Romanian Bks May Face Full-Portfolio Provision Booking On Consumer Loans

„Starting with 2012, Romania will apply the international financial reporting standards, IFRS, throughout the entire banking system. Under the IFRS, auditors check for litigation, and take lost litigation as a precedent, which entails the provisioning of the entire loan portfolio,” ARB president Radu Ghetea told the MEDIAFAX Talks about Competition Law conference.

„In this case, under the Basel agreement rules for capital adequacy, the bank is in default if it has not taken care to secure capital that would cover the loss (generated by the reduction of interest under court ruling),” Ghetea added.

The ARB official let on that banks will provision loans in their entirety, but the provisions will only cover the potential loss brought by the reduction of interest under court ruling.

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In June, the government approved the emergency Ordinance 50/2010 regarding consumer loans, based on a document drafted by the country’s consumer protection authority ANPC. The document transposes the European consumer credit directive into the local legislation.

The ordinance eliminates early repayment fees for loans with variable interests and introduces a new calculation method for interests, based on a transparent reference index plus a fixed percentage, which cannot be modified throughout the duration of the contract.

Romanian lenders requested the government amend the ordinance so that the measures will not be applied retroactively.