NATIONAL BANK OF ROMANIA
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OVERVIEW
I. Recent banking sector developments
II. Policy responses to the financial crisis
II.1. Proactive measures undertaken by the National Bank of
Romania for mitigating the effects of the financial crisis
II.2. The IMF Stand-By Arrangement – actions for further
strengthening of the financial sector
III. The perspectives of lending
NATIONAL BANK OF ROMANIA
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I. Recent banking sector developments
NATIONAL BANK OF ROMANIA
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Evolution of Domestic Credit
(in real terms)
RON billion, end of period
(deflated by CPI, March 2009=100)
250
loans to the private sector
loans to the government sector
total
200
150
100
50
Mar.09
Dec.08
Sep.08
Jun.08
Mar.08
Dec.07
Sep.07
Jun.07
Mar.07
Dec.06
Sep.06
Jun.06
Mar.06
Dec.05
0
Source: National Bank of Romania
NATIONAL BANK OF ROMANIA
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Financial Intermediation*
percent
45
loans to non-financial corporations a.o.
40
39.3
loans to households
35.9
foreign-exchange-denominated loans
35
RON-denominated loans
30
18.6
25
20.7
20
15.4
16.6
15
10
19.6
26.8
13.3
11.8
4.8
19.5
12.7
11.3
10.24
5
6.34
7.4
22.7
9.4
11.4
14.1
17.3 16.4
19.7
16.6
0
2004
2005
2006
Source: National Bank of Romania, National Institute of Statistics
2008
2007
*) loans to the private sector / GDP
NATIONAL BANK OF ROMANIA
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Loans to Private Sector
120
real annual percentage change*
100
real annual percentage change*
RON-denominated loans
households
total
total
100
non-financial corporations
foreign-exchangedenominated loans
80
120
80
Source: National Bank of Romania, National Institute of Statistics
NATIONAL BANK OF ROMANIA
Mar.09
Dec.08
Sep.08
Jun.08
Mar.08
Dec.07
Sep.07
Jun.07
Mar.07
Dec.06
Sep.06
Jun.06
Mar.06
Mar.09
Dec.05
Dec.08
Sep.08
Jun.08
Mar.08
Dec.07
Sep.07
0
Jun.07
0
Mar.07
20
Dec.06
20
Sep.06
40
Jun.06
40
Mar.06
60
Dec.05
60
*) based on CPI
6
Non-Financial Corporations' Loans and Deposits
RON billion
RON billion
70
60
50
RON-denominated deposits
RON-denominated loans
foreign-exchange-denominated deposits
foreign-exchange-denominated loans
net position, RON
net position, FX
70
60
50
40
40
30
30
20
20
10
10
0
0
10
10
20
20
30
30
40
40
50
50
60
60
2004
2005
2006
2007
2008
Mar.
2009
Source: National Bank of Romania
NATIONAL BANK OF ROMANIA
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Households' Loans and Deposits
60
RON billion
RON billion
60
50
50
40
40
30
30
20
20
10
10
0
0
10
10
20
20
30
30
40
40
50
50
60
70
RON-denominated deposits
foreign-exchange-denominated deposits
net position, RON
RON-denominated loans
foreign-exchange-denominated loans
net position, FX
60
70
80
80
2004
2005
2006
2007
2008
Source: National Bank of Romania
NATIONAL BANK OF ROMANIA
Mar.
2009
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Interest Rates in the Banking System
35
percent per annum
percent per annum
35
Apr.09
Jan.09
Oct.08
Jul.08
Apr.08
Jan.08
Oct.07
Jul.07
Apr.07
0
Jan.07
0
Oct.06
5
Jul.06
5
Apr.06
10
Jan.06
10
Oct.05
15
Jul.05
15
Apr.05
20
Jan.05
20
Oct.04
25
Jul.04
25
Apr.04
30
Jan.04
30
NBR policy rate
NBR interest rate on flow of sterilization operations (deposit taking, reverse repo, CDs)
new RON-denominated loans to non-financial corporations and households
new RON-denominated time deposits from non-financial corporations and households
Source: National Bank of Romania
NATIONAL BANK OF ROMANIA
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Analysis Ratios for the Banking System
1.4
percent
percent
overdue and doubtful loans /total loans portfolio (net value)
solvency ratio (>8%)*; rhs
ROE (net income / total equity); rhs
ROA (net income / total assets); rhs
1.2
1.0
0.8
21.1
20.6
21.1
15.6
15.6
0.6
12.3
12.7
0.31
0.28
0.66
13.8
10.2
0.4
18.1
18.1
0.26
0.2
0.20
9.4
12.0
0.35
35
30
25
20
15
10
0.22
5
-0.3
0.0
2.2
2.0
1.6
1.3
1.0
0
1.7
-2.9
-5
Mar.09
Dec.08
Dec.07
Dec.06
Dec.05
Dec.04
Dec.03
-0.2
* Starting with 2007, according to Regulation No.13/2006 and Order No.12/2007; (>12%) until end-2006.
Source: National Bank of Romania
NATIONAL BANK OF ROMANIA
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II. Policy response to the financial crisis
II.1. Proactive measures undertaken by the National
Bank of Romania for mitigating the effects of the
financial crisis
NATIONAL BANK OF ROMANIA
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Effects of the Global Financial Crisis on Romania from
the Lending Perspective
Risk aversion
of foreign
investors
relative to
emerging
economies =>
decline in
foreign
investments
Deterioration of
households’
and companies’
net assets
because of FX
loans debt
service increase
and reduction in
asset prices
Financial
channel
Confidence
channel
Diminished
access to
external
financing =>
impact on
lending
volume,
especially FX
loans
Global
financial
crisis
Wealth and
balance sheet
channel
Exchange rate
channel
NATIONAL BANK OF ROMANIA
Lower foreign
currency
inflows =>
downward
pressure on
the RON
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II.1. Proactive Measures by the NBR since September 2008
when the Crisis Emerged (1)
a. Liquidity management and money market functioning
measures
 Use of lending facility, FX swaps and repo operations
 Minimum reserve requirement reduction:
• for RON-denominated liabilities from 20% to 18% => starting
with Nov. 2008
• for FX-denominated liabilities with residual maturities of over 2
years from 40% to 0% => starting with May 2008
 Amending rules for interbank interest rates
b. Interest rate decisions (monetary policy rate)
 Feb. 2008 => rate cut from 10.25% to 10%
 May 2009 => rate cut from 10% to 9.5%
NATIONAL BANK OF ROMANIA
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II.1. Proactive Measures by the NBR since September 2008
when the Crisis Emerged (2)
c. Supervisory actions



