CristianPopapresentationSummary (I)
Romania registered rapid average growth from 2004-8, fueled by strong capital inflows, including lending expansion (led by fx) mainly financed by parent bank credit lines
This took place at the expense of overheating: both inflation and CAD were worsening
Strong short-term nominal appreciation also created a challenge for macroeconomic demand management, through the stimulative effects of interest rate hikes, mirrored in balance sheet and wealth effects (esp. for unhedged borrowers)
The NBR took a broad variety of measures to slow down unsustainably rapid fx (and overall) credit growth: increases in MRR (higher for fx liabilities), LTV, debt service to income limits for households (across spectrum of financial institutions), exposure limits for banks to unhedged borrowers, tougher stress-test coefficients for fx exposures (esp. ‘exotic’ denominations), demands for higher capital base, moral suasion
*
Summary (II)
After Oct. 2008, Romania entered into a prolonged recession, on the background not of a fully-fledged sudden stop, but of a sizable reduction in capital flows, with significantly more difficult and expensive access to financing against growing risk aversion of investors everywhere; subsequent correction in both external & (with a lag) fiscal deficits
Banks turned from ST competition for market shares to procyclical deleveraging – competing for scarce domestic savings bid up deposit yields and, with widening margins (from NPL growth & provisioning requirements), lending rates also rose considerably
However, efforts to consolidate & increase bank capital started ahead of the crisis, with comfortable levels even against rising NPLs (solvency rate currently at 14.7% in Dec. 2010 against 12.8% in Sept. 2008)
Conclusions:
Need to manage fx credit growth issue pro-actively & comprehensively, by involving parent banks and cooperation between regulators/supervisors from both home & host countries: debtor-focused measures adopted solely in host country have limited effectiveness, become porous over 1-2 years and may have distortive side effects (cross-border credit transfer, etc.)
Liquidity becomes not only an important issue for financial system, but also a quasi-instrument of monetary policy
Longer-term, ‘holistic’ view of economic developments, integrating price stability and financial stability are key challenges for central banks
*
*
*
*
*
*
*
*
*
*
*
*
-16
-12
-8
-4
0
4
8
12
16
I/04
II
III
IV
I/05
II
III
IV
I/06
II
III
IV
I/07
II
III
IV
I/08
II
III
IV
I/09
II
III
IV
I/10
II
III
-16
-12
-8
-4
0
4
8
12
16
-3
-2
-1
0
1
2
3
4
5
6
Jan.04
May.04Sep.04
Jan.05
May.05Sep.05
Jan.06
May.06Sep.06
Jan.07
May.07Sep.07
Jan.08
May.08Sep.08
Jan.09
May.09Sep.09
Jan.10
May.10Sep.10
Trade Balance
(monthly data)
Source: National Institute of Statistics
In 2010, yoy growth of exports and imports was 28.1% and 19.9% respectively.
-4.2
-5.2
3.1
2.1
0.4
0.3
–7
–5
–3
–1
1
3
5
Current account financing via FDI (including capital transfers)
amounted to 46.2% in Jan.-Nov. 2010 vs 83.0% in Jan.-Nov. 2009.
In Jan.-Nov. 2010, net FDI decreased 31.3% yoy.
EUR bn.
EUR bn.
In 2009, net FDI decreased 61.9% yoy, but, together with capital
transfers, covered 82.7% of current account financing.
Source: National Bank of Romania, National Institute of Statistics
Source: National Institute of Statistics, National Bank of Romania
Inflation Rate
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Dec.03
Mar.04
Jun.04
Sep.04Dec.04
Mar.05
Jun.05
Sep.05Dec.05
Mar.06
Jun.06
Sep.06Dec.06
Mar.07
Jun.07
Sep.07Dec.07
Mar.08
Jun.08
Sep.08Dec.08
Mar.09
Jun.09
Sep.09Dec.09
Mar.10
Jun.10
Sep.10Dec.10
Source: National Institute of Statistics, National Bank of Romania calculations
*) items with volatile prices: vegetables, fruit, eggs, fuels
**) excluding tobacco and alcoholic beverages
Inflation Rate
Source: National Institute of Statistics, National Bank of Romania calculations
Tradables and Non-tradables* Prices
tradables (goods)
*) based on COICOP
annual percentage change
Source: National Institute of Statistics, NBR calculations
*) ±1 percentage point around the central target
Inflation targets
Inflation Rate and Interest Rates
0
4
8
12
16
20
24
28
32
Jan.04
Jul.04
Jan.05
Jul.05
Jan.06
Jul.06
Jan.07
Jul.07
Jan.08
Jul.08
Jan.09
Jul.09
Jan.10
Jul.10
percent
the same year-earlier period)
(stock; % p.a.)
