Bankers set aside twice as much money for troubling times

More money set aside by banks

At the end of December 2008, the valuation reserves totaled 7,58 bln lei, 15.3% below the level of January 2009. At the end of first month of 2008, the provisions amounted to 3.96 bln lei.

On January 31, 2009, the banks’ provisions destined to cover bad loans (with a default in payment for 90 days) equated 6.65 bln lei.

A provision is a pool of cash set aside to cover predictable losses in the future resulted from current activity, and they appear on a bank’s income statement as an operating expense.

For loans deemed as standard assets, the valuation allowance in banks reached 549.6 million lei at the end of first month this year, while for loans 16-30 days past due, the banks provisioned 512.5 mln lei.

For substandard loans, the reserves reached 497.5 million in the aforementioned period, while for nonaccruing loan, the lenders set aside 538.1 million lei, NBR informs.

Population’s loan default rates reached 1.126 bln lei, up 15% from 981.2 million lei from end-2008 and nearly double against prior-year period.

The payments 90 days past due accounted for 905.2 million lei, while loans removed from balance hit 92.7 mln lei.

Special recommendation for seven banks

NBR recommended seven banks to keep the solvability rates above 10%, after a sharp deterioration of seven banks’ credit portfolios, said Nicolae Cinteza, head of the supervisory division at NBR.

The minimum solvability level recommended for seven banks is at 8%, while for the Romanian banking system, the median solvability was at 13.34% at the end of last year, NBR informs.

“We have already recommended to seven banks in Romania to keep their solvability rates above 10%, as we had seen a sharp deterioration of their credit portfolios,” said Cinteza.

If needed, the banks will raise their capitals in a bid to preserve a comfortable solvability threshold.

“We will wait for the outcome of the stress tests operated on the seven banks”, Cinteza added.

Romania’s currency reserves fell sharply

The foreign exchange reserves of the National Bank of Romania stood at 796 million euros in March, following a 3.07% contraction from 25,121 million euros at February 28th, 2009, mainly due to the euro’s evolution against US dollar and GB pound.

This is the fifth successive month of contraction for currency reserves after October peak of 27,318 bln euros. In November, the reserves shrank to 27,228 bln euros, in December to 26,220 bln euros, in January to 26,009 bln euros, while in February, the reserves decreased to 25,917 bln euros.

The foreign exchange reserves of the National Bank of Romania consist of assets denominated in euro (65%), US Dollars (27.50%), sterling pounds (7 %) and other currencies (0.5%). The appreciation of the exchange rate of euro versus the US dollar and Sterling pound during March 2009 caused the decrease of the value of the US dollar and Sterling pound components of the foreign exchange reserve with an equivalent of EUR 422 million.

3,519 million euros represented the inflows, namely the change in the foreign-exchange reserve requirements of credit institutions, inflows in the Ministry of Public Finances account held at NBR, income from the management of foreign reserves, transactions in the interbank market, a.s.o., while 4,315 million euros worth of outflows consisted in the change in foreign-exchange reserve requirements of credit institutions, payments from the account of the European Commission, principal repayments and interest payments on public and publicly guaranteed external debt, transactions in the interbank market, reads the press release remitted by the National Bank of Romania.

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