Financial Stability Report

Transcription

1 Press Conference Financial Stability Report April 216 Liviu Voinea Deputy Governor Bucharest, 7 April 216 1

2 I. Main risks to financial stability Map of risks Uncertain and unpredictable legislative framework in the financial and banking field Domestically, the return to pro cyclical fiscal policies and the reversal of the fiscal consolidation trend, with an impact on fiscal deficit sustainability in 217 Risk of abrupt reversal of investor sentiment in emerging economies generated by the uncertainty surrounding global economic growth, the state of the international financial system, and the diverging monetary policy stances of major central banks Risk posed by a possible exit of the United Kingdom from the European Union Risk posed by the geopolitical situation in the Middle East, through the refugee crisis, with possible consequences on the European single market Contagion risk from the banking sector in Greece Risk of further modest dynamics of lending, amid a sustainable growth potential of loans to non financial corporations Credit risk associated with the foreign currency loan stock severe systemic risk high systemic risk moderate systemic risk low systemic risk Note: The colour shows risk intensity. Arrows indicate whether the risk has increased/decreased since the previous Financial Stability Report. 2

3 Uncertain and unpredictable legislative framework in the financial and banking field The law on debt discharge (datio in solutum): Generates systemic risk Puts a drag on payment discipline Creates moral hazard Contains the access to credit for the low income and/or young people Affects banks profitability and solvency Other legislative initiatives entailing retroactive changes to credit agreements Affects the stability and predictability of the legislative framework Jun.14 5Y CDS quotes for Romania and selected countries in the region basis points basis points Romania Hungary Czech Republic Poland (rhs) Jul.14 Aug.14 Source: Reuters Sep.14 Oct.14 Nov.14 Dec.14 Jan.15 Feb.15 Mar.15 Apr.15 May.15 Jun.15 Jul.15 Aug.15 Sep.15 Oct.15 Nov.15 Dec.15 Jan.16 Feb

4 Reversal of fiscal consolidation trend Romania embarked on the path of fiscal consolidation starting 21, which restored its fiscal balance Romania met the MTO in advance The domestic risk regarding the return to pro cyclical fiscal policies materialised partially in passing the 216 budget reversal of fiscal consolidation trend Assuming that no other policy measures are implemented, fiscal deficit will near 4 of GDP in 217 Romania will be placed again under the excessive deficit procedure An annual fiscal deficit of around 3 of GDP would result in the public debt threshold being surpassed in the coming years and, implicitly, in a more than 5% probability of a recession General government deficit (% of GDP) Budget deficit (cash based) Budget deficit (ESA) Primary deficit* Structural deficit** * Primary deficit is the ESA fiscal deficit excluding interest payable. ** Structural deficit is the fiscal deficit adjusted for the cyclical component (estimated based on potential GDP). Source: MinistryofPublic Finance (cash based deficit), European Commission (AMECO) 4

5 Risk of abrupt reversal of investor sentiment in emerging economies Global risk generated by the uncertainty surrounding world economic growth and the diverging monetary policy stances of major central banks The risk materialised in part in the Federal Reserve s decision to embark on a course of rate hikes Subdued economic recovery expected at the global level, including in the European Union Economic slowdown in China Corrections in emerging markets Lingering uncertainty about economic developments in the European countries constrained by public sector financing 5

6 Risk related to a possible exit of the United Kingdom from the European Union The functioning of the European Union in its current form is put into question, the outcome being a two tier Europe: (i) an inner tier that will seek further harmonisation and (ii) an outer tier encompassing countries that will follow the path taken by the UK Knock on effects on non euro area EU Member States: (i) capital outflows, (ii) exchange rate swings, (iii) higher costs, (iv) lower EU funds 1.6 GBP/USD and GBP/EUR exchange rates 1.5 The debates about the Brexit led to a depreciation of the pound sterling and the US dollar became a safe haven currency amid heightened global uncertainty Romania needs to take a certain stance regarding its choice: (i) whether to adopt the euro when it is ready, yet proceed by preparing a roadmap, or (ii) to remain along the other non euro area EU Member States that have the obligation to adopt the single currency over the long term Jun.15 Jul.15 Aug.15 Sep.15 GBP/USD Source: Bloomberg Oct.15 Nov.15 Dec.15 Jan.16 Feb.16 GBP/EUR (rhs) Mar

