BNR: Foreign funding decrease, credit risk - main challenges

The reduction of the foreign funding, which came together with a rise of costs and a decrease of the maturities, as well as the credit risk are the main challenges for the financial system, according to the latest Report over the financial stability, published on Monday by the National Bank of Romania (BNR). According to the central bank, the foreign funding of the credit institutions and of the Romanian companies registered a rise of the costs and a decrease of the maturities, as a result of the global financial crisis.

The Romanian financial system proved able to absorb shocks of relatively moderate intensity and persistence, the financial stability indicators signalling a low systemic risk in the conditions of a limited foreign exposure, according to the financial stability report drafted by BNR.

"All the components of the financial system felt the shocks coming from the foreign environment. The most obvious influence was felt on the capital market, but the critical role for the financial stability as a whole belonged to the banking sector through the dominant character in the system. The main vulnerabilities for the banking sector, visible in this period of global financial and economic crisis, are the volatility of the foreign funding and the increased credit risk reflected by the marked dynamics of the badly performing credits," reads the press release of the central bank regarding the conclusions of the report over the financial stability.

According to BNR, the stress test scenarios made in the first half of the year attest to the good capacity of absorption of some shocks in the conditions of the supplemented capital performed or in progress now.

The central bank also requested the banks which registered losses and have a solvency rate below the system media to report monthly the rate of adequacy of the capital, usually transmitted on a quarterly basis, and in the case of a credit institution with foreign capital requested to maintain the solvency rate above 10 per cent.

The banks, affected indirectly by the foreign currency credits attracted by companies from abroad

The foreign currency exposure of the corporative sector is bigger than suggested by the value of the internal credits, thanks to the loans taken up directly from abroad by the big companies, conducting to a potential growth of the indirect exposure of the banks to the foreign currency risk, according to BNR. On another hand, the central bank stresses that the direct vulnerability of the banking system to the exchange rate risk evidenced by the foreign currency stand is reduced, thanks to the strict regulation in this domain of the Romanian banks. The correlation of the capital market from Romania with the European ones had a relatively low level, except the international financial turbulences more marked in September-October 2008, when they increased significantly as a result of the contagion phenomenon.

Crediting fall acutely felt by trade and real estate firms

The trade and real estate firms could feel most acutely the impact of the fall of the access to funds, because they use much more intensely the resources of the banks compared to the created value added, according to the annual report regarding the financial stability worked out by BNR. On another hand, the report stresses that the difficulty to maintain the foreign funding would affect chiefly the companies from the real estate and processing industry. The data of the central bank show that the SMEs have received over two thirds of the credit granted by the Romanian banks, in the conditions in which they contribute with only 50 per cent to the formation of the gross value added.

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