IMF published a report on the assessment of financial sector in Romania, under the Financial Sector Assessment Program (FSAP). IMF also published technical notes on crisis preparedness, systemic risk analysis and stress testing the financial sector, macro-prudential policy framework and tools, balance sheet analysis, and calibration of a debt-service-to-income (DSTI) limit in Romania.
The financial sector assessment reveals that the financial sector in Romania has strengthened significantly over the last few years. Effective supervisory measures have helped reduce the high level of nonperforming loans (NPLs) from 21.9% at its peak in 2013 to 6.4% as of December 2017. Foreign-owned banks’ dependence on parent funding has significantly declined, while deposits from the domestic private sector have increased, reducing liquidity risks. Banks’ capital buffers strengthened, on the back of a slowdown of credit and low interest rates, with an average capital to risk-weighted assets now above 18%. However, some vulnerabilities are emerging. Lending practices of nonbank financial lenders (NBFLs) may lead to loan defaults and reputational risks for the banking sector. As the financial system is small, shocks may further discourage financial intermediation, which is already among the lowest in EU.
Stress test results indicate that, over a three-year horizon, banks face losses of close to 900 basis points (bps) in capital, resulting from trading losses on their sovereign securities portfolios, and credit losses on their loan portfolios. A number of the 12 stressed banks fail to meet the minimum threshold for the common equity tier 1 capital ratio. Policy action is needed to address these risks and strengthen financial stability. The authorities are already contemplating a debt-service-to-income (DSTI) limit on mortgages and calibration of this limit could draw on the mission’s analysis of loan-level information from the Romanian credit register. In addition, the team recommends a currency-differentiated liquidity coverage ratio and the monitoring of a currency-differentiated net stable funding ratio, to limit FX liquidity risks. Strengthened monitoring of NBFLs is warranted to avoid reputational risks and regulatory arbitrage. The mission also recommends introducing capital buffers to increase resilience and guard against risks from large sovereign exposures.
The National Bank of Romania (NBR) is transitioning to a risk-based supervisory approach that needs further enhancements. The new Supervisory Review and Evaluation Process (SREP) Guidelines of EBA are still in the initial stages of implementation. NBR should conduct more risk-focused, banking industry-wide thematic analyses and develop its off-site monitoring tools, such as by conducting bottom up stress tests. The NBR should also build up specialized expertise, in particular in IT and cyber security. This will benefit the systemically important payment and securities settlement systems that are being brought under the roof of the NBR. Finally, remaining gaps in the anit-money laundering and combating the financing of terrorism (AML/CFT) framework should be addressed. The upgrade of crisis management and resolution procedures that is underway should continue. Important progress has been made, in particular through the adoption and implementation of the Bank Recovery and Resolution Directive (BRRD). Finally, the FSAP recommended the adoption of a comprehensive strategy for financial development.
- FSAP Report
- Technical Note on Crisis Preparedness
- Technical Note on Stress Testing the Sector
- Technical Note on Macro-Prudential Policy Framework
- Technical Note on Balance Sheet Analysis
- Technical Note on Calibration of DSTI Limit
Keywords: Europe, Romania, Banking, Insurance, Stress Testing, FSAP, Macro-prudential Policy, IMF
Previous ArticleFASB Improves Implementation of the Leases Standard in US
BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks.
BoE announced that the Data and Statistics Division is planning to move collection of statistical data to the BoE Electronic Data Submission (BEEDS) portal.
APRA published the updated reporting standards and guidance for the collection of Economic and Financial Statistics (EFS), following a consultation process. Also published was a response letter to the feedback received on the proposal for amending the EFS reporting standards and guidance.
EC is consulting on a draft delegated regulation to supplement the Taxonomy Regulation (2020/852) by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as environmentally sustainable.
The IFRS Foundation published material highlighting the ways in which existing requirements in IFRS standards require companies to consider climate-related matters when their effect is material to the financial statements.
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.