption of EU funds and the impact of the current financial crisis on the proces of absorption of structural funds.banks, European funds, financial crisis

Cristi SPULBAR

Dorel BERCEANU

Oana GHERGHINESCU

English

Research Papers in Economics

174                                                                       Finance – Challenges of the Future                       
 
STRENGTHENING ROMANIAN BANKS' ROLE IN THE 
EUROPEAN FUNDS ABSORPTION 
 
Assoc. Prof. Cristi Marcel SPULBĂR, PhD 
Assoc. Prof. Dorel BERCEANU, PhD 
Lect. Oana Rodica GHERGHINESCU, PhD 
University of Craiova 
 
1. The role of banks in the absorption 
of EU funds 
 
Since the pre-accession period is 
known that structural funds will come in 
Romania and we see that we are 
approaching the end of 2008 and many 
of the Romanian banks are being 
prepared just now. Studies by the 
research team, the result that there are 
exceptions. Of these 42 banks, 
Romanian legal persons and branches of 
foreign banks, including their offer has 
been analyzed and found that five banks 
have given importance to access EU 
funds, respectively the Romanian 
Commercial Bank, the Romanian 
Development Bank, The Bancpost, CEC 
Bank and Raiffeisen Bank. The first four 
banks have submitted their offers in the 
financing instruments for accessing EU 
funds under the International Risk 
Management Seminar in Public 
Administration. Strengthening Banks' 
Role In The European Funds Absorption 
Through Proces Intruments Co-financing. 
However, the interests of banks on 
the contribution to access EU funds are 
not significantly different from what 
happened a few years ago with SAPARD 
funds. Since that time even today, there 
are reasons more or less merit. One is 
the lack of information on sectoral 
programs and the criteria for application 
and funding. 
Most banks acknowledge how 
communication with the authorities 
responsible for these programs and the 
negative consequences have occurred. A 
prime example is the lack of common 
procedures, which has the effect of 
increasing bureaucracy. Vis-à-vis this 
aspect, we believe that banks with the 
implementation of EU funds must 
establish a mechanism and a stream of 
common documents, which allow the 
harmonization of the documents required 
by banks for the granting of with those 
funds requested under the programs in 
which European funding will be awarded. 
We note that so far, the flow of 
information and communication only with 
no formal functional safer by requiring 
better coordination. In business and 
banking environment in itself that the 
development of financial funds available 
to Romania is in an uncertain phase, 
marked by the absence of transparency 
and organizational capacity and reduced 
decision-making level authorities. On the 
other hand, there are voices who argue 
that the fault belongs to the banks which 
are also adapted to new situations and 
neither have a lobby group in the 
relationship with the government. 
The experience of other European 
countries shows that banks have been 
co-opted in the projects. In Romania, it 
seems that a vicious circle was created: it 
can not access funding if they do not co-
financing banks while the banks to 
provide financing would at least pre-
approval the authority of management.  
Another explanation for the 
decreased interest shown by most of the 
Romanian banking system is the lack of 
projects. Perhaps if the public institutions 
and companies develop viable projects 
when the interest banks could rise to as 
many projects will be approved by the 
European Commission.  Year VIII, No.9/2009                                                                                                   175             
The lack of information from the 
authorities, bureaucracy, lack of 
transparency, the defective information, 
the decreased level of entrepreneurial 
initiative, development of small consulting 
company and not the last place in the 
lack of an appropriate institutional and 
legal framework and adapted to the 
European regulations are, in our opinion, 
the major obstacles in increasing the 
degree of absorption of EU funds and, by 
implication in the increased role of banks 
contributing to this process .  