Liquidity:
Strengthening of bank liquidity monitoring
Recommendations to diversify financing resources
Request for alternative financing arrangements etc.
Solvency: Strengthening of solvency monitoring
Requests for capital increases
Requests for maintaining solvency ratios above
minimum level of 8% etc.
Lending: Recommendations to reduce sectoral concentrations
Requirements to improve banks’ risk management
frameworks etc.
d. Regulatory actions



Simplify mortgage lending rules (NBR Regulation 2/2009)
Adapt provisioning requirements for loans overdue for more
than 90 days (NBR Regulation 3/2009)
Allow for interim profit to be included in own funds (NBR/NSC
Regulation 6/3/2009) etc.
NATIONAL BANK OF ROMANIA
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II. Policy response to the financial crisis
II.2. The IMF Stand-By Arrangement – actions for
further strengthening of the financial sector
NATIONAL BANK OF ROMANIA
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The International Financing Arrangement for Romania

The total size of the support is EUR 20 billion (2009-2011):
•
IMF Stand-By Arrangement of EUR 12.95 bn.
•
EU balance of payments financing facility of EUR 5 bn.
•
World Bank, EBRD commitments of EUR 2 bn.

The program aims to cushion the effects of a sharp drop in
private capital inflows and to facilitate an orderly adjustment of
the external deficit, thus easing excessive pressures on the
exchange rate
To attain these objectives, the program intends to:
strengthen fiscal policy
bring inflation within the NBR’s target range and
maintain it there
maintain adequate bank capitalization and liquidity
secure adequate external financing and improve
confidence.