7 The geopolitical situation in the Middle East triggered the refugee crisis 1. Impact of the refugee crisis on first arrival/transit countries: Costs related to: reception, accommodation, transport, security Sectors hit by the crisis: tourism, construction, trade and transport 2. Impact of the refugee crisis on destination countries: Costs: reception / social care / public administration / accommodation / education / integration / unemployment / short term inflationary pressures Constrained access of the other citizens to healthcare, public security, public administration and public transport services Benefits: growth in labour supply, higher potential output, long term disinflationary pressures 3. Impact of the refugee crisis on third countries in the EU: Increased competition affecting their emigrants Potential declines in workers remittances from abroad Potential rises in unemployment in the event of the return of part of the current emigrants Impact on certain economic sectors, particularly foreign trade and transport services Potential reduction in EU funds through their reallocation at EU level to support refugees For all the countries referred to, the costs discussed are in fact opportunity costs, in the context of tight budgetary constraints and a high public debt level 7

8 Contagion risk from the banking sector in Greece The reliance on parent bank funding of banks with Greek capital in Romania was further on the wane Texas ratio in the EU (September 215) Loan portfolio quality in selected EU countries Sep CY GR IT PT SI HU ROIE BG HR ES AT DK LV LT BE MT FR PL NL DE SEFI EE LU Bulgaria Czech Republic Croatia Poland Portugal Slovakia Hungary Romania Austria France Netherlands Italy Ireland Greece Spain Latvia Lithuania Note: Texas ratio = non performing loans/(tier 1 capital + loan loss provisions) Source: ECB, consolidated data Note: Non performing loans as a share in total loans. Source: EBA Risk Dashboard, 215 Q3 8

9 Risk of further modest dynamics of lending Annual growth rate of credit to the private sector total credit households companies Dec.12 Jun.13 Dec.13 Jun.14 Dec.14 Jun.15 Dec.15 Although 215 saw an increase in lending, the negative gap between the credit growth rate and the long term lending potential persists in Romania Lending developments against the long term trend Assumption: short financial cycles age points Source: NBR, NIS, NBR calculations 2Q1 2Q4 21Q3 22Q2 23Q1 23Q4 24Q3 25Q2 26Q1 26Q4 27Q3 28Q2 29Q1 29Q4 21Q3 211Q2 212Q1 212Q4 213Q3 214Q2 215Q1 215Q4 credit to GDP gap (λ=1,6, pp) long term trend of credit to GDP ratio (%, λ=1,6, rhs) age points Assumption: long financial cycles 2Q1 2Q4 21Q3 22Q2 23Q1 23Q4 24Q3 25Q2 26Q1 26Q4 27Q3 28Q2 29Q1 29Q4 21Q3 211Q2 212Q1 212Q4 213Q3 214Q2 215Q1 215Q4 credit to GDP gap (λ=4,, pp) long term trend of credit to GDP ratio (%, λ=4,, rhs)

10 Decreasing currency risk The share of leu denominated loans in the loan stock widened at a fast pace and became prevalent, due mainly to: policy rate cuts First Home loans granted in local currency alone conversion of forex loans increase in leu denominated deposits to the detriment of foreign funding Structure of credit to the private sector by currency Dec.12 Source: NBR Jun.13 Dec.13 Jun.14 Dec.14 Jun.15 private sector loans in foreign currency private sector loans in domestic currency Dec The money market rate and new loans in lei to households* lei bn. 4. 3M ROBOR 3.5 new loans in lei to households* (rhs) 3. Jan.9 May.9 Sep.9 Jan.1 May.1 Sep.1 Jan.11 May.11 Sep.11 Jan.12 May.12 Sep.12 Jan.13 May.13 Sep.13 Jan.14 May.14 Sep.14 Jan.15 May.15 Sep.15 * New loans, except restructured and refinanced loans, according to the data reported by credit institutions. Data may also include currency conversions. Source: NBR, CB

11 Romania retains its sound macroeconomic position These risks notwithstanding, Romania reports high economic growth, as well as low levels of public debt, fiscal deficit and current account deficit Household income increased, employment picked up, minimum wage rose, competitiveness of medium high tech and high tech exports improved, the banking sector is on a sound footing What we need is fiscal policy responsibility, a predictable legislative framework, a prudent macroeconomic policy mix preserving economic equilibria and supporting financial stability in the period ahead 11

12 II. International environment Lower commodity prices The banking sector is exposed to developments in companies whose scope of business is electricity production (lei 3.7 billion in December 215) The said economic sub sector calls for close monitoring, given that its net result witnessed a substantial decline (lei 1.2 billion, down 68 during June 213 June 215) Commodity price index Value added and bank loans (25=1) total commodities non fuel commodities energy metals agricultural raw materials share of GVA (June 215) share of bank loans (December 215) M1 214M3 214M5 214M7 214M9 214M11 215M1 215M3 215M5 215M7 215M9 215M11 216M1 Services Manufacturing Trade Utilities Construction Mining Agriculture Real estate Source: IMF Source: MPF, CCR 12

