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Romanian banks hold 7% of GDP worth of Govt. papers and this may be risky

The Romanian banks hold in their portfolio Government papers (bonds and bills) worth 7% of GDP, the highest amount in Europe, and this might bring them significant losses if the interest rates are rising and the yield curve flattens, according to Florian Neagu, deputy head of the macrostability division of the National bank of Romania (BNR), quoted by Economica.net.


The losses potentially incurred by banks under adverse scenarios may reach 17.6% of the portfolio of assets and liabilities sensitive to interest rates, he explained.

The banking system’s profitability is high, and the solvency ratio is strong, he said, adding that all these can deteriorate under certain circumstances. In fact, the Romanian banks’ profitability (13% return on equity versus 7.6% in EU) is above the EU average, and above the profitability in the real sector, the BNR official stated.


The solvency ratio (22% versus 17.1% in the EU) is also above average, and the non-performing loans ratio is still small (3.7%) even if above the EU average (2.5%).

However, the solvency ratio can lose 2pp from distributing dividends, another 2pp when building up provisions next year. The losses generated by adverse developments of the interests and yield curve would come on top of these two effects.