Tuesday, June 30, 2009

Romanian banks able to absorb moderate shocks-c.bank

BUCHAREST, June 29 (Reuters) - Romania's financial sector has so far proven able to absorb the relatively moderate shocks stemming from the global crisis, the central bank said in its annual financial stability report on Monday.

'The financial stability indicators point out to a low systemic risk in the context of a limited external exposure,' it said in a statement.

'A number of stress test scenarios have been run. The outcomes highlight a good shock absorption capacity if some banks would bring in additional capital,' it said, adding that a process of raising the capital was ongoing.

However, it said the main vulnerabilities for the sector are the volatility of the external financing and an increased credit risk, mirrored in strong dynamics of the non-performing loans.

In just several months, Romania has turned from being an attractive destination for foreign investment to an economy plagued by ballooning foreign debt, a gaping external shortfall, bloated government budgets and sour market sentiment.

This has forced it to seek IMF-led aid, following similar deals secured by fellow European Union-member states Hungary and Latvia which suffered when private lending slowed sharply.

The bank said the 20-billion-euro aid package together with the banking agreements concluded in Vienna and Brussels earlier this year have contributed to the easing of the perspective of a deep and rapid adjustment of external financing.

'This circumvented adverse affects on the economic activity and the banking sector,' it said.

Nine European banks have agreed to shore up the capital of their Romanian affiliates to help the country recover from global crisis last month in Brussels, by increasing the minimum capital adequacy ratio for each subsidiary from 8 to 10 percent during the 24-month loan programme.

The IMF has said that banks from countries like Austria, Italy and France have a role in the recovery of countries in Eastern Europe, where they bankrolled a credit-fuelled boom over the past few years.

(Reporting by Radu Marinas; Editing by Victoria Main)

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