The degree of solvency is calculated as the ratio of a bank’s own funds and its total assets. Bankers who head up lenders whose solvency level is too low are to be invited for talks at the headquarters of the National Bank of Romania (BNR) as of next week. BNR and IMF considered two scenarios for the stress test, which is yet to be approved by the central bank’s Supervisory Committee, probably this week. “One scenario can be based on a 25-30 percent depreciation of the leu, while the more dramatic would be a 50 percent depreciation, over two years. We are considering an economic decline of several percentage points this year, while for 2010 there are signs of economic growth,” sources explained. “If the negative scenarios come true, the level of capitalization would decline for several banks, with some of these below the required 8 percent threshold. Banks are encouraged to increase their capital to over 9-10 percent,” sources added.
BNR was considering an evaluation of the capital of lenders even before Romania agreed to a loan from the IMF, but this stress test is more complex, sources said.
The financial market was anticipating that the IMF would demand that banks increase their capital, so that they can survive any shocks. Some lenders are already facing a rise in the number of poor performing loans, and they have a solvency level close to the minimum.
“In my view, as long as banks are interested in carrying out sustained operations in Romania and to support the business, this will involve capital hikes. There is no alternative,” according to the President of the Romanian Bank Association (ARB) and the Casa de Economii si Consemnatiuni (CEC) bank, Radu Gratian Ghetea, for Business Standard. “Poor performing loans will keep eating into the capital of banks. However, things will likely improve at the end of April, because banks have already taken measures to limit the impact of the crisis, such as loan restructuring,” Ghetea added. In mid-2008, the average solvency level for the local banking system was 12.34 percent, lower year-on-year. The central bank recently asked seven lenders to maintain their solvency above 10 percent. BNR Governor, Mugur Isarescu, said that the solvency of some banks has dropped to 9.8 percent. Furthermore, the central bank is concerned by the rise in poor performing loans, especially on the consumer loan segment, which makes up three quarters of total non-governmental loans.
