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BNR empowered to request changes in banks’ management and stock ownership structure

The National Bank of Romania (BNR) will have more power in requiring troubled banks to operate changes in the structure of their management and stock ownership, said National Bank of Romania chief economist Valentin Lazea.
There is no systemic risk looming, but depending on the specific case, BNR might require banks to recapitalize or make changes in their management or shareholders, the BNR official on Wednesday told the Central and South-East European financial forum in Bucharest.
Lazea underscored that in no way would a troubled bank be recapitalized on public money.
According to Lazea, a high share of foreign-owned banks in a national system is currently perceived as a drawback, although in the past years it was considered an advantage. From this point of view, Romania ranks fourth of 11 Central and East-European states, with foreign-owned banks accounting for 88 percent of the total, after Estonia – 97 percent, the Czech Republic – 97 percent, and Croatia – 91 percent.

In the opinion of the BNR chief economist, the high exposure to foreign banks is an issue only if the foreign banking debt accounts for a very high share of the GDP and can be rapidly withdrawn, and if foreign currency lending is dominant and there is a high probability of default.
As far as the foreign banking debt is concerned, Romania ranks seventh with 20 percent of GDP, and fifth by lending denominated in foreign currency – with such loans accounting for 58 percent of the total.
Lazea mentioned that banks should recapitalize in order to meet the new requirements on the minimum solvency rate that was raised from 8 to 10 percent and added that under financial crisis conditions, a central bank’s forex reserves are no longer measured by the import coverage ratio, but by the coverage of short-term debts.
In Romania, this parameter (next year included) is 99 percent. In April, forex reserves fell four percent and the short-term debt shrank seven percent. According to Lazea, coverage ratios will improve in the next period, but not very fast.

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