Romanian Ctrl Bk: Lenders May Be Indirectly Affected By Cos' Foreign Curr Loans Inked Abroad

Banks operating in Romania might be indirectly affected by the foreign currency loans contracted by large companies directly from abroad, according to the 2009 Financial Stability Report published Monday by the National Bank of Romania BNR.

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On the other hand, the central bank’s report states that the direct vulnerability of the banking system to exchange rate risks is rather low, due to the strict regulations of Romanian banks in this field.

According to the report, the Romanian banking system is slightly affected directly by the changes in equity prices, while the interest rate risk has a limited direct effect on the banking system’s profitability, as the banks’ exposure to this risk is mainly determined by their financing strategy.

Thus, the Romanian banking system would not be significantly affected by major changes in the exchange rate, given that the total regulated foreign currency position cannot exceed 20% of a bank's own funds, which was also shown by the stress test on banks.

In the last quarter of 2008, the central bank conducted stress tests on the interest rate risk for the banking system by modifying the external yield curve by up to 2 percentage points, revealing that the direct vulnerability of the banking system to the interest rate risk seems to be limited.

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