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June 26, 2022

High indebtedness in foreign currency, main population vulnerability

The capacity of this sector to repay its debt service continued to decrease, however at slower rate, states the National Bank Stability Report.

The high indebtedness rate, especially in foreign currencies, is the main vulnerable spot of the population sector. The capacity of this sector of repaying its debt continued to decrease, however at slower rate, and the outlook is mixed, says the Stability Report issued by the National Bank of Romania yesterday. The banking sector holds adequate prudential reserves for covering the risks associated with lending to the population and the need to keep such protection requires that the prudential framework is kept at appropriate levels, BNR further states. Achieving a balance of currencies in the new credit remains an objective for which new provisions will be implemented on responsible lending in line with the recommendations of the European Committee for Systemic Risk on the lending in foreign currencies apart from those adopted by BNR in 2011. The central bank report shows the fact that the number of people with debts to banks and non-bank financial institutions is 4.35 M (June 2012), representing 43 per cent of the active population. The average term of a loan is 22 years for mortgage loans and 7 years for consumer loans unsecured by a mortgage. The value of the debt towards local banks and non-bank financial institutions (including externalised loans) is RON 116.5 bn (June 2012, up from 115.2 bn in December 2010).  The large share of debt in foreign currencies (68 per cent in June 2012) enhances the vulnerability of the indebtedness rate. Real estate and consumer loans secured with mortgages are granted in an overwhelming proportion in foreign currencies (95.5 per cent real estate loans and 91 per cent consumer loans secured with mortgages, banks and non-bank financial institutions, June 2012). The flow of newly awarded credit by banks is still predominant in foreign currencies (56 per cent between January 2011 and July 2012). The ‘First Home’ programme made a notable contribution to such trend, with 53 per cent of the real estate loans granted in 2011 and in H1 of 2012. Those loans are almost exclusively in foreign currencies (99 per cent).

Saving process continues

Prospects are favourable to continuing the process of saving, the BNR report further states. The factors pleading in that direction are the persistence of the precaution motivation given the reverberations of the financial crisis at an international level; harshening of banks’ lending standards, currently requiring higher down payments fore loan agreements; the public’s expectations regarding an improvement of the financial situation offset by the still high unemployment rate and need to set up reserves for the servicing of existing debt towards lenders.

Parent banks remove EUR 19 bn in last one and a half years

Another subject addressed in the National Bank Stability report is the exposure of parent banks in Romania. Their presence through their Romanian subsidiaries decreased by 7 per cent between December 2010 and June 2012, to EUR 19 bn. As a structure – the document further reads – developments are mostly in agreement with expectations. In the event of a major shock of withdrawal of foreign financing, the results of the stress tests indicate a good resilience of the Romanian banking sector, yet challenges remain (primarily with regard to the transformation of resources from RON into EUR, sale of assets and impact on the financing of real economy). Similarly to the observations in the previous report, banks with Greek capital are relatively well prepared to cope with a possible severe shock of financing liquidity, characterised by prudentially indicators adequate to existing risks.


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