The report underlines the difficult conditions in which the system has functioned during 2008 and the first quarter of 2009, a period marked by an ongoing weakening of the international financial environment, the labeling of the emerging Europe with the higher risk tag and the deterioration of the foreign investors perception due to structural and macroeconomic imbalances persistence.
According to National Bank of Romania, all the financial components have been impacted by the shocks triggered by the external environment. The most evident influence was observed in the capital market but the critical role for financial stability was played by the banking sector, due to its dominant position in the system.
The main vulnerabilities for the banking sector that surfaced amid global economic crisis are the volatility of the external financing, and the increased credit risk, reflected by the strong dynamic of the non-performing loans, reads the report issued by the central bank.
The external financing of credit institutions and companies in Romania, registered an increase in costs and debt tenure decrease. Subsequently, the uncertainties related to financing have increased, reflecting on one hand the liquidity shortage in countries pursuant investment venues in Romanian banking sector and on the other hand the major exposure of foreign investors on the balance sheets of Romanian banks and companies (liability side).
This context has called for preventive measures, subsequently materialized in the negotiation of multilateral financial package with IMF, European Union and other international financial institutions.
The financial package coupled with the agreements concluded in Vienna/Brussels with international banking groups operating in Romania have contributed to an easing of the perspective of a sharp and fast-track adjustment of external financing, particularly for the short term financing.
The credit risk has increased, largely over the past six months, as a consequence of severe deterioration of domestic economic condition, as well as of narrow external demand for the Romanian companies. This sector faces mounting financing pressures, related the costs attached to it, which spurred the difficulties for outstanding debt servicing. The household sector encounters significant non-financial and financial assets adjustments, while the cash-strapped debtors (with the highest share in total loan book) face mounting difficulties in debt reimbursement, due to income reduction and exposure to currency risk.
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 (the process is in place, with some banks having already increased the capital).
The Romanian financial sector has proven able to absorb shocks of a relative moderate intensity and persistence. The financial stability indicators point out to a low systemic risk in the context of a limited external exposure.
The other components of the financial system have been deeply affected by the crisis, particularly the capital market, but their reduced size has contributed to the upholding of the systemic risk at modest levels.
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