Download Recent Macroeconomic Developments

NATIONAL BANK OF ROMANIA
1
CONTENTS
Macroeconomic Snapshot …………………………………..……..3
GDP Dynamics ……………………………………………..……….8
Inflation Developments ………………………………………..….12
Monetary Policy ………………………………………………..….15
Fiscal Policy ……………………………………………………..…20
Current Account………………………………………………...….23
Banking System ……………………………………………..…….28
Challenges Ahead …………………………………………………36
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Macroeconomic Snapshot
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Before the crisis
 Fast economic growth in 2001-2008 (6.3% average annual
growth) fuelled by large capital inflows:
 Rapid wage growth and readily available credit led to a real-estate
and consumption boom
 An expansionary fiscal policy further contributed to the overheating
of the economy

 Build-up of large imbalances in the pre-crisis period 
vulnerability of the economy at the crisis onset
 Large structural fiscal imbalances  no room for fiscal stimulus,
consolidation unavoidable given financing constraints
 Sizeable external disequilibrium (the current account deficit peaked
at 13.4% of GDP in 2007)
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Necessary adjustments already made
 The current account deficit declined to sustainable levels
(4.4% of GDP in 2012, 1.1% of GDP in 2013)
 Sharp fiscal consolidation brought the deficit back into the
comfort zone (below 3% in 2012, narrowing further to 2.3%
in 2013, down from 9% in 2009)
 The deadline for the adjustment of the excessive deficit
(2012) was complied with
 Despite growing rapidly during the crisis, the public debt-toGDP ratio is still one of the lowest in the EU and is estimated
to stabilize below 40% of GDP over the medium term
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Outlook for 2014 and beyond
 Expected macroeconomic outcomes in 2014:
 Economic growth looks set to continue