13 External balance (1) Current account balance External debt and international reserves of GDP 12 EUR bn. EUR bn Mar.7 Sep.7 Mar.8 Sep.8 Mar.9 Sep.9 Mar.1 Sep.1 Mar.11 Sep.11 Mar.12 Sep.12 Mar.13 Sep.13 Mar.14 Sep.14 Mar.15 Sep Source: Eurostat, NBR direct investment: debt instruments NBR general government other sectors deposit taking corporations except the central bank international reserves (rhs) Source: NBR 13

14 External balance (2) Foreign investment in Romania transactions Financial flows to/from the EU budget 1 EUR bn. 7 EUR bn contributions to the EU budget debt instruments (intragroup loans) reinvestment of earnings equity capital account capital transfers (e.g. infrastructure/motorways, investment in equipment) current account secondary income (e.g. European Social Funds) current account primary income (e.g. agricultural subsidies) Source: NBR Source: NBR 14

15 III. Recent financial developments and trends: households Stock: Loans to households in December 215 Number of borrowers (thou.) Number of loans (thou.) Total loans outstanding (lei mn.) Total loans, of which: 3,478 4,969 12,123 Loans up to lei 2, 2,989 4,133 14,226 Loans over lei 2, ,897 Housing loans and other real estate investment loans, of which: ,3 Loans up to lei 2, Loans over lei 2, ,893 Consumer loans, of which: 3,284 4,629 5,12 Loans up to lei 2, 2,98 4,118 14,115 Loans over lei 2,, of which: ,5 Mortgage backed consumer loans ,71 Non mortgage backed consumer loans ,295 Note 1. The data cover both on balance sheet and off balance sheet exposures reported by credit institutions to the Central Credit Register and the Credit Bureau. Note 2. Only loans equal to or higher than lei 2, are reported to the Central Credit Register. Source: NBR, CB 15

16 Flow: new loans Breakdown of new loans granted to households by credit institutions 4 lei bn. In 215, total loans to households amounted to lei 27 billion, of which: lei 2.8 billion worth of new loans lei 6.2 billion worth of refinanced and restructured loans restructured and refinanced loans new loans* FX new loans* lei new loans monetary balance sheet * New loans, except restructured loans and refinanced loans, according to the data reported by credit institutions. Data may also include currency conversions. Source: NBR, CB 16

17 Households net wealth The household sector is a net lender to the banking system (its net position increased by 17, from lei 26.3 billion in 214 to lei 3.7 billion in 215) Households net wealth rose by 4.2 in the first part of 215 due to the positive dynamics of both financial and real estate assets (following an adjustment mainly in the price factor) Households position vis à vis banks (loan sales included) and NBFIs Households net wealth lei bn ,2 1, lei bn. 1,2 1, Q1 28 Q4 29 Q3 21 Q2 211 Q1 211 Q4 212 Q3 213 Q2 214 Q1 214 Q4 position in lei position in foreign currency net total position annual real growth rate of deposits (rhs) 215 Q Q2 real estate assets net financial assets net wealth/gross disposable income (rhs) net wealth/net income (rhs) real estate assets/net financial assets (rhs) Source: NBR Source: NBR, NBR calculations, NIS, FSA 17

18 Households credit risk declined Non performing loan ratio fell by 2.24 age points in June 215 December 215, especially against the background of the further implementation by banks of non performing exposure resolution measures Banks non performing loan ratio by loan type Loans unlikely to be paid hold 39 of total non performing loans in December 215, with more than half of them being subject to a refinancing or restructuring operation (65 in December 215) Apr.15 May.15 Jun.15 Jul.15 Aug.15 Sep.15 Oct.15 Nov.15 total NPL ratio housing loans or other real estate investment loans mortgage backed consumer loans non mortgage backed consumer loans credit cards and overdrafts Dec.15 5 Source: NBR, CB 18

19 IV. Recent financial developments and trends: non financial corporations Financial indicators improved Financial soundness indicators for non financial corporations Non financial corporations profitability by company size lei bn H1 215 H1 214 H1 215 H1 214 H1 215 H1 Leverage ratio Current ratio ROE (rhs) Debt/equity Jun.13 Jun.14 Jun.15 Total, out of which: Jun.13 Jun.14 SMEs Jun.15 Jun.13 Jun.14 Jun.15 Large companies economy large companies SMEs profit loss net result Source: MPF, NBR Source: MPF, NBR 19