1.
2.
3.
4.
NATIONAL BANK OF ROMANIA
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Rationale for Banking System Actions
Strengths
Challenges
Banking system is sound and
well capitalized
The macroeconomic
environment is difficult, including
from the perspective of the
The parents of the main banks
economic downturn
operating in Romania have
pledged any support necessary The global economic and
for their subsidiaries, committing financial outlook is still negative,
to maintaining their global
which maintains the investors’
exposures to Romania and to
uncertainty and risk aversion
recapitalizing subsidiaries
Need for actions aimed at further strengthening the
banking system
NATIONAL BANK OF ROMANIA
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Main Actions Part of the Stand-by Arrangement (1)
I.
Maintain a strong capitalization of the banking system
on the medium term

Banks are required to secure by 30 September 2009
sufficient resources to ensure solvency ratios above 10%
II.
Improve the capacity to respond in a timely and
effective fashion in the event of bank distress

Strengthen the special administrator’s ability to deal with
banks in weak financial positions

NBR’s will be empowered to request that significant
shareholders financially support the bank and to prohibit or
limit profit distribution

Other legal amendments: simplify and strengthen the courtbased proceedings for winding-up of banks
NATIONAL BANK OF ROMANIA
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Main Actions Part of the Stand-by Arrangement (2)
III.
Ensure the confidence in the banking system

RDGF will have access to government privatization receipts

Deposit insurance payment period will be shortened to 20 working
days
IV.
Continuously improve the supervision and regulation
framework

Improve bank liquidity regulations

Raise minimum level of the capital adequacy ratio from 8% to 10%

Adopt International Financial Reporting Standards (IFRS)
V.
Promote some measures to ease the debt servicing by
borrowers during the crisis

Seek an agreement with commercial banks to facilitate the
restructuring of household debt contracted in foreign currency
NATIONAL BANK OF ROMANIA
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Main Actions Part of the Stand-by Arrangement (3)
“Vienna Initiative”

The continuing involvement of foreign banks in Romania
enhances the successful implementation of the
macroeconomic reform program

On March 26 in Vienna, the parent banks of the nine
largest foreign banks (from Austria, Greece, France and
Italy) operating in Romania have committed to:
–
–

maintain their overall exposure to our country and
increase the capital of their subsidiaries as needed
A follow up meeting was held on May 19 in Brussels, when
the nine parent banks agreed to submit specific bilateral
commitment letters in the coming weeks to fulfill the
objectives agreed upon in Vienna.
NATIONAL BANK OF ROMANIA
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III. The perspectives of lending
NATIONAL BANK OF ROMANIA
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Measures Already Undertaken and Those Announced
Started Improving Fundamentals

Increased confidence in Romania

Sound macroeconomic and financial sector
policies
are creating strong fundamentals for
lending revitalization
NATIONAL BANK OF ROMANIA
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Confidence Effect: Spreads on Eurobonds
(German Benchmark) Have Decreased Significantly
800
700
1200
B ulg aria
H ung ary
600
P oland
R omania (rhs )
500
1000
800
Turk ey (rhs )
400
600
300
400
200
200
100
0
J an-07
F eb-07
Mar-07
May-07
J un-07
J ul-07
S ep-07
Oct-07
Dec-07
J an-08
F eb-08
Apr-08
May-08
J ul-08
Aug-08
S ep-08
Nov-08
Dec-08
J an-09
Mar-09
Apr-09
0
NATIONAL BANK OF ROMANIA
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The Perspectives of Lending (1)

NBR is prepared to undertake further measures
which will have a positive effect on bank lending,
including a gradual ease of the reserve
requirements if monetary and macroeconomic
conditions have favorable developments

The external financing from IFIs will increase the
availability of funds in the economy, which will
encourage lending expansion

However much will depend on how the supply and
the demand for loans will adjust to the new
conditions
NATIONAL BANK OF ROMANIA
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The Perspectives of Lending (2)
Supply of loans

Bank lending will resume, although the pace of growth will
be slower than that recorded previously (e.g. 2007)

A downward adjustment is expected for deposit interest
rates, which will also push down lending interest rates

The banks will undergo a restructuring process following
increasing pressure on profitability and from competitors
Demand for loans

The decreasing cost of borrowing will stimulate the demand
for loans

Any measures supportive of borrowing, such as
supplementing the capacity of guaranteeing the loans will
be beneficial

Confidence will increase as economic prospects improve
NATIONAL BANK OF ROMANIA
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