current forecasts average around 2.8%, yet recent forecasts indicate higher
growth (above 3%) than earlier ones
– as always, agricultural output may shift the actual outcome in either direction
 Average annual inflation is estimated at around 2%, consistent with the
ECB’s definition of price stability
 The fiscal deficit will stay below the Maastricht Treaty limit of 3% of GDP
 The current account deficit is expected to stay relatively close to its 2013
level (between 1% and 2% of GDP)
 Given its macroeconomic fundamentals, Romania appears firmly
embarked on a sustainable growth trend in the medium run, while actual
outcomes depend on regional, European and global developments
 In this context, Romania envisages joining the Banking Union and the
euro area when the appropriate conditions are in place
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GDP Dynamics
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GDP growth accelerated in 2013
 After a cumulative 7.6% contraction over 2009-2010, real GDP
re-entered positive territory in 2011 and grew by 3.5% in 2013
 In 2013, there was a shift in the drivers of economic growth,
from domestic absorption to net exports
 However, there was a significant one-off component of economic
growth, related to the plentiful harvest (1.1 pp contribution of
agriculture to real GDP growth)
 Economic activity is expected to grow further in 2014, as
suggested by current developments in short-term indicators
(industrial production and retail sales in particular)
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Fast growth in the automotive sector has been the largest contributor
to the favourable performance of the overall industrial sector
percentage change (2005=100)
annual percentage change
manufacturing
total industry
10.3
300
9.4
9.3
280
road transport means
260
7.9
7.5
240
5.5
220
2.7
2.4
200
180
160
140
-3.1
120
2014*
2013
2012
2011
2010
2009
2008
2007
2006
100
2005
2014*
2013
2012
2011
2010
2009
2008
2007
2006
2005
-5.5
*) Jan.-Feb.
Source: NIS
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Improved access to external markets favoured industrial expansion
volume index, 2000=100
1,350
1,100
local sales
850
external sales
600
350
100
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
share in total sales, %
100
75
50
25
footwear
road
transport
means
textiles and
wearing
apparel
electrical
equipment
furniture
rubber and
plastics
metallurgy
chemicals
pharma
2013
2001
2013
2001
2013
2001
2013
2001
2013
2001
2013
2001
2013
2001
2013
2001
2013
2001
2013
2001
0
food
Source: Eurostat, NBR calculations
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Inflation Developments
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Romania joined the club of low-inflation countries
 Currently, the annual inflation rate is in line with the ECB’s quantitative
definition of price stability
 After staying above 5% throughout 2013 H1, annual CPI inflation fell
markedly to 1.55% in December 2013 and hit a new record low of 1.04%
in March 2014 in the context of:
 Persistence of the negative output gap
 Favourable developments in supply-side factors
 the fall in agricultural commodity prices (as a result of good harvest in 2013)
 the cut in the VAT rate on some bakery products from 24% to 9%
as of 1 September 2013
 the year-on-year decline in global commodity prices
 Downward statistical base effects linked to past increases in food and
administered prices
 Inflation is expected to re-enter the target band in 2014 Q3 and to remain
there throughout the projection horizon
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Inflation rate
7
percent
annual inflation rate
6
5
average annual inflation rate
4
3
2
1
2011 target
3.0%
0
Dec.11
2012 target
3.0%
Dec.12
Multi-annual inflation target:
2.5%
Dec.13
Dec.14
Dec.15
Note: Variation band is ±1 percentage point around the central target.
Source: NIS, NBR
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Monetary Policy
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Monetary policy conduct brought credit market parameters
into line with regional levels
 Over the past years, the NBR has maintained a prudent stance of
monetary policy, by gradually reducing the policy rate:
 Between February 2009 and March 2012, the NBR cut the policy rate by a
cumulative 500 basis points, to 5.25%
 Rapid decreases in the annual inflation rate made it possible for the NBR to
