ECONOMY FINANCE&BANKING

Debt-to-equity swap law would not hurt if approved as per motivation, says central bank governor

The debt-to-equity swap law would do no harm if approved in line with the explanatory memorandum; nevertheless the same law says nothing about the state guarantee the First Home loan programme, Mugur Isarescu, Governor of the National Bank of Romania (BNR, the central), said on Friday in a press briefing.

“We are discussing with banks as supervisor, but there is no understanding between banks, to my knowledge. We believe that what some banks have announced, if the law is approved in its current form, seems a current reaction to a major legislative proposal. If the debt-to-equity swap law is approved in line with the explanatory memorandum – that is, if it refers to those who have real problems – it would not hurt. (…) Only in Spain such a law exists. Romania, however, does not have a legislative and banking tradition for us to come up with innovations. This law, in its current form, says nothing about the guarantee that the state grants under the First Home programme. We must come out of the obsessive thinking that banks get their revenge,” Isarescu said.

According to the BNR official, the said law does not necessarily do justice between debtors and banks, and the banking institutions assume enormous risks when extending short-term loans on money from long-term deposits.

“Many believe this law would be a derogation from the new Civil Code,” said Mugur Isarescu.

The BNR governor also said that the European Commission’s position on this law is a point of view that must be take into account.

According to economic forecasts released by the European Commission on February 4, the possible implementation of this law poses a serious risk to the macroeconomic forecast and its retroactive application may have a negative impact on credit growth, on consumers’ and investors’ confidence, and on the domestic demand.

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