BNR decision leaves more cash for banks

The National Bank of Romania (BNR) has made a first major decision since the country applied for an International Monetary Fund (IMF) loan based on a stand-by agreement. BNR's Board of Directors cut to zero the cash reserve ratio (CRR) imposed on local banks for currency liabilities with residual terms of more than two years.

This means that lenders may keep all money from external loans with maturity of more than two years, and will no longer be forced to deposit 40 percent of these amounts with the central bank, as was the case before.

The cash reserve ratio of lenders is currently 18 percent for lei liabilities and 40 percent for those in foreign currencies with less than two years maturity, the highest level in the European Union.

BNR Governor Mugur Isarescu recently said that it would be wise for the central bank to exempt long-term liabilities from CRR calculation. "In this way, we help long-term financing, which will support lending, and we lower the bank's distress over short-term liabilities," he said. The liability of banks includes resources attracted from client deposits or other financing types.

A CRR cut, long-awaited by the market, would be offset by the funds borrowed from IMF and other international lenders. The first installment of the €20 bln loan agreed upon last week is set to arrive in Romania as soon as the agreement is approved by the IMF board in the coming weeks.

The BNR decision is to be enforced as of May 24 - June 23, once the IMF funds arrive in the country.

In terms of actual money, the slash of CRR for short-term foreign currency liabilities would translate to some €2 billion, according to central bank sources. However, other sources indicated that foreign financing with more than two years maturity that would return to banks is only slightly above €1 billion.

As far as the impact on lending is concerned, bankers say that this decision is welcome and will help unblock lending, but that further measures are also needed.

Business Standard