Thursday, May 29, 2008

Romania Banking ‘Still Secure’

28 May 2008
Bucharest _ Romania’s banks are still buoyant and secure despite the global credit crunch which has seen banks put down huge write-downs, the National Bank reassures.

The remarks were made by Napoleon Pop, from the Administration Board of the National Bank of Romania who added the overall aggregate solvency in the Romanian banking sector is 12.7 percent, which is still at an adequate level despite a downward trend.

Compared with the minimum 8 percent requirement specified by the European Basel II Accord, only three Romanian banks had a solvency rate of between 8 and 10% at the end of 2007, and the solvency rate of three other banks was between 10 and 12 percent, Pop added.

He also mentioned that the solvency rate of five Romanian banks was in excess of 30%.

A bank’s solvency refers to its ability to meet its long-term fixed expenses and to accomplish long-term expansion and growth. Ultimately the bank must be able to pay any debts that it owes.

Globally, many banks, particularly in the United States and western Europe, have issued loans to clients who otherwise did not meet strict benchmarks.

Such practices have left banks cash-strapped and out of pocket, forcing some to go insolvent or seek protection from bankruptcy.

Although Romania has been shielded from such woes, the National Bank admits it is not completely immune to the global credit squeeze.

In Pop’s opinion, the main weaknesses in the Romanian banking sector is the majority weight of foreign capital and the fact that the five largest banks hold 56 percent of the financial assets of the system, which pose a systemic risk in the event of negative developments.

According to data provided by Romania’s National Bank, the weight of domestic financial assets in Romania’s Gross Domestic Product rose from 37 percent in 2003 to 75 percent last year.

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