resume the downward adjustment of the policy rate: between July 2013 and
February 2014, the NBR cut the policy rate by a cumulative 175 basis points,
to 3.5%
 Current policy and money market rates, as well as lending and deposit
rates for non-bank customers, are broadly in line with regional levels
 In January 2014, in order to support sustainable lending, but also to bring
the minimum reserve requirements mechanism closer to ECB standards,
the NBR cut the MRR:
 On leu-denominated liabilities to 12% from 15%
 On foreign currency-denominated liabilities to 18% from 20%
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Monetary policy conduct was countercyclical both before
and after the crisis outbreak
45
percent
percent p.a.
24
40
21
35
18
22 pp
30
25
reserve ratio - FX
reserve ratio - lei
monetary policy rate (rhs)
15
12
6.75 pp
20
9
8 pp
6
10
3
5
0
Jan.04
May.04
Sep.04
Jan.05
May.05
Sep.05
Jan.06
May.06
Sep.06
Jan.07
May.07
Sep.07
Jan.08
May.08
Sep.08
Jan.09
May.09
Sep.09
Jan.10
May.10
Sep.10
Jan.11
May.11
Sep.11
Jan.12
May.12
Sep.12
Jan.13
May.13
Sep.13
Jan.14
15
Source : National Bank of Romania
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Lending rate on new business got closer to regional levels,
albeit with a certain lag …
Average lending rate on new business, all sectors
25
percent, 3M moving average
CZ
20
EA
HU
PL
RO
15
10
5
Jan.14
Oct.13
Jul.13
Apr.13
Jan.13
Oct.12
Jul.12
Apr.12
Jan.12
Oct.11
Jul.11
Apr.11
Jan.11
Oct.10
Jul.10
Apr.10
Jan.10
Oct.09
Jul.09
Apr.09
Jan.09
Oct.08
Jul.08
Apr.08
Jan.08
0
Source: ECB, national central banks
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10
CZ
EA
Jan.08
May.08
Sep.08
Jan.09
May.09
Sep.09
Jan.10
May.10
Sep.10
Jan.11
May.11
Sep.11
Jan.12
May.12
Sep.12
Jan.13
May.13
Sep.13
Jan.14
Jan.08
May.08
Sep.08
Jan.09
May.09
Sep.09
Jan.10
May.10
Sep.10
Jan.11
May.11
Sep.11
Jan.12
May.12
Sep.12
Jan.13
May.13
Sep.13
Jan.14
... as higher inflation delayed the start of the policy rate-cutting cycle
in Romania
Annual inflation rate
Policy rate
percent
percent
HU
PL
NATIONAL BANK OF ROMANIA
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8
10
6
8
4
6
2
4
0
2
-2
0
RO
Source: ECB, national central banks
19
Fiscal Policy
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Fiscal consolidation largely completed
 After years of pro-cyclical fiscal policy, Romania was left with a large
structural fiscal gap at the onset of the economic crisis (-8.1% of
GDP at the end of 2008) and with no other choice but to embark on a
sharp fiscal consolidation process
 After peaking at 9% of GDP in 2009, the public deficit was successfully
brought down to just below 3% as of end-2012, thus complying with the
deadline under the excessive deficit procedure; the deficit declined further
to 2.3% of GDP in 2013
 The structural adjustment effort amounted to a cumulative 7.4 pp of
GDP during 2010-2013 (the second largest in the EU) and it was
achieved through a mix of revenue and expenditure measures, with the
latter accounting for the larger share
 A comparatively smaller structural adjustment effort remains to be
implemented over the coming two years (1.1 pp of GDP) in order to
ensure that the medium-term structural deficit objective of 1% of GDP
is met in 2015, thus complying with commitments under the Fiscal
Compact
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After three years of sharp consolidation,
the budget balance is back into the comfort zone
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
6
-1
5
-1.2
-1.2
-2
-3
4
-2.4
-2.1
-2.2
-2.5
-2.9
-3.8
-5
2
1
-4.9
-6
3
-3.0
-3.3
-4
-2.3 -2.1
-5.5
-5.7
0
-6.1
-7
-6.8
-8
-2
-8.1
-9
-3
general government balance (ESA95,% of GDP)
-10
-11
-1
structural balance (% of GDP)*
-9.0
-9.6
fiscal impulse** (rhs)
-4
-5
* defined as cyclically-adjusted balance net of one-off and temporary measures
** defined as the change in the structural primary budget balance
Source: AMECO, Ministry of Public Finance, European Commission
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Current Account
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Significant adjustment of the external imbalance
 The current account deficit narrowed markedly from a peak of 13.4%
of GDP in 2007 to 4.2% in 2009, driven by the private sector and
supported by fiscal consolidation
 After hovering around 4% of GDP in the following three years, the
current account deficit further fell to 1.1% of GDP in 2013 amid

