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European Commission: Banking system in Romania will be highly affected by tax on financial assets


 The Romanian banking system stability is threatened by the recent introduction of the "tax on greed," which will significantly affect solvability and profitability of the banks and worsen things for the weaker ones, according to the country report for Romania issued by the European Commission (EC) on Wednesday. 

In the end of last year, without consulting the parties involved and without assessing the impact, the Government decided, through the Emergency Ordinance 114, to lay tax on the financial assets of banks in the event the ROBOR level exceeds 2 per cent (which contribution was initially called the "tax on greed"), shows the report.

The tax is extremely pro-cyclical and raises concerns related to calibration, for it inhibits the mechanism of stability of prices in the banking sector. Based on the preliminary analyses, the tax will probably hit very seriously the financial stability, while significantly affecting the profitability of banks and worsening even more the situation of the weaker ones, said the EC.

The impact on profitability of the banking sector seems to be higher than in other EU states that introduced similar taxes last year. More than that, the tax will probably affect loaning too, it will reduce the flexibility of the monetary policy and limit the transmission mechanism. The financial brokerage rate in Romania is the lowest in the EU right now, warns the EC.

The exposure of the banking sector to the real estate market has significantly increased in the past years. The banks are the financial intermediaries most exposed to the real estate sector. The mortgage loans granted to households represented more than a third of the total loans granted in the private sector, most of them bearing variable interest rates. This increased exposure is also generated by the "First Home" programme. 

The robust economic growth and developments on the real estate market in the past couple of years can justify giving up of the "First Home" programme, shows the report.

The households' indebtedness rate has increased in the past year, although from a low level. While the indebtedness level of households as GDP percentage stayed below 17 per cent in 2017, much below the EU average, the indebtedness rate of those with small incomes is worrying because they are the most exposed to the increase of interest rates. In order to limit the risks caused by the high level of indebtedness of the persons with low incomes, BNR introduced maximum levels of indebtedness in January 2017 for the loans denominated in lei and hard currency.