Romanian Auth To Seek Accord With Bks On Foreign Currency Loans Restructuring

"We will seek an agreement with commercial banks to facilitate the restructuring of household debt contracted in foreign currency by adjusting the maturity and repayment schedule of the debt, including offering the option to voluntarily convert it in domestic currency. Banks will also be allowed to continue to rely on their own in-house expertise for the collection of their claims," according to the letter of intent signed by Romania’s Finance Minister Gheorghe Pogea and central bank governor Mugur Isarescu and sent to Dominique Strauss-Kahn, IMF’s Managing Director.

Romania and the IMF signed in May a EUR12.95 billion two-year stand-by arrangement, as part of a EUR19.95 billion financial support package that also includes funds from the European Commission, the World Bank, and the European Bank for Reconstruction and Development.

The Romanian central bank also pledged to temporarily exempt from the reserve requirements any new subordinated debt subscribed either by the banks’ owners or by the international financial institutions for lenders whose majority owner signs a commitment to maintain overall exposure to Romania throughout the period of the program; and increase the capital of its bank in Romania in line with the potential needs, as assessed under the stress-testing exercise.

Subordinated loans are long-term financing lines which ranks after other debts should a company fall into receivership or be closed.

The central bank has already cut to zero the minimum required reserve ratios for foreign-currency liabilities with maturities above two years.

This preferential regime will expire at the end of the program period, according to the letter of intent. In line with EU principles, it will be available to all banks established in Romania, regardless of the nationality of the owners.

Banks’ commitment to maintain or increase exposures and to enhance capital as needed is a key element in improving financial stability and monetary conditions.

"If monetary conditions evolve favorably, the BNR will be prepared to gradually ease reserve requirements, which in turn will promote bank stability," the letter of intent also said.