the same year-earlier period)
average interest rate on lei-denominated time deposits
from non-financial corporations and households (% p.a.)
NBR policy rate: 6.25% starting with May 5, 2010
Interest Rates in the Banking System
0
4
8
12
16
20
24
28
32
Jan.04Apr.04
Jul.04
Oct.04Jan.05Apr.05
Jul.05
Oct.05Jan.06Apr.06
Jul.06
Oct.06Jan.07Apr.07
Jul.07
Oct.07Jan.08Apr.08
Jul.08
Oct.08Jan.09Apr.09
Jul.09
Oct.09Jan.10Apr.10
Jul.10
Oct.10
0
4
8
12
16
20
24
28
32
new lei-denominated time deposits from non-financial corporations and households
interest rate on monetary policy operations (flow)
percent per annumpercent per annum
Note: Starting June 2010, monetary indicators are calculated based on NBR Norms No. 11/2009;
data series for previous period are restated in order to ensure comparability.
Nominal Exchange Rate
RON/EUR
Real Exchange Rate of the RON against the EUR
80
100
120
140
160
180
200
220
240
260
Jan.01Apr.01
Jul.01
Oct.01Jan.02Apr.02
Jul.02
Oct.02Jan.03Apr.03
Jul.03
Oct.03Jan.04Apr.04
Jul.04
Oct.04Jan.05Apr.05
Jul.05
Oct.05Jan.06Apr.06
Jul.06
Oct.06Jan.07Apr.07
Jul.07
Oct.07Jan.08Apr.08
Jul.08
Oct.08Jan.09Apr.09
Jul.09
Oct.09Jan.10Apr.10
Jul.10
Oct.10
based on CPI differential between Romania and Euro area
based on PPI differential between Romania and Euro area
based on ULC in industry
Source: National Bank of Romania calculations, National Institute of Statistics, IMF - International Financial Statistics
Note: For PPI and ULC, data recalculated according to NACE Rev.2 and to the change in the base year (2005 instead of 2000)
and weighting system.
70
80
90
100
110
120
130
140
Jan.04Apr.04
Jul.04
Oct.04Jan.05Apr.05
Jul.05
Oct.05Jan.06Apr.06
Jul.06
Oct.06Jan.07Apr.07
Jul.07
Oct.07Jan.08Apr.08
Jul.08
Oct.08Jan.09Apr.09
Jul.09
Oct.09Jan.10Apr.10
Jul.10
Oct.10
gross nominal wage in manufacturing
productivity in manufacturing
unit labour cost
banks' foreign exchange reserves
NBR foreign exchange reserves
off. reserves - months of imports*
private debt - months of exports*
months
November
0
50
100
150
200
250
300
350
400
450
500
20042005200620072008
2009**
2010***
0
100
200
300
400
500
600
700
800
900
1,000
fx off. reserves/[ST ext. debt+MLT ext. debt
service (t+1)+CAD (t+1)]
fx off. reserves (t)/MLT ext. debt service (t+1)
fx off. reserves/CAD (t+1) (rhs)
percent
Source: National Bank of Romania; National Institute of Statistics; National Commission of Prognosis
percent
***) November 2010 for reserves and ST external debt stock; 2011
estimate for CAD; Dec. 10 - Nov. 11 estimate for MLT debt service
Source: National Bank of Romania
MLT External Debt
private debt
Source: National Bank of Romania, National Institute of Statistics, European Commission
domestic public debt
foreign public debt
percent of GDP
(according to ESA95)
*) EDP Notification, October 18, 2010
*
General Government Balance
percent of GDP
(according to ESA95)
*) EDP Notification, October 18, 2010f) forecast
Revised target for 2010 following the 5th review of the IMF and EU financial assistance arrangement.
