Banca Naţională a României

The National Bank of Romania is launching the 6th Financial Stability Report. The publication assesses the soundness of the Romanian financial system and its capacity to withstand the significant challenges manifest during 2010 and the first half of 2011, the factors that influenced the performance of the financial system, as well as its interaction with real economy and external environment. The Report attests that financial stability in Romania remained robust, despite the difficult global and domestic economic conditions in 2010.

The Report shows that the risks to the banking sector were adequately managed via credit institutions’ own efforts, which translated into higher solvency, provisioning and liquidity. The National Bank of Romania continued and diversified its cautious macro‑prudential policy by providing liquidity on a case‑by‑case basis, requiring capital increases in a proactive manner, closely monitoring banks and improving the regulatory framework. The results of the latest stress test to economic shocks conducted by the NBR show that, in the unlikely event of the considered adverse scenario materialising, the solvency ratio and the tier one capital adequacy ratio will remain above the prudential requirements. The European Banking Coordination Initiative, under which the nine participating banks have fulfilled their aggregate commitments to maintain exposure and ensure a capital adequacy ratio above 10 percent for every credit institution in Romania, also played a major role in safeguarding financial system stability given the ongoing disintermediation.

The macroeconomic environment in Romania has improved since the previous Report was released. The new precautionary Stand-By Arrangement signed in 2011 with the European Union, the International Monetary Fund and the World Bank, together with the commitments undertaken by the Romanian authorities under the national programmes, are seen as anchors for maintaining financial stability and furthering structural reforms in order to boost the economic growth potential. At EU level, the package of measures aimed at implementing a new supervisory architecture focusing on macro‑prudential issues will help enhance the European financial system (by mitigating the vulnerabilities highlighted by the crisis) and increase the EU’s economic growth potential.

The Report highlights that credit risk remains the main vulnerability of the banking sector. Looking ahead, the pressure on bank asset quality is expected to start abating, amid a gradual consolidation of economic growth and tighter risk management by banks. Other challenges for the coming period refer to managing the contagion risk likely to become manifest in the event of adverse developments on global markets driven by the sovereign debt crisis or the considerably slower growth in developed economies, achieving a more balanced breakdown by currency of flows of new loans, and ensuring a more flexible set of early intervention tools to address credit institutions potentially in distress. These challenges call for further efforts towards preserving adequate solvency, provisioning and liquidity, as well as for additional prudential measures.

The non-bank components of the financial system (insurance companies, pension funds, non‑bank financial institutions and the capital market) saw mixed developments in the period under review, but systemic risk remained low. The payment systems and the securities settlement systems did not face any major disruptions, thanks to the central bank’s actions to contain the risks to their functioning.