Exchange rate risk in Romania is high because of a negative ratio of forex denominated deposits to loans, Lucian Croitoru, adviser to the Governor of the National Bank of Romania (BNR), warned a financial conference on Wednesday.
Data with BNR indicate that forex denominated deposits were standing at the equivalent of RON 35 billion as of end-July 2009, while forex denominated loans were standing at the equivalent of nearly RON 60 billion.
Although the ratio of forex deposits to forex loans has improved slightly from 2008, the situation is drastically worse than in 2004, when the volume of forex deposits was higher than the one of forex loans, a state that continued into 2006, after which the rise in forex loans exceeded the rise in forex deposits.
As regards the ratio of RON-denominated deposits and loans, it has favoured the deposits since 2004 and got higher in 2009, with RON deposits in July totalling 60 billion compared with loans of 40 billion.
Croitoru argued that the main problem facing the Romanian banking system is that there is there is not enough money in the system to meet the demand for loans.
The BNR official also mentioned that over the past 11 months commercial banks have embarked on a throat-cutting competition to increase interest rates, culminating in February-March, arguing that the banks increased the interest rates much too quick and risky to their balances.
Croitoru said he believes the main challenges facing the Romanian banking system are improving competition, product innovation, more rigorous risk assessment and reducing the costs on loan applicants.