Banks could

Publish date: 26-11-2009
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The Ministry of Finance is today auctioning state bonds with maturity of one year, worth €500 million. The state is relying on the liquidity of banks and their desire to invest their extra cash they have as a result of the recent cut in the cash reserve ratio on foreign-currency liabilities. Analysts said that the offer of the Ministry of Public Finance (MFP) will be oversubscribed and that the interest rate of the issue will remain near the previous level, of 5.25 percent per year.

"A 5.25 percent rate is acceptable both for the Ministry of Finance and for banks. In the second half of next year, the European Central Bank will forego inexpensive lending facilities and will raise the key interest. Thus, EURIBOR will increase, and euro rates will go up. The issues made by MFP this year have proven to be advantageous agreements," said Adrian Mitroi, Secretary General of the Chartered Financial Analyst (CFA) Romania association.

The Ministry of Finance organized two euro-denominated state bond auctions this year, attracting over €1.2 billion, at an annual interest rate of 5.25 percent, and maturities of four and three years, respectively. Mitroi said that the release of more than €1.4 billion from the cash reserve ratio on foreign currency liabilities means a compromise between the Ministry of Finance and banks, brokered by the National Bank of Romania.

The analyst added that the funds to be attracted today by MFP are not sufficient to finance the budget deficit, and two more state bond issues could take place by the end of this year.

"The Ministry of Finance will pay an interest rate of 5-5.25 percent for the state bonds. The offer will certainly be oversubscribed, and the Ministry of Finance could attract almost €1 billion," said Melania Hancila, Head of Research and Strategy of Volksbank Romania.

Sources on the bank market told Business Standard last week that the state will borrow over €500 million in the first week of December, in a "club-loan" arrangement. The President of Raiffeisen Bank, Steven van Groningen, said yesterday that banks are talking with the Ministry of Finance about a new "club-loan."

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