The trade deficit narrowing by 53.6% yoy

The larger services surplus, prompted particularly by receipts from
transport services (in correlation with higher exports of goods)
 Recent projections for 2014 and 2015 point to levels below 2% of
GDP, in line with the gradual consolidation of domestic demand
 At end-March 2014, international reserves stood at EUR 34.4 bn
(out of which EUR 31.3 bn forex), covering over 6 months of
prospective goods and services imports
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Current Account Balance
percent of GDP
-1.1
-3.3
-3.7
-5.5
-4.2
-4.4
-4.5
-4.4
2009
2010
2011
2012
-5.8
-8.4
-8.6
-10.4
-11.6
2000
2001
2002
2003
2004
2005
2006
-13.4
2007
2008
2013
Source: National Bank of Romania, National Institute of Statistics
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International reserves and external debt
International reserves
40
Total external debt
EUR billion
110
Reserve adequacy
EUR billion
500
fx off. reserves/ST ext. debt (resid.
maturity)
fx off. reserves/MLT ext. debt
service
official reserves - months of
imports* (rhs)
ST external debt
(majority private debt)
100
80
17.5
400
10
8
15.6
28
19.2
19.5
90
32
20.9
MLT external debt
22.8
36
months
percent
70
300
6
200
4
100
2
0
0
20.6
24
60
NBR forex reserves
19.9
20
50
10
28.6
24.6
20
4
76.6
76.9
78.8
75.9
51.8
8
38.7
30
6.3
12
65.6
12.6
40
72.9
16
Feb.14
2013
2012
2011
2010
2009
2008
2007
2006
2005
Feb.14
2013
2012
2011
2010
2009
2008
2007
2013
Apr.14
2012
2011
2010
2009
2008
2007
2006
2005
0
2006
0
2005
gold
*) prospective imports of goods and services
Source: National Bank of Romania
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Most of the IMF loan already repaid
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Banking System
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The banking system remains sound
 The banking system is well capitalized, with the average capital
adequacy ratio at 15% (headline) and 13.7% (CT1) at end-2013
 The NBR is exercising tight oversight of prudential indicators,
with a focus on capital adequacy dynamics and banks’ efforts
to raise additional capital
 Most banks exceed the conservative 10% threshold recommended
by the NBR (against the required level of 8%)
 No public funds have been used so far to support the banking sector
 The liquidity ratio (effective liquidity/required liquidity) remained
adequate (1.5 in February 2014)
 In 2013 the banking system profitability re-entered positive territory
and remained positive in early 2014
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The banking system remains sound (2)
 NPLs continued to increase in 2013 and early 2014, albeit
at a slower pace than in previous years, mainly due to
 Revaluation of the quality of previously-restructured loans
 Constraints on customers’ financial standing
 Provisioning of NPLs is adequate
 NPL coverage with IFRS provisions and prudential filters
remained at a comfortable 89.9% at end-March 2014
 If only IFRS provisions are taken into account, the degree
of NPL coverage was 67.6% at end-March 2014
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NPL ratios currently used by the NBR
25
PRUDENTIAL DEFINITION*
percent
Ratio of
Mar.14: 22.3%
Gross exposure of loans and related interest overdue for more than
90 days and/or for which legal proceedings were initiated
To
20
Total classified loans and interest for non-bank non-government
customers, except off-balance-sheet items
Prudential definition
–
15
Mar.14: 12.2%
The ratio is compiled for banks applying standard approach (banks using
internal models are not included)
The level of NPL net of IFRS provisions is 7.2% in March 2014
(representing the 33.4% of NPLs not-covered by IFRS provisions)
* This definition is compliant with the provisions of the IMF’s Compilation Guide
on Financial Soundness Indicators and allows international comparisons
10
Accounting definition
ACCOUNTING (IFRS) DEFINITION
Ratio of
5
Impaired loans to non-bank clients** (net value)
To
Total non-banking loan portfolio (net value)
Source: NBR
Dec.13
Aug.13
Apr.13
Dec.12
Aug.12
Apr.12
Dec.11
Aug.11
Apr.11
Dec.10
Aug.10
Apr.10
Dec.09
0
** According to IAS 39 – Financial Instruments – Recognition and Measurement:
a financial asset is impaired and impairment losses are incurred if there is objective
evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset and that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or group of financial assets that can be reliably
estimated
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NPLs coverage with provisions
100
percent
PRUDENTIAL DEFINITION
90
Mar.14:
89.9%
80
IFRS provisions and prudential filters for NPLs / NPLs
 Including prudential filters in the calculation of the indicator is
Prudential definition
70
warranted by the fact that the prudential filter is an amount
Mar.14:
67.6%
60
deducted from own funds in order to increase banks’
capacity to absorb losses from credit risk
50
 Prudential filters will be gradually phased out during 2014-18
40
(by 20% per year), in the context of implementing the new
30
Basel III capital requirements in the Romanian banking
Accounting definition
system via the CRDIV/CRR package
20
Mar.14
Dec.13
Sep.13
Jun.13
Mar.13
Dec.12
IFRS provisions for NPLs / NPLs
Sep.12
0
Jun.12
ACCOUNTING DEFINITION
Mar.12
10
Source: NBR
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EBA new indicator of asset quality analysis:
non-performing exposures ratio
 Overall estimated value as at 31 December 2013: 17.4%
 New definition:
Ratio of
(i) Material exposures which are more than 90 days past-due and
(ii) Exposures incurring the risk of not being paid in full without realisation of collateral, regardless of the existence
of any past-due amounts or of the number of days past due
To
All debt instruments (loans, advances and debt securities) entered in the balance sheet and in off-balance sheet
accounts, as well as in the trading portfolio
–
The EBA definition covers both government and non-government exposures
 Methodological details:

All debt instruments (loans, advances and debt securities) recorded in the balance sheet and in off-balance sheet
accounts, as well as in the trading portfolio, are included

All on- and off-balance sheet exposures to a certain debtor are considered as non-performing exposures in case
that the debtor has a more than 90 days past-due exposure accounting for at least 20% of all its total exposures
or that the overdue amounts of the debtor hold at least 5% of the bank’s total exposure to the debtor

Exposures are considered to have ceased being non-performing when the following conditions are met
simultaneously: 1) the situation of the debtor has improved to the extent that full repayment of all amounts due
according to the original or when applicable the modified conditions is likely to be made and 2) the debtor does not
have any past-due amounts
 Reporting: frequency: quarterly; first reference date: 30 September 2014;
first reporting deadline to the NBR: 31 December 2014
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Orderly financial deleveraging in the crisis aftermath
 The loan-to-deposit ratio fell to 101.8% in March 2014, underpinned by
credit to the private sector declining by 3.7% yoy
in real terms and bank deposits increasing by 5.5% yoy
 Foreign banks participating in the Vienna Initiative reduced their
exposure to Romania by 20% between end-March 2009 and March 2014

