As of January 1, the banks will be able to meet customer demand for loans in foreign currency. That is because the NBR will drop the ceiling set at three times a bank's equity capitals for funding in foreign currency.
The decision to drop this restriction was made by NBR's Board of Governors during the monetary policy meeting on Friday, about one year after its introduction.
The central bank resorted to capping the lending in foreign currency last autumn, amid its repeated attempts to contain the growth of the lending in foreign currency and balance its share in the total funding with the share of the lending in RON.
NBR believes "the administrative and prudential steps taken as of 2005 have improved the balance between the banking assets structure and the liabilities, as well as the foreign currency risk elements in Romania's financial system." The central bank had made a similar announcement a week ago, only that it said it would be dropping the entire set of administrative restrictions as of January 1, additional minimal reserves included.
"The share of the foreign currency lending in the total non-government lending has gone down to approximately 47% compared with 60% in July 2005, and almost matches the share of the deposits in foreign currency in the total savings," the NBR release reads.
After a time of confusion, when many banks simply stopped granting loans in foreign currency, the market started to find ways to deal with it. The handiest solution was to export loans in foreign currency, yet this loophole was only possible to use for corporate customers. Some banks resorted to capital increases or got subordinated loans from their respective parent banks. However, individual customers seeking loans in foreign currency were hardly served, being directed to loans in RON instead.
"By dropping the cap of 300% of the equity capitals, NBR showed this measure did not produce the desired results and provides a clue as to the relaxation of the monetary policy in the first half of next year," stated Florin Catu, chief analyst of ING Bank Romania.
Even though the volume of loans in foreign currency will no longer be capped directly, the cost of the minimal mandatory reserves, which stand at 40% of the value of the resources attracted in foreign currency, will continue to hinder the banks' business. Bankers are already complaining that they will be unable to compete with the offers of the foreign banks, which are already granting loans at lower costs.
"Once having joined the European Union, the domestic banks could have been at a disadvantage against foreign lenders. As far as image is concerned, excessive restrictions do not look good," says Radu Craciun, the chief analyst of ABN Amro.
NBR made no decision about the lending in RON on Friday, maintaining the monetary policy rate at 8.75%, in line with the market's expectations. The rate has been staying at this level since the end of June.
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