20 but the evolution remains asymmetric Aggregate loss of firms with negative net results by ownership Aggregate profit of firms with positive net results by ownership lei bn. lei bn companies with majority private capital companies with majority state capital June 214 June companies with majority private capital companies with majority state capital June 214 June 215 Source: MPF, NBR Source: MPF, NBR 2

21 Mixed developments in insolvency State owned companies posted an improved payment discipline, the volume of their overdue payments decreasing by 22 (compared to 9 in the case of private companies) Insolvency witnessed mixed developments in terms of dynamics in 215: the number of companies having declared themselves insolvent shrinked significantly (1.5 thousand firms versus 2.5 thousand firms in 214), whereas insolvency became more frequent among large companies In June 215, insolvent companies generated about 22 of overdue payments to suppliers and almost half of overdue payments to the state and other creditors, up from the previous years Number of insolvent companies Share of overdue payments generated by insolvent firms in total overdue payments of non financial corporations thousands newly insolvent firms total insolvent firms Jun.13 Jun.14 Jun.15 Jun.13 Jun.14 Jun.15 Jun.13 Jun.14 Jun.15 Suppliers State budget Other creditors Jun.13 Jun.14 Jun.15 Non banksʼ total overdue payments Source: NTRO, MPF, NBR Source: NTRO, MPF, NBR 21

22 V. Recent financial developments and trends: the banking sector Further deleveraging Relevant indicators for assessing the magnitude of deleveraging In 215, on balance sheet assets increased due to the substantial volume of deposits raised on the domestic market and to the strengthened capital position annual nominal age change index Repayment of loans taken from parent banks continued in an orderly manner 1 15 Dec.12 Dec.13 Dec.14 Dec Source: NBR assets (gross value) loans to the private sector deposits from non bank clients foreign liabilities assets/equity (rhs) 22

23 Lower non performing loan ratio and higher provisioning Texas ratio developments: Non performing loans/(tier 1 capital + loan loss provisions) NPL ratio and NPL coverage ratio (EBA definition) Texas ratio (based on EBA's definition of non performing loans) Texas ratio (based on the former national definition of non performing loans) Mar.12 Jul.12 Nov.12 Mar.13 Jul.13 Nov.13 Mar.14 Jul.14 Nov.14 Mar.15 Jul.15 Nov.15 Sep.14 Oct.14 Nov.14 Dec.14 Jan.15 Feb.15 Mar.15 Apr.15 May.15 Jun.15 Jul.15 Aug.15 Sep.15 Oct.15 Nov.15 Dec.15 NPL ratio NPL coverage ratio (rhs) Source: NBR, data at individual level Source: NBR 23

24 Stress testing Potential losses generated by the change in the market value of government securities after an unexpected and persistent increase by 2 basis points in interest rates amount to approximately 13.8 of own funds across the system Credit institutions ranked by the potential impact of a 2 bp interest rate shock The impact is on the rise versus the period covered in the previous Report amid lower interest rates, being partly diminished by the higher share of securities held to maturity in credit institutions balance sheets Source: NBR potential impact on own funds loss > 2% for a 2bp decrease loss > 2% for a 2bp increase 24

25 Banking sector profitability re entered positive territory Banking sector profitability improved in 215, thus reversing the year earlier loss lei bn. Dec.13 Source: NBR Developments in total own funds and Tier 1 capital Mar.14 Jun.14 Sep.14 Dec.14 Mar.15 Jun.15 Sep.15 Dec.15 Tier 1 capital Total own funds Tier 1 capital real annual change (rhs) Total own funds real annual change (rhs) Developments in profitability (ROA and ROE) 2 15 ROA ROE Dec.8 Dec.9 Dec.1 Dec.11 Dec.12 Dec.13 Mar.14 Jun.14 Sep.14 Dec.14 Mar.15 Jun.15 Sep.15 Dec.15 Source: NBR 25

26 Interest rate margin narrowed Interest rate and average interest rate margin on leu denominated loans and deposits for non financial corporations and households Developments in interest rate margins on leu denominated portfolios Mar.13 Jun.13 Sep.13 Source: NBR Dec.13 Mar.14 Jun.14 Sep.14 Dec.14 Mar.15 weighted average lending rate weighted average deposit rate average interest rate margin Jun.15 Sep.15 Dec.15 Mar.12 Jun.12 Sep.12 Dec.12 Mar.13 Jun.13 Sep.13 Dec.13 Mar.14 Jun.14 Sep.14 Dec.14 Mar.15 Jun.15 Sep.15 Dec.15 margin on fixed rate loans and deposits margin on floating rate loans and deposits 6M ROBOR slope of the yield curve (rhs) Source: NBR 26