The decline in parent banks’ exposure was largely confined to
Greek-owned banks
 The adverse effects of the deleveraging process initiated by large
European banking groups have so far not significantly impacted
Romania, also due to the balanced macroeconomic policy under the
EU-IMF-WB arrangements and the strategies of leading banking groups
operating in Romania, which contemplate preserving local capital outlays
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Orderly financial deleveraging in the crisis aftermath (2)
Funds from parent banks*
Exposure to Romania of foreign banks
participating in the Vienna Initiative
120
%, March 2009 = 100
30
110
%
EUR bn
30
25
25
20
20
15
15
10
10
5
5
0
0
100
-8.2%
Source: National Bank of Romania
Feb.14
Jan.14
Dec.13
Dec.12
Mar.09
Jun.09
Sep.09
Dec.09
Mar.10
Jun.10
Sep.10
Dec.10
Mar.11
Jun.11
Sep.11
Dec.11
Mar.12
Jun.12
Sep.12
Dec.12
Mar.13
Jun.13
Sep.13
Dec.13
Mar.14
Overall
Austrian-owned banks
Greek-owned banks
Dec.11
-24.4%
70
Dec.10
80
Dec.09
-20%
Dec.08
90
Banking system
Greek-owned banks
Austrian-owned banks
Funds from parent banks/Total bank borrowings (rhs)
* subordinated loans excluded
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35
Challenges Ahead
– Firm progress in structural reforms
– Euro adoption
– Joining the Banking Union
– Geopolitical tensions in the region
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Challenges Ahead
Firm progress in structural reforms
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Firm progress in structural reforms

Project prioritization in EU funds absorption and public investment
planning (with a focus on infrastructure development)

Improving the functioning of the energy sector
 Full liberalisation of the gas and electricity market
 Development of gas and electricity trading platforms; improved
cross-border integration of energy networks and provide for security-of-supply
measures

Continuation of the corporate governance reform of state-owned
enterprises (SOEs)
 Strengthen authorities capacities to monitor operational performance
and budgets of SOEs
 Ensure the sale of stakes in major SOEs in energy and transportation

Promoting SMEs exports and development

Review of labour taxation with a view to reducing the effective tax burden
on labour
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Challenges Ahead
Euro adoption
NATIONAL BANK OF ROMANIA
39
Near-term prospects for cumulative fulfilment
of nominal convergence criteria
Nominal Convergence Indicators
Maastricht Criteria
Romania
Difference
from the
criteria
Inflation rate (HICP)
(percent, annual average)
<1.5 pp above -0.3%* (average of the
three best performing Member States)
Long-term interest rates
(percent per annum)
<2 pp above 3.4%** (average of the
three best performing Member States
in terms of price stability)
(March 2014)