0
100
200
300
400
500
600
700
Aug.09
Sep.09
Oct.09
Nov.09
Dec.09
Jan.10
Feb.10
Mar.10
Apr.10
May.10
Jun.10
Jul.10
Aug.10
Sep.10
Oct.10
Nov.10
Dec.10
Jan.11
Hungary (BBB-)Latvia (BB+)
Lithuania (BBB)Poland (A-)
Source: Bloomberg
Eurobond Spreads
basis points
Note: The spread is calculated as against the yields on German Bonds, all bonds maturing in 2018.
() Composite rating (Moody's, S&P, Fitch)
0
200
400
600
800
1,000
1,200
Jan.08
Feb.08
Mar.08
Apr.08
May.08
Jun.08
Jul.08
Aug.08
Sep.08
Oct.08
Nov.08
Dec.08
Jan.09
Feb.09
Mar.09
Apr.09
May.09
Jun.09
Jul.09
Aug.09
Sep.09
Oct.09
Nov.09
Dec.09
Jan.10
Feb.10
Mar.10
Apr.10
May.10
Jun.10
Jul.10
Aug.10
Sep.10
Oct.10
Nov.10
Dec.10
Jan.11
Feb.11
RomaniaBulgaria
in Central and Eastern Europe
Source: Bloomberg
basis points
Financial Intermediation*
loans to households
foreign currency-denominated loans
- stock -
Broad Money (M3)
of up to and including two years
other marketable instruments*
0
10
20
30
40
50
60
70
80
90
100
Dec.04
Jun.05
Dec.05
Jun.06
Dec.06
Jun.07
Dec.07
Jun.08
Dec.08
Jun.09
Dec.09
Jun.10
Dec.10
percent
*) repurchase agreements, money market fund shares and units, negotiable debt
securities with a maturity of up to and including two years
Note: Starting June 2010, monetary indicators are calculated based on NBR Norms No. 10/2009;
data series for previous period are restated in order to ensure comparability.
Private Sector Deposits
(in real terms)
0
10
20
30
40
50
60
70
80
90
100
110
120
Dec.04
Jun.05
Dec.05
Jun.06
Dec.06
Jun.07
Dec.07
Jun.08
Dec.08
Jun.09
Dec.09
Jun.10
Dec.10
*) non-financial corporations and financial corporations other than MFIs
Note: Starting June 2010, monetary indicators are calculated based on NBR Norms No. 10/2009;
data series for previous period are restated in order to ensure comparability.
Non-financial Corporations' Loans and Deposits
70
60
50
40
30
20
10
0
10
20
30
40
50
60
70
200420052006200720082009Dec.
2010
lei billion
lei billion
Note: Starting June 2010, monetary indicators are calculated based on NBR Norms No. 10/2009;
data series for previous period are restated in order to ensure comparability.
Households' Loans and Deposits
lei billion
lei billion
Note: Starting June 2010, monetary indicators are calculated based on NBR Norms No. 10/2009;
data series for previous period are restated in order to ensure comparability.
14.66
14.59
21.09
20.64
14.98
14.33
14.67
13.76
13.78
18.12
21.07
7.89
7.87
8.93
10.89
9.18
8.63
7.32
8.13
7.55
8.09
7.91
1.36
1.38
3.03
2.28
2.59
2.31
2.13
2.47
1.38
1.39
1.35
0
5
10
15
20
25
30
Dec.03Dec.04Dec.05Dec.06Dec.07Dec.08Dec.09Mar.10Jun.10Sep.10Dec.10
0
0.5
1
1.5
2
2.5
3
3.5
liquidity ratio (rhs)
percent
Note: At present, no credit institution has a solvency ratio below the 10 percent threshold.
