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BNR's Lazea: Pillar II pension fund managers contemplate withdrawing from Romania due to OUG 114
Most, if not all seven Pillar II pension asset management companies consider withdrawing from Romania due to the requirements imposed by Ordinance No. 114, which they deem to be "excessively onerous," chief economist of the National Bank of Romania (BNR) Valentin Lazea told a specialist event on Monday.
"The trouble is that Ordinance No. 114 of 2018 requires Pillar II pension fund managers to pay in about 800 million euro in capital increases in one year alone, 2019, an amount 11 times higher than the existing equity capital. This amount is also twice as high as the aggregate gross fees charged in the last 11 years. At the same time, Ordinance No. 114 reduces by 70 percent the maximum legal amount of the fees that can be charged. Under these circumstances, from what I gather from the discussion with the Romanian Privately Managed Pensions Association, the majority, if not all seven Pillar II management companies contemplate pulling out of Romania, because these requirements are excessively onerous. This is a high financial effort for an almost non-existent gain. Who would be affected? Precisely the 7.25 million participants in the system. The Bucharest Stock Exchange would stand to lose, as instead of taking a step towards the status of emerging market, it would take a step back. The budget would be affected too, by the disappearance of a major taxpayer. Under these circumstances, what is needed is a dialogue between the authorities and the Romanian Privately Managed Pensions Association to find compromise solutions that should prevent pulling the plug on this form of financing," Lazea underscored.
According to the BNR official, the effects of Emergency Ordinance No. 114/2018 seem to slow down and even reverse the progress of the Bucharest Stock Exchange towards the emerging market status.
"The National Bank of Romania is interested in developments on the Bucharest Stock Exchange for several reasons. The first would be financial stability, the second would be macroeconomic stability, and the third would be to encourage an alternative form of financing, other than bank loans. For all these reasons, the National Bank of Romania has consistently supported the efforts of the Bucharest Stock Exchange to upgrade from border market to emerging market status, which would allow a substantive increase in the volume of investments. Regrettably, the effects of Emergency Ordinance No. 114/2018 appear to be slowing down if not even reverse this progress towards emerging market status, because three categories of interests are affected, namely investments on the stock exchange, decent pensions for 7 million participants and government funding by pension funds," said the central bank chief economist.
Lazea also pointed out that the documents on Romania's joining the euro adopted by the government recognize the importance of the pension Pillar II.
"The paradoxical aspect is this: the documents on Romania's joining the euro, recently adopted by the government of Romania, acknowledge the important role of pension Pillar II in all these three areas. They acknowledge that the investments on the Bucharest Stock Exchange provide at least 15 percent of its liquidity, that pension funds will provide decent pensions to more than 7 million participants, that the same pension funds provide over 20 percent of capitalization through the government securities they hold. Moreover, the same substantiation report on the changeover to the euro shows that, as far as the Stock Exchange is concerned, 'in their capacity as long-term investors, private pension funds have a positive role in the stability of the Romanian financial market. Their investments to balance the portfolio are strategic, not speculative," said Valentin Lazea.
According to data provided by the BNR official, in 2017, pension Pillar II had an annual growth rate higher than Pillar III, ie 26 pct versus 18.5 pct.
The Bucharest Stock Exchange organized on Monday the first international summit on "The Romanian Capital Market - Evolution and Outlook."
(Source photo: bvb.ro)