±15 percent
+1.6 / -5.9

below 3 percent
2.3

below 60 percent
38.4

Exchange rate (vs. euro)***
(percentage change)
General government deficit****
(percent of GDP)
Government debt****
(percent of GDP)
2.3
(March 2014)
+1.1pp
5.3
*) reference level, March 2014 (Cyprus, Latvia, Bulgaria).
**) reference level, March 2014 (Bulgaria, Latvia).
***) Maximum percentage deviations of the bilateral exchange rate against the euro from its April 2012 average level in May 2012
to April 2014 based on daily data at business frequency. An upward/downward deviation implies that the currency was
stronger/weaker than the average exchange rate in April 2012.
According to
the NBR’s
current
projection, the
present level
of the inflation
criterion will be
reached in May
2014. Mention
should be made
however that
the present
reference value,
depending on
the Member
States’ inflation
rates, could be
subject to
change.
****) 2013; ESA95 methodology.
Source: Eurostat, National Institute of Statistics, National Bank of Romania, European Commission
NATIONAL BANK OF ROMANIA
40
Although in most non-EA NMS nominal convergence criteria are fulfilled
or within reach, a wait-and-see approach seems to prevail
Initial target
Date of setting the initial target
Current position
BG
2010
2004 – Pre-accession Economic
Programme
No target date
CZ
2009/2010
2003 – Czech Republic’s Euro Accession
Strategy
No target date
HU
2008
2003 – Pre-accession Economic
Programme
No target date
PL
2008/2009
2003 – Pre-accession Economic
Programme
No target date
RO
2014
2007 – Convergence Programme
No target date
Source: European Commission
NATIONAL BANK OF ROMANIA
41
Recent statements regarding euro adoption in non-euro EU countries
Poland
“I think we should say publicly, that [the ERM II] is a very serious barrier that would
prevent a country like Poland from joining the euro area [...] We have a big currency
market and we should just say: We’re not entering ERM II. If you want us in, invite us
without that requirement”. (Marek Belka, NBP Governor, Bloomberg, April 2013)
Czech Republic
“Even if the elections create a political coalition of forces seeking a quick euro-zone
entry, it seems to me that they are more likely to file the application no earlier than
in 2016 ... Therefore, the earliest entry date would be 2019”. (Miroslav Singer, CNB
Governor, Bloomberg, May 2013)
Hungary
“Hungary cannot seriously consider joining the euro zone until the country’s average
economic development reaches 90 percent of the level of euro states”. (Viktor Orbán,
Prime Minister, April 2013)
Bulgaria
“If I start the path of entry, I don’t know exactly what I’m entering and we are basically
going to wait”. (Simeon Djankov, ex-Finance Minister, Washington, February 2013)
NATIONAL BANK OF ROMANIA
42
Euro adoption in NMS: move towards a more prudent
and comprehensive approach
 Romania, like other NMS, is closer than ever to fulfilling the
Maastricht criteria, yet it has become obvious that an approach
based exclusively on their achievement is insufficient
 The “put your house in order” approach by each country prior to
euro adoption is seen as an essential prerequisite for the success
of euro area enlargement
 Only in this way will euro adoption by new EU Member States entail
benefits both for themselves and for the monetary union as a whole
“Europe will be forged in crises, and will be the sum of the solutions
adopted for those crises”.
Jean Monnet
NATIONAL BANK OF ROMANIA
43
Romania: despite recent progress,
overall preparedness still needs improving
 Romania has made significant progress towards fulfilling the
convergence criteria
 Only the inflation rate is still above the reference value of the Maastricht
criterion, yet the latest projections point to compliance in 2014
 The macroeconomic imbalance procedure scoreboard shows that the net
international investment position remains the only indicator outside the
“comfort area”, but its correction is unavoidably the outcome of a lengthy
process
 Looking at the broader range of relevant elements in terms of the
appropriate timing (real convergence and political economy), it is
essential to:
 Complete institutional reforms in the euro area
 Avoid domestic slippages and complete structural reforms
 Make visible progress towards real convergence
 Achieve political consensus on the domestic front
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Challenges Ahead
Joining the Banking Union
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The Single Supervisory Mechanism:
current stage of implementation
 In November 2013, the Regulation on the Single Supervisory Mechanism entered
into force and the ECB was granted a 12-month period to put it into place

In April 2014, the ECB published the SSM framework regulation, which lays the groundwork
for supervisory activity

The ECB’s accountability in the field of supervision will start on 4 November 2014
 The SSM has been designed as a system of banking supervision, based on the
co-operation between the ECB and the national competent authorities (NCAs)

The ECB will directly supervise the “significant” banks, while the “less significant” banks will
be subject to supervision by the NCAs, unless the ECB deems necessary to supervise such
institutions
 The ECB in co-operation with the NCAs has initiated the comprehensive
assessment of the banking system, in view of achieving a clear picture of the
quality of assets of credit institutions
 Supervision shall be governed by the SSM Supervisory Manual that includes:

A risk assessment system (RAS)

A supervisory review and evaluation process (SREP quantification)

An approach to integrate the RAS, the SREP quantification and the stress test outcomes
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The Single Resolution Mechanism (SRM):
principles, objectives, implementation
 Principles:
 Decisions are taken at European level, but involve national
resolution authorities (NRAs) in view of the significance of bank
resolution for national economies
 Responsibility for supervision, resolution and funding is aligned at
EU level
 Objectives:
 Orderly exit of banks in distress from the market
 Avoiding resort to bail-outs
Discontinuation of the vicious circle of sovereign risk and financing
costs for credit institutions
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The Single Resolution Mechanism (SRM):
principles, objectives, implementation (2)
 Stages of SRM implementation:
 15 April 2014: the European Parliament adopted three key texts
to complete the legislative work underpinning the Banking Union:
Single Resolution Mechanism, Bank Recovery and Resolution
Directive, and Deposit Guarantee Schemes Directive
 The SRM Regulation shall be implemented in two stages:

1 January 2015: Enforcement of provisions regarding the preparation of
the SRM, the collection of information and the co-operation with NRAs

1 January 2016: Full entry into force, including of the bail-in rules
(provided that conditions on paying up contributions to the Single
Resolution Fund are met)
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Romania intends to join the Banking Union
 Romania supports the establishment of the Banking Union and aspires to
be a part of it by participating in its 3 pillars:
 the Single Supervisory Mechanism (SSM)
 the Single Resolution Mechanism (SRM)
 the network of deposit guarantee schemes (DGS)
 Adhering to the Banking Union will:
 strengthen financial stability
 further increase confidence in the national banking sector (through the
harmonisation of supervisory practices and deposit guarantee schemes)
 support a sustainable resumption of lending and economic growth (by reducing
the fragmentation of the European financial markets)
 The National Bank of Romania intends to align the stress testing framework
for credit institutions, which will remain under the supervision of the national
competent authority, with the methodology used by the ECB
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Challenges Ahead
Geopolitical tensions in the region
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Tensions between Russia and Ukraine:
manageable economic risks
 Trade restrictions or disruptions may affect exports and/or energy
supply, yet the risks appear manageable
 Exports to Russia and Ukraine account for only 4.7% of total Romanian
exports  a 10% fall in the value of exports to these countries,
assuming no replacement, would shave 0.16 pp off the growth rate of
Romania’s GDP
 While virtually all imported natural gas comes from Russia via Ukraine,
Romania is able to cover on average around 80% of its own
consumption from domestic sources
 Romania ranks the third least imported-energy-dependent country in the EU
 imported natural gas accounted for only 15% of total consumption in 2013
 even a total shutdown in gas imports may be weathered without tangible
disruptions at least until November-December
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Tensions between Russia and Ukraine:
manageable economic risks (2)
 Russian capital has a significant presence (directly or via holding companies
based in other EU countries) in the iron and steel (TMK), metallurgy (ALRO
Slatina and ALOR Oradea) and oil refining (Lukoil) sectors, yet none of the
Russian-owned companies may be deemed to be of systemic importance
 Financial sector:
 No direct links between the Romanian banking system and those of Russia and
Ukraine

no Russian or Ukrainian capital in the Romanian banking system

negligible exposures of Romanian banks to Russian or Ukrainian entities
 Potential for spillovers through the common lender channel via the exposure of
Austrian and French banks to Russia and Ukraine

the comfortable solvency and liquidity buffers in the Romanian banking system should
help alleviate such spillovers in case they materialize
 So far the impact of regional tension flare-ups on the capital and forex markets has
been moderate and short-lived
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Exports to Russia and Ukraine account for a comparatively small share
of Romania’s exports
Romania's exports to Russia
- breakdown by product 50%
100%
40%
80%
30%
60%
20%
40%
7%
13%
17%
Romania
Slovakia
Czech Rep.
Hungary
Slovenia
Poland
0%
Estonia
0%
Latvia
20%
Lithuania
10%
the share of exports to Ukraine in total exports of each country
the share of exports to Russia in total exports of each country
4%
59%
machinery and transport equipment
manufactured goods classified chiefly by material
chemicals and related products n.e.s.
miscellaneous manufactured articles
other
the share of exports in GDP (rhs)
Source: Eurostat
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Energy products form the bulk of Romania’s imports from Russia,
with virtually all imported natural gas coming from there …
Romania's imports from Russia
- breakdown by product -
The share of gas imports from Russia
in total Romanian gas imports
98
1%
100%
98
95%
16%
91
90%
19%
85
64%
85%
82
80%
oil, petroleum products and related materials
gas, natural and manufactured
total, less mineral fuels and lubricants
coal, coke and briquettes
75%
70%
2009
2010
2011
2012
2013
Source: Eurostat
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… yet Romania ranks among the most self-sufficient countries
in Europe as regards its gas consumption
Percentage of natural gas imported
from Russia in total consumption
No data available
Source: Eurogas
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