Source: National Bank of Romania
1.6
1.6
1.7
2.5
3.6
4.1
3.9
4.4
4.2
4.4
4.5
4.2
4.6
4.8
4.5
1.7
1.8
2.2
2.8
4.0
4.7
6.5
7.9
10.2
10.8
11.7
11.9
11.9
1.4
11.3
10.0
11.7
0
2
4
6
8
10
12
14
Mar.08
Jun.08
Sep.08
Dec.08
Mar.09
Jun.09
Sep.09
Dec.09
May.10
Jun.10
Jul.10
Aug.10Sep.10
Oct.10
Nov.10
Dec.10
loans and related interest classified under "loss" 1)
loans and related interest classified under "loss" 2)*
1) overdue loans up to 90 days for which exposure to the risk entity was reduced by 100% of collateral value
2) overdue loans for more than 90 days for which exposure to the risk entity was reduced by at most 25% of collateral value
Source: National Bank of Romania
Developments in Non-Performing Loans
percent in total loan portfolio
*) This NPLs definition is in line with the recommendations of the IMF guide and allows international comparisons.
-304
-463
-628
-474
-718
-577
-235
-205
302
33
816
680
90
-209
4,401
2,533
2,206
2,061
1,785
261
440
-10
-5
0
5
10
15
20
25
30
35
40
45
Dec.04Dec.05Dec.06Dec.07Dec.08
Mar.09
Jun.09
Sep.09
Dec.09
Jan.10
Feb.10Mar.10
Apr.10
May.10
Jun.10
Jul.10
Aug.10Sep.10
Oct.10
Nov.10
Dec.10
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
206
204
203
204204203
207
199
194
161
174
188
193
195
190
192193193
193
193
7069
68
61
62
6867
65
55
5963
65
57
5556
58
6059
61
62
24
23
23
23
22
20
21
19
4
5
6
8
10
11
13
15
16
16
17
18
0
50
100
150
200
250
Mar.08
Jun.08
Sep.08
Dec.08
Mar.09
Jun.09
Sep.09
Dec.09
Jan.10
Feb.10Mar.10
Apr.10
May.10
Jun.10
Jul.10
Aug.10Sep.10
Oct.10
Nov.10
Dec.10
0
5
10
15
20
25
Gross and Net Exposure (Loans and Interests of Non-bank Clients)
and Related Provisions
0
2
4
6
8
10
12
14
16
18
20
22
in total net assets
in own capital (rhs)
percent
Past-due and Doubtful Claims in Own Capital and Total Bank Assets
percent
Dec.07Mar.08Jun.08Sep.08Dec.08Mar.09Jun.09Sep.09Dec.09Mar.10Jun.10Sep.10Dec.10
113.7812.9912.7811.8513.7613.1613.5113.7314.6714.9814.3314.5914.66
27.327.207.307.108.136.816.927.047.558.097.917.897.87
359.0962.0663.4765.0462.5060.0059.1160.3459.1360.3861.2460.7658.66
429.9827.5426.0924.7926.0124.9823.9121.9123.0319.9419.2818.5419.59
50.220.220.300.240.320.671.031.271.502.042.232.720.00
60.770.830.951.071.372.162.683.133.945.045.927.097.08
70.170.190.250.220.290.520.750.921.011.381.521.821.49
8
85.4090.5091.0089.7086.2088.5089.6087.7488.0487.8589.5489.3188.80
91.011.511.441.771.56-0.250.050.280.250.55-0.15-0.19-0.09
109.4316.4515.8219.4117.04-2.900.643.222.895.96-1.58-2.13-1.02
1138.7034.9833.2331.7434.4333.0533.6234.6635.2837.0735.8636.7437.85
122.132.292.302.452.472.312.391.631.381.391.351.381.36
13108.72116.10119.64124.71122.03124.69119.23117.55112.80113.24117.46116.26113.46
Note:
(1) Level 1 own funds / Total average assets (net value).
(2) These ratios are based on balance sheet data and include overdue loans / claims with maturity shorter than 30 days and those under legal proceedings.
Provisioning for risk-weighted exposure of banks to bank and non-bank loans and interbank
placements and related interest classified under “substandard”, “doubtful” and “loss” (3)
Profitability
Overdue and doubtful loans granted to non-bank clients / Total loan portfolio (net value) (2)
Overdue and doubtful claims granted to non-bank clients / Total assets (net value) (2)
Overdue and doubtful loans granted to non-bank clients / Total loan portfolio (gross value) (2)
BANKING INDICATORS
(Banks, Foreign Bank Branches and CREDITCOOP)
x = it is not the case because the frequency of the solvency ratio is quarterly.
