Wednesday, March 25, 2009

IMF loan and Romania

By Radu Marinas

BUCHAREST, March 25 (Reuters) - The International Monetary Fund said it would ask top Western banks operating in Romania to affirm support for local subsidiaries and back an IMF-led rescue package by keeping their exposure to the struggling EU member.

The IMF agreed a 20 billion euro ($27 billion) aid package with Bucharest on Wednesday in a bid to thwart a financing crisis in the struggling Black Sea state.

The IMF mission will travel on to Vienna on Thursday to bring western banks on board, officials said. They will meet banks including Erste Group Bank, which owns Romania's biggest lender, and Raiffeisen International.

The IMF and the Romanian central bank will offer to let them reduce the amount of foreign currency reserves they are required to hold at the central bank, Romanian officials said, in a move that will free up liquidity and allow banks to give credit.

In exchange, they expect the banks -- also including Societe Generale and UniCredit -- to pledge to keep open funding lines to Romania and boost their subsidiaries' capital.

"What we are asking the banks for is for them to commit to maintaining a cushion of capital here in case everything turns to worse and for them to maintain their exposure to the country, to not take their money out," IMF mission chief Jeffrey Franks told reporters.

Franks said the size of the envisaged additional capital for Romanian subsidiaries would be based on a stress test that will be conducted jointly with the Fund, in an exercise similar to what the IMF has done with authorities in Ukraine.

In some countries in the region, foreign-owned banks have been left as the only source of loans since the global financial crisis led risk-averse investors to dump emerging market assets.
Romanian President Traian Basescu last month called on western banks to help stabilise their affiliates in former Communist states, weighing into a debate over how best to cushion the impact of the economic crisis on eastern Europe.

Even though banks have repeatedly said they stand by their Romanian units, the IMF and the central bank may expect a renewed public commitment, similar to the one Hungary asked for when it was rescued by the IMF last year.

"I would hope that eventually we would receive from these banks a written expression of their commitment to Romania," IMF's Franks said. "We predict that all invited banks will be involved in this process."

Shares in banks with sizeable Romanian exposure soared on the deal, led by an 11 percent rise in Erste shares to 14.69 euros. Raiffeisen rose 3.5 percent to 24.30 euros.

"If reserve requirements are reduced this is good, because you don't make money with money that is sitting at the central bank," said one analyst. "Also the deal should in general stabilise the currency, which will also help the banks."

Emerging European banks have lobbied regulators in the region for months to lower reserve requirements to free up money for lending. Romanian banks at the moment have to keep 40 percent of hard currency deposits and 18 percent of leu deposits as reserve with the central bank. (Additional reporting by Boris Groendahl and Luiza Ilie; editing by Will Waterman)

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