Featured Product

    IMF Publishes Reports on 2018 Article IV Consultation with Romania

    June 06, 2018

    IMF published its staff report and selected issues report under the 2018 Article IV consultation with Romania. Directors commended the improvements in the financial sector in recent years and examined the findings of the Financial Sector Assessment Program (FSAP). They called for strengthened macro-prudential policies to address emerging vulnerabilities from the exposure of banks to the government and the real estate sectors. They supported enhancing supervisory practices and the crisis management framework.

    The staff report noted that, in line with the FSAP recommendations, the authorities are encouraged to continue strengthening the anti-money laundering and combating the financing of terrorism (AML/CFT) framework in compliance with the Financial Action Task Force (FATF) standards. The report highlighted that the resilience and profitability of the banking sector has improved in recent years. Moreover, profitability and liquidity positions of banks have strengthened. Non-performing loans (NPLs) declined significantly, reflecting the proactive efforts of the National Bank of Romania (NBR) to encourage NPL sales and write-offs. However, vulnerabilities arise from the high exposure of banks to the real estate sector and sovereign debt. The mortgage contracts expose banks to credit risks in the event of sharp increases in interest rates. The effectiveness of existing macro-prudential tools on mortgages is undermined by the Prima Casa program, which allows loan-to-value ratios of up to 95%.

    Staff warned against legislative initiatives that could harm the financial system. Several recent initiatives would, if enacted, reduce the amount of credit provided to the real economy and slow the resolution of NPLs, thus adversely affecting financial stability. This includes the proposed caps on interest rates for household lending and several measures that adversely affect the functioning of the market for NPLs, such as allowing individuals to repurchase debt from debt collectors at a legislated maximum amount. NBR agreed with the main vulnerabilities identified by the ongoing FSAP and welcomed its recommendations. Initial steps have been taken to implement most of the FSAP recommendations. Implementing the FSAP recommendations will help to further improve the resilience of the banking sector. Drawing on the conclusions of the ongoing FSAP, staff recommended certain macro-prudential policies to address these vulnerabilities.

    • A debt-service-to-income (DSTI) limit on mortgage lending would mitigate risks from the exposure of banks to the real estate sector.
    • Carefully calibrated capital surcharges could address vulnerabilities from sovereign exposures.
    • Capital surcharges—preferably the systemic risk buffer—should be calibrated carefully to increase the resilience of the banking system while avoiding unintended market impact. 
    • The National Committee for Macro-prudential Oversight (NCMO) should strengthen its accountability framework. Staff welcomed recent steps in this direction, including developing a common assessment of systemic risk at each NCMO meeting and publicly disclosing the proposed policy actions and voting distribution.

    The assessment also revealed that supervisory practices and the crisis management framework need bolstering. The processes supporting banks’ supervisory review should be further developed and the framework for Emergency Liquidity Assistance should be finalized and implemented. Aligning provisioning regimes across banks and non-bank financial lenders (NBFLs) is also recommended. In addition, the selected issues report reviews the level and structure of tax revenues in Romania, analyzes the growth-friendliness and efficiency of its tax structure, and proposes options to improve revenue mobilization drawing from the experiences of other countries.


    Related Links

    Keywords: Europe, Romania, Banking, NPLs, Article IV, FSAP, Macro-prudential Policy, Systemic Risk, IMF

    Featured Experts
    Related Articles
    News

    ECB Allows Temporary Relief in Leverage Ratio Amid COVID-19 Pandemic

    ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.

    September 21, 2020 WebPage Regulatory News
    News

    ESAs Launch Survey on Templates for Product Disclosures Under SFDR

    ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).

    September 21, 2020 WebPage Regulatory News
    News

    ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks

    ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.

    September 21, 2020 WebPage Regulatory News
    News

    ECB Finalizes Methodology to Assess CCR and A-CVA Risk of Banks

    ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.

    September 18, 2020 WebPage Regulatory News
    News

    EBA Provides Opinion on Definition of Credit Institution in CRR

    EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).

    September 18, 2020 WebPage Regulatory News
    News

    APRA Consults on Alignment of Daily Liquidity Report for Banks

    APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.

    September 17, 2020 WebPage Regulatory News
    News

    FED Releases Scenarios for Second Round of Stress Tests on Banks

    FED released hypothetical scenarios for a second round of stress tests for banks.

    September 17, 2020 WebPage Regulatory News
    News

    FED to Temporarily Revise FR Y-14 Reports to Conduct Stressed Analysis

    FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.

    September 17, 2020 WebPage Regulatory News
    News

    FED Revises Information Collection Under Market Risk Capital Rule

    FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).

    September 17, 2020 WebPage Regulatory News
    News

    EBA Seeks Input on ESG Disclosure Practices of Banks

    EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.

    September 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5809