IMF published its staff report in context of the 2019 Article IV consultation with Romania. While welcoming the strong banking sector performance, Directors noted that efforts to strengthen financial stability should continue, including sustaining the good progress on implementing the 2018 Financial Sector Assessment Program (FSAP) recommendations. They called for measures to increase resilience to risks stemming from high bank exposure to the Romanian state and encouraged close monitoring of the new tax on bank assets due to its potential impact on monetary policy transmission and credit allocation.
The report highlights that the banking sector performance is strong, while facing the new bank tax. After several profitable years, banks have strong capital and liquidity positions and their non-performing loans (NPLs) have approached the EU average level. The banking system is stable, but the tax on bank assets creates some uncertainty. The tax could negatively affect the cost of bank credit to the private sector and linking the tax to performance targets could lead to distortions in the allocation of credit and resources. The policy uncertainty surrounding implementation of the tax as well as the recently introduced Consumer Credit Reference Index (IRCC) could hinder financial sector development.
Good progress has been made to improve resilience, consistent with the 2018 FSAP recommendations. A majority of FSAP recommendations, including debt-service-to-income ratios and currency-differentiated liquidity requirements, have been fully or partially implemented. Additional progress in some areas, in line with FSAP recommendations, would further support financial stability. One such area is the introduction of a carefully calibrated systemic risk buffer, which would increase resilience of the banking sector under a high sovereign exposure. While the exposure of banks to the Romanian state approached 20% of assets in 2018, which is one of the highest in EU, the exemption of government bond holdings from the new bank tax could incentivize banks to further increase the exposure. The authorities broadly agreed with the financial sector assessment of the IMF staff. The National Bank of Romania stressed the good progress made on many FSAP recommendations. They shared the staff concerns over the sovereign-bank nexus and have been internally discussing an introduction of a systemic risk buffer.
Related Link: Staff Report
Keywords: Europe, Romania, Banking, FSAP, NPLs, Systemic Risk Buffer, Financial Stability, Article IV, IMF
Previous ArticleFFIEC Announces Availability of 2018 Data on Mortgage Lending
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
BoE updated the known issues document for the statistical reporting Forms AS and FV.
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
EBA updated the report on the implementation of selected COVID-19 policies.
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.