Loans to clients / Deposits from clients
ROA (Net profit /Total assets, average)
Asset quality
Capital adequacy
Loans to non-bank clients (gross value)/ Total assets (gross value)
Indicators
ROE (Net profit / Own capital, average)
Liquidity
Liquidity ratio (effective liquidity / required liquidity) (5)
(4) The numerator of this ratio is represented by cash, sight and term deposits with banks at net value plus government securities free of pledge, while the denominator includes total liabilities.
(3) These ratios are based on data from the loan classification prudential reporting. According to NBR Regulation no. 3/2009 on the classification of loans and investments, and the establishment, regularisation
and use of specific credit risk provisions – that replaced NBR Regulation no. 5/2002 beginning with September 2009 –, the loans granted by credit institutions to the non-banking sector are classified under five
categories: standard, watch, substandard, doubtful and loss. Credit exposures for loans granted to non-banking sector are classified by the reporting institutions according to the debt service (the number of days
past due from the maturity date), the financial performance of the debtors and the initiation of legal proceedings. Also, further to the contagion criterion application, the loans granted to a single debtor are
classified into a single category, i.e. the worst one. Consequently, non-performing loans include not only the effective loss, but also potential losses. For instance, a credit would be classified as loss through
contagion, even if the debt service is good.
(5) New amendments to NBR Norms no.1/2001 on banks' liquidity have been in place starting with July 2009, mainly consisting in tighter criteria for the assessment of required liquidity. Furthermore NBR Norms
no.1/2001 were replaced by new liquidity rules (NBR Rules no. 24/2009 on credit institutions' liquidity effective December 2009).
Placements and loans to other banks (gross value)/ Total assets (gross value)
0
2
4
6
8
10
12
Sep.08Dec.08
Mar.09
Jun.09
Sep.09Dec.09
Mar.10
Jun.10
Sep.10
consumer credit
mortgage loans
0
1
2
3
4
5
6
7
8
9
10
Sep.08Dec.08
Mar.09
Jun.09
Sep.09Dec.09
Mar.10
Jun.10
Sep.10
weight in the total of each category (%)
*90 days past due loans (using contagion by debtor at bank level)
in total loans
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Dec.08
Jan.09
Feb.09
Mar.09
Apr.09
May.09
Jun.09
Jul.09
Aug.09
Sep.09
Oct.09
Nov.09
Dec.09
Jan.10
Feb.10
Mar.10
Apr.10
May.10
Jun.10
Jul.10
Aug.10
Sep.10
Oct.10
Nov.10
weight in the total of each category (%)
*90 days past due loans (using contagion by debtor at bank level) in total
loans. Liquidation procedures are also taken into account
Companies' Non-performing Loans Ratio*
*Loans overdue for at least 1 day, as recorded in banks' balance-sheets
Source: Central Credit Register
12.7
*90 days past due loans (using contagion by debtor at bank level) in
total loans. Liquidation procedures are also taken into account
Companies' Non-performing Loans Ratio* by Sector
percentpercent
2.4
5.7
5.1
5.2
8.5
4.2
7.9
6.3
7.3
-7.1
-2.0
20002001200220032004200520062007200820092010*
annual percentage change
* NBR estimate
Current Account Balance
percent of GDP
*) including reinvested earnings
Source: National Bank of Romania, National Institute of Statistics, National Commission of Prognosis
Jan.-Nov. 2010: EUR -5.2 bn., up 23.5% yoy
e) NBR estimate
Target 2006
Target 2007
General Government Balance
percent of GDP
Source: National Bank of Romania, National Institute of Statistics
- stock -
-20
0
20
40
60
80
100
120
140
Jan.04
Jul.04
Jan.05
Jul.05
Jan.06
Jul.06
Jan.07
Jul.07
Jan.08
Jul.08
Jan.09
Jul.09
Jan.10
Jul.10
*) based on CPI
Note: Starting June 2010, monetary indicators are calculated based on NBR Norms No. 10/2009;
data series for previous period are restated in order to ensure comparability.
real annual percentage change*
total
Domestic credit
total
(deflated by CPI, Dec. 2010=100)
Domestic credit