It is considered that to help increase 
the role of banks in accessing European 
funds we need a change in their strategy, 
and respectively in the treatment of this 
process as a long-term, under conditions 
until now, banks are more interested in 
promoting credit products due to the 
expansion of non-governmental credit. 
Although in Romania so far the effects of 
the financial crisis that began with a 
record of almost a year in the United 
States does not feel it is possible that 
future closer or more distant the banking 
systems are affected as a consequence 
of the effects of contagion and by 
implication, credit expansion must be 
tempered.  
In these circumstances, the 
financing of European projects could 
become an opportunity for banks and 
through the prism of the degree of risk 
and the high volume of securities 
(including the EU co-financing). More, 
further increasing the volume of loans as 
a financing for projects in the structural 
funds, banks will obtain additional 
revenues flow of funds through their 
accounts (commissions and increased 
liquidity), as well as the consultancy for 
accessing funds and preparation of 
business plans made in European 
format. 
In conclusion, the banks must also 
assume the role of financial 
intermediaries and have a more active 
participation in the implementation of 
projects with EU funding for the financing 
of viable projects.  
Ensuring a high rate of absorption of 
structural funds and Cohesion Funds for 
Romania depends on the ability of 
institutional and administrative structures 
to manage these funds, opportunities for 
the central authorities and local 
communities to participate in regional 
financing of eligible projects, the capacity 
of central, regional and local levels, to 
have access to various sources of 
funding from public or private.  
The gain of a grant is not all it is 
important that the project should be 
carried out and targets to be achieved. In 
this process, the bank has a particularly 
important role.  
A presentation of the project must 
be proven that there is a financing or a 
comfort letter from a bank. In the process 
of implementation, the costs are initially 
borne by the beneficiary, then they will be 
reimbursed within a period more or less. 
In addition, there must be a co-sizable, 
usually around 30-40%. If there is not 
enough money, the bank can provide the 
difference when the need is greatest. For 
example, a project of 1,000,000 euros to 
the beneficiary should be between 70-
100% of the total at the beginning of the 
project. The financing of the bank is 
therefore vital because implementation of 
the project must be done correctly.   
Research conducted on the example of 
five commercial banks mentioned above 
have revealed that he understood the 
importance represented by the financing 
of European funds, banks have adapted 
their laws to be credited to a credit 
redemption in the sense of assimilation in 
the analysis of credit in the documents 
attached to the funding request submitted 
to the Management Authorities of 
programs respectively feasibility studies, 
business plans, financial forecasts. The 
application of the same documents is an 
advantage for the beneficiaries is 
intended to exempt the development of 
several documents with the same content 
but different forms.  
Banks dealt a different major 
projects, which require completion of 
feasibility studies, analysis of cost-benefit 
of projects for which a complex analysis 
was carried out by the authorities resort 
to small projects where grid the 176                                                                       Finance – Challenges of the Future                       
assessment does not cover all the 
aspects considered in the economic and 
financial analysis conducted by the bank. 
In addition, the criteria grid of 
technical and financial evaluation of the 
project, the banks must have in mind the 
aspects relating to the solicitor in the 
history of the relationship with the bank's 
ability of repayment of credit, 
opportunities to ensure (taking into 
account that for projects with funding in 
the context of the structural type, except 
PNDR property acquired by the project 
