June 12, 2018

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.

 

Related Links

Keywords: Europe, Romania, Banking, Insurance, Stress Testing, FSAP, Macro-prudential Policy, IMF

Related Articles
News

FSB to Evaluate Effects of Too-Big-To-Fail Reforms for Systemic Banks

FSB is seeking feedback as part of its evaluation of the effects of the too-big-to-fail reforms for banks.

May 23, 2019 WebPage Regulatory News
News

APRA Releases Minor Changes to Reporting Standards on SA-CCR for Banks

APRA released minor changes to the three reporting standards for the standardized approach for measuring counterparty credit risk exposures (SA-CCR).

May 22, 2019 WebPage Regulatory News
News

APRA on Industry Self-Assessments into Governance and Accountability

APRA released an information paper analyzing the self-assessments performed by 36 of the country’s largest banks, insurers, and superannuation licensees in response to the final report on the Prudential Inquiry into the Commonwealth Bank of Australia (CBA).

May 22, 2019 WebPage Regulatory News
News

PRA Consults on Maintenance of TMTP Under Solvency II

PRA published a consultation paper (CP11/19) that sets out its approach to update supervisory statement (SS6/16) on maintenance of the transitional measure on technical provisions (TMTP) under Solvency II.

May 22, 2019 WebPage Regulatory News
News

APRA Proposes to Amend Guidance on Residential Mortgage Lending

APRA is consulting on revisions to the prudential practice guide APG 223 on residential mortgage lending in Australia.

May 21, 2019 WebPage Regulatory News
News

IASB Proposes Improvements to IFRS 9 and IFRS 16

IASB published the exposure draft ED 2019/2 that proposes amendments to four IFRS standards, including IFRS 9 on Financial Instruments and IFRS 16 on Leases.

May 21, 2019 WebPage Regulatory News
News

Denis Beau of BDF on Supervisory Priorities for Climate-Change Risks

Denis Beau, the First Deputy Governor of BDF, delivered opening remarks at the BCBS-BSCEE-FSI High-level Meeting for Europe on banking supervision.

May 21, 2019 WebPage Regulatory News
News

ISDA CDM to be Deployed for UK Digital Regulatory Reporting Pilot

ISDA announced deployment of the ISDA Common Domain Model (ISDA CDM 2.0) to support the UK FCA, BoE, and participating financial institutions in testing phase two of the Digital Regulatory Reporting pilot for derivatives.

May 21, 2019 WebPage Regulatory News
News

MAS to Consolidate Regulation of Merchant Banks Under Banking Act

MAS published a consultation paper that proposes to consolidate the regulation of merchant banks under the Banking Act and to move merchant banks to a licensing regime under the MAS Act.

May 21, 2019 WebPage Regulatory News
News

ESAs Amend Technical Standards on Mapping of ECAIs Under CRR

ESAs published a second amendment to the implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk under the Capital Requirements Regulation (CRR).

May 20, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3118