Romanian CEC Bank Recapitalisation Cleared by EU Commission

Romania has been planning the recapitalization of CEC Bank for a long time. CEC Bank is currently the seventh largest bank in Romania and is fully owned by the Romanian state since 1864.

During the last ten years, the Romanian state had three attempts to inject capital in the bank, the first two of them failing (in 2009 and 2016). This time the government plans to raise the capital of the bank by two thirds, through an injection of circa €200 million.

The president of the Romanian Competition Authority (Consiliul Concurentei) has already expressed the position that this operation involves a “medium-size bank” and that he “doesn’t see a risk of affecting competition”.

The European Commission seems to have concurred to this position by recently finding that Romania’s plans to inject €200 million of capital in CEC Bank is free of any State aid. The Commission found that the recapitalization will be carried out „on market terms and therefore involves no State aid in favor of the bank within the meaning of EU rules.”

In the words of Commissioner Margrethe Vestager, “We found that the Romanian government, as the sole owner of CEC Bank, would carry out a capital injection in the bank at the same conditions that a private market operator would accept.We therefore concluded that the recapitalisation of the bank did not involve State aid within the meaning of our rules.”

In October 2019, Romania notified to the Commission its intention to recapitalise CEC, having as objective for the recapitalisation the enhancement of the bank’s lending capacity and the necessary upgrading of the bank’s information technology systems in order to continue servicing its customers, improve efficiency and decrease operational risk. The notification was supported by a business plan for the bank covering the period 2019-2023.

Under EU State aid rules, if a Member State intervenes as a private investor would do, and is remunerated for the risk assumed in a way a private investor would accept, such intervention does not constitute State aid. The Commission was able to assess, based on the business plan submitted, that the €200 million capital injection in the bank would yield a return on investment to the Romanian State (as the bank’s sole shareholder) in line with market conditions. The business plan foresees an increase in the bank’s lending and deposit market share, improved efficiency and robust capital levels.

On this basis, the Commission was able to conclude that the recapitalisation of CEC Bank by Romania would be carried out at conditions that a private investor would accept and that the measure did therefore not involve any State aid in favour of CEC Bank within the meaning of EU rules.