can not be guaranteed to credit) it more 
than the experience, there have been 
many requests for appropriations for the 
financing of projects approved by the 
authority of management, for which the 
applicant does not have its own source. 
In addition, projects must be continued 
the whole period of implementation to be 
no cases of blockage or delays in the 
execution of contracts, which can thus 
jeopardize the whole project. To this end, 
it is recommended that recipients must 
maintain continuous contact with the 
banks, taking advantage of their 
experience in the conduct of commercial 
operations (eg, an error often 
encountered in the course of the 
contracts is represented by the payment 
in advance without asking for letters of 
guarantee for repayment of the advance).  
Also, when initiating a project, the 
beneficiary must have a clear picture of 
what will happen and in the period 
following the completion of the project. 
This vision incorporated into the funding 
application gives credibility and provides 
additional points in the evaluation of the 
project.  
To be financed by the bank, the 
project respectively, the applicant must 
comply with the standards of funding for 
banks to implement and to be 
sustainable for the whole period 
(required) to maintain the investment 
function .  
The evaluation of projects is even 
more difficult than the management had 
not yet developed the necessary 
mechanisms to ensure transparency as 
regards the assessment / approval of 
projects submitted in the operational 
programs. The main objective of 
European Union funds is to finance 
projects that, in the absence of these 
funds can not be achieved or occur in a 
longer period of time. The bank has any 
interest in financing a viable business, 
even if sometimes the conditions 
imposed on customers seem 
cumbersome, it does only a reduction of 
risks related to the project. 
Considerations on the possibilities of 
increasing the role of banks in the 
process of absorption of structural funds.  
Regarding the degree of 
involvement of banks in Romania to 
support those who wish to access the 
structural funds, one appreciates that it is 
quite high. Even if only one of 5 banks of 
42 is actively involved in supporting the 
IMM, the local authorities to access these 
funds, we consider that the power of 
banks is sufficient to ensure a 
satisfactory degree of absorption. Thus 
the network of banking units which have 
the 5 banking institutions is 62% of total 
banking network in Romania, the number 
of employees whose banks have 5 to 
49% of the total employees in the 
banking system.  
We note that most banks have not 
yet developed flexible instruments and 
are not adapted to the challenge that is 
represented by access to EU funds. 
Sometimes, experienced in access to EU 
funds and in project evaluation and 
missing most of the banks blame faulty 
communication with the authorities 
concerning access to EU funds.  
In our view, banks with the 
implementation of EU funds should 
establish a methodology and a set of 
documents that will allow the 
harmonization of documents required for 
access to EU funds but also the co-banks 
in the screening of projects.  
At the same time, it is absolutely 
necessary the participation of banks to 
the authorities for the creation of the 
legislative, institutional and organizational 
measures for increasing the degree of 
absorption of EU funds.  Year VIII, No.9/2009                                                                                                   177             
From the viewpoint of increasing the 
role of banks in accessing European 
funds, it is considered that it would be 
good for all potential beneficiaries of 
these funds still have a discussion with 
the bank before filing the draft. You can 
avoid unpleasant situations in which the 
company may learn that there are 
minimal opportunities to obtain bank 
financing, or that this is not sufficient for 
the actual need of financing the project. 
The bank can offer solutions that have an 
impact on the project for which grant 
funding is sought. Therefore, the 
discussion with the bank should be 
started as soon as possible. 
 
