Romania's Fincl Sector Able To Deal With Moderate Shocks - Ctrl Bk

Romania’s financial system has proven able to absorb shocks of a relative moderate intensity and persistence during the economic crisis, as the risks were reduced due to the low external exposure, the central bank said Monday in its 2009 Financial Stability Report.

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According to the central bank, financial stability indicators show a low systemic risk in the context of a limited external exposure.

“All the financial system components have been affected by the external environment shocks. The most evident consequences have been observed in the capital market, but the critical role for the overall financial stability has been borne by the banking sector, due to its dominant position in the system. The main vulnerabilities for this sector are the volatility of the external financing and the increased credit risk, mirrored in the strong dynamic of the non-performing loans,” the report reads.

The report underlines the difficult conditions of the financial system in 2008 and the first quarter of 2009, a period marked by the worsening of the international environment and the deterioration of the foreign investors’ perception due to the persistence of structural and macroeconomic imbalances.

“Since the crisis started, the external financing of the Romanian credit institutions and companies has been characterized by an upward cost trend and a decrease in debt tenures,” the report reads.

This context has called for preventive measures, and the Romanian authorities negotiated a EUR20 billion external financing package with the International Monetary Fund, the European Union and other international financial institutions.

“The credit risk increased, especially in the last couple of months, due to domestic economic conditions deterioration, as well as to the external demand tightening for the Romanian companies (…) The household sector encounters significant non-financial and financial assets adjustments,” the report said.

The report also sees other components of the financial system deeply affected by the crisis, mostly the capital market, but their reduced size contributed to keeping the systemic risk at lower levels, the central bank said.

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