Central lender BNR urges for recapitalization of 12 banks following stress tests required by IMF

Lenders need to bring additional capital in two installments, one until September 30 2009 and the second until March 31 2010.

"We had initially established that the entire sum necessary for recapitalization be brought by the end of September, but after the meeting in Brussels we decided to ask the banks for the amount for 2009 until September 30 and the sum for applying stress tests in 2010 until March 31," explained for NewsIn Jeffrey Franks, the head of the IMF delegation to Romania.

Thus, banks will need to bring additional capital in the following months so as to stay at a solvency rate above 10 percent, a level established prudentially by BNR, as the minimum regulated threshold is 8 percent.

For the stress tests applied at the IMF request, the central lender took into account two scenarios, which show how banks could react in case market conditions worsen, based on a few main indicators like economic growth, the exchange rate, inflation, internal interest rate for lei and external interest rate for foreign currency.

The tests will be run in 2009 and 2010 and the reference for the evolution of the main financial indicators is the end of last year.

Thus, the tests evaluate the necessary additional capital related to the indicators at the end of 2008, but a series of lenders have already increased their capital since the beginning of the year, also by incorporating profits obtained last year.
For the recapitalizations asked by BNR, the central lender takes into account a basis scenario with a 4 percent economic fall in 2009 and an average exchange rate of around 4.4 lei per euro. 

Negative scenario talks of capital need of lei 6.7bn

A second scenario, which is not applied for capital requirements, evaluates the quality of credit portfolios on the background of a 7 percent economic downturn in 2009 and of a 30 percent climb of the exchange rate to an average rate of 4.8 lei per euro.

The exchange rate stood at 3.6827 lei per euro on average last year and at 4.2485 lei per euro after the first four months this year.

According to the base scenario and in case of no recapitalizations, the capital adequacy for the entire banking system would decrease to around 9.7 percent by the end of 2010, while in the negative scenario the drop could be even larger, to 8 percent, from around 12.3 percent at the end of last year. 

The sum necessary to keep the banks' solvency over 10 percent in 2009 and 2010 would be 6.7 billion lei, according to the second scenario, 63 percent higher than in case of the base scenario. 

Nine large foreign lenders doing business in Romania pledged at the end of March in Vienna to keep their exposure on Romania. In a second meeting last week in Brussels, the foreign banks reaffirmed their promises and established March 31 2009 as a landmark for the exposure.

Romania clinched a deal with the IMF, the European Commission, the World Bank and other financial institutions over a 20 billion external loan to help restart engines behind the economy.