2. The impact of the current financial 
crisis on the process of absorption of 
structural funds 
 
It is important to start this analysis, 
first put into question the distinction 
between the allocation, access and 
absorption of structural funds.  
As each of the 27 Member States of 
the European Union, Romania has 
developed the programming 2007-2013, 
the National Strategic Reference 
Framework, which includes regional and 
thematic priorities for the allocation of 
structural funds instruments (Union 
European Regional Development Fund, 
European Social Fund and Cohesion 
Fund).  
Allocation of operational programs 
(Regional Operational Program, the 
Sectoral Operational Program Increase 
of economic competitiveness, the 
Sectoral Operational Program Human 
Resources Development, the Operational 
Program Development of administrative 
capacity, the Environment Program, the 
Operational Program Transport) has 
identified the needs of economic and 
social development of our country, as 
reflected in the national development 
plan and may receive financial support 
from the budget allocated by the 
European Union for the implementation 
of cohesion policy.  
Each program has been developed 
and detailed in the priorities and major 
areas of intervention, described and 
defined according to the type of eligible 
beneficiaries, the types of eligible 
activities and the activities and types of 
eligible costs. Thus the allocation implies 
the existence of an availability of funds 
for various projects that can be deposited 
by different types of candidates.  
Access is the next step in which the 
potential beneficiaries prepare and file 
the necessary documentation on the 
different areas of intervention, 
documentation is a process of natural 
selection and evaluation to determine 
eligibility and administrative compliance 
audit quality technical and financial 
proposals for projects. Access to funds 
available through the allocation does not 
automatically coincide with the 
absorption. A viable project declared 
winner and contracted between the 
beneficiary and the management of the 
process of implementation and requires 
starting the process of spending money. 
Absorption occurs when the costs 
incurred by the beneficiaries of the 
projects are audited and certified as 
eligible settled. The absorption depends 
not only on the drafting of viable projects, 
but also the implementation of adequate 
funding.  
        Each  of  the  six  channels  of 
transmission of the effects of the crisis 
affects, directly or indirectly, access and, 
in particular, the process of absorption of 
structural funds in Romania. We propose 
in what follows to provide brief 
explanations of each:  
1. The highest rates between the 
interbank interest - are translated into 
an increase in the general level of 
interest rates in the banking system and 
lead to increased costs related to bank 
loans contracted by the beneficiaries of 
projects commercial banks to advance to 
the reimbursement of expenses by 
contracting authorities, to cover the 
symbol of contribution to the project and 
non-eligible costs in the implementation 
of the project. These costs borne a good 
implementation of projects and increase 
the financial benefit of the worm project, 
determining the renunciation of their 178                                                                       Finance – Challenges of the Future                       
5.  The loss of trust - as a direct 
consequence of the reluctance of 
potential beneficiaries to write and 
implement projects, especially where 
there are blockages in the 
reimbursement of expenses by the 
contractors occur. However, on the basis 
of the depreciation of the national 
currency against the euro are strongly 
affected project beneficiaries, as all 
contracts for financing structural funds 
are signed in lei.  
contracts before signing or termination of 
contracts in the period of implementation 
of projects.  
2. The price down of assets - are 
transposed into the reduction of the value 
which the goods are valued in order to 
obtain guarantees. For example, to 
obtain a proportion of the contracts for 
financing structural funds is conditional 
upon obtaining a letter of guarantee from 
a commercial bank. The vast majority of 
beneficiaries will get such a letter and not 
by blocking the money in the account, but 
by the evidence to hold their wealth in 
assets in high value placed on banks. In 
this context, it is clear that lowering the 
value of assets has a negative impact on 
the absorption of structural funds.  
3.  Loan conditions more 
restrictive - affect, as I mentioned, 
alternatives to ensure beneficiaries by 
bank loans, the advance of expenditure 
or the recovery of his own contribution 
and expenditure ineligible. It is also 
affected the ability of operation of the 
objective of the investment financed by 
the project after the funding period and 
not reimbursed the beneficiary must 
demonstrate the ability to maintain in the 
state of operation the investment 
objective. 
6.  Blocking economic - can 
charge, in turn, the absorption of 
structural funds. In the case of large 
infrastructure projects financed by 
structural funds, which include large-
scale works that can not be implemented 
in time when the number of viable 
enterprises in the construction sector, for 
example, is declining.  
In conclusion, we can say that the 
global financial crisis is felt at the 
potential for absorption of structural funds 
in our country, because they are 
transmitted over the same channels that 
affect other areas of economic and social 
life. However, especially during the crisis, 
structural funds should be seen as an 
opportunity that should be enhanced by 
the mobilization of all necessary factors: 
political, institutional and organizational, 
since they can provide solutions to some 
of the ingredients the crisis - the increase 
in the degree of occupation, the 
development of viable economic 
activities, development of alternative 
resources, etc.    
4. Lower revenues in the financial 
sector - reverberating indirectly on 
absorptive capacity, while it leads to a 
lower degree of financial intermediation 
and implicit channel blocking progress of 
the funds needed for implementation the 
project.  
   
    REFERENCES 
Bradley, J.,  
Morgenroth, E. 
A Study of the Macro-Economic Impact of the Reform of EU Cohesion 
Policy, Dublin, Ireland, 2004 
Breuer, P.,  
MacArthur, A. 
Une nouvelle ligne de défense contre les crises – FMI Bulletin, 2007 
Calvo, G.,  
Izquierdo, A.,  
Talvi, E. 
Phoenix miracles in emerging markets: recovering without credit from 
systemic financial crises – Bank for International Settlements, 2006 
Gherghinescu, O.,  
Rinderu, P.,  
Neagoe-Bacanu, D. 
Management of Structural Funds Projects, Universitaria, Craiova, 
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Strengthening Romanian banks' role in the European funds absorption

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