27 Liquidity expanded Loan to deposit ratio (regional comparison) Share of liquid assets in total assets Tier 1 assets Mar.14 Jun.14 Sep.14 Dec.14 Mar.15 Jun.15 Sep.15 Dec.15 Non adjusted Adjusted Romania Bulgaria Czech Republic Hungary Poland currency government bonds corporate bonds excess reserves local government bonds other assets Source: ECB, NBR Source: NBR 27

28 The number and stock of CHF denominated loans fell by 2 CHF denominated loans: account for a low share of GDP (from 1.4 down to 1.1, December 215) hold a small and declining share of total private sector loans (3.4, namely lei 7.7 billion, December 215) The number of borrowers with CHF denominated loans fell by 2 versus 214, standing at 6,429 in December 215 and the stock of CHF denominated loans decreased from lei 9.8 billion to lei 8 billion. The drop in the number of borrowers with CHF denominated loans was driven by: the conversion of 17,4 CHF denominated loans into leu denominated loans the fact that some CHF denominated loan portfolios reached maturity or were sold (the aforementioned decline would have been larger unless some banks had repurchased previously sold CHF denominated loans (around 12,)) the significant number of debt restructuring requests received by credit institutions from their clients that were met (over 11,5) 28

29 Loan sales Loan portfolio sales by banks at end 215 amounted to lei 37.1 billion (stock), of which: lei 14.3 billion worth of loans to households, of which lei 2 billion worth of housing loans lei 21 billion worth of loans to nonfinancial corporations lei 1.8 billion worth of loans to financial corporations Out of total sold loans, lei 16.8 billion are directly administered by credit institutions Net annual flows of sold loans by loan purpose and type of transferee lei bn housing loans sold to residents consumer loans sold to residents NFC loans sold to residents housing loans sold to non residents consumer loans sold to non residents NFC loans sold to non residents Source: NBR (according to Regulation No. 4/214 on reporting statistical data and information to the National Bank of Romania, Annex I4) 29

30 Financial markets Dashboard of Romania s financial market volatility in the period MM FX SDM GBM SM low volatility moderate volatility high volatility Note: MM = money market, FX = forex market, SDM = sovereign debt market, GBM = government bond market, SM = stock market; for each market, a representative indicator was selected, for which the conditional volatility was estimated and thresholds based on empirical distribution of results were calculated. Source: Bloomberg, NBR calculations 3

31 The macroprudential policy strategy of the National Bank of Romania Intermediate objective 1. Harmonised at EU level; enforced as of 1 January 215 Mitigating and preventing excessive credit growth and leverage Mitigating and preventing excessive maturity mismatch and market illiquidity Limiting direct and indirect exposure concentrations Limiting the systemic impact of misaligned incentives in order to lower moral hazard Strengthening the resilience of financial infrastructures VI. Macroprudential aspects Macroprudential instruments countercyclical capital buffer (CCB) sectoral capital requirements (including intra financial system) macroprudential leverage ratio loan to value ratio requirements loan to income and debt service to income ratio requirements adjustment to liquidity ratio (i.e. liquidity coverage ratio) restrictions on funding sources (i.e. net stable funding ratio) unweighted limit to less stable funding (i.e. loan to deposit ratio) margin and haircut requirements restrictions on large exposures requirement for clearing through central counterparties additional capital requirements for systemically important financial institutions margin and haircut requirements for clearing through central counterparties increased reporting structural systemic risk buffer 2. Nationally specific; enforced as of 1 January 216 Sustainable increase in financial intermediation improved level of training of bank employees directly involved in lending greater dissemination of statistical data bringing into domestic bank loan portfolio the higher quality sold loans and the loans granted directly by non resident banks to the non financial corporations in Romania Increased financial inclusion provision of payment services at prices adequate to both market conditions in Romania and the needs of consumers that do not benefit from financial services greater dissemination of information 31

32 Capital buffers implemented by the NBR in 216 Buffer Objective Level established in Romania Deadline for implementation Capital conservation buffer Increase the loss absorbing capacity 2.5 of total risk exposure amount of the institution by 219 Gradual phasing in, i.e..625 per annum during The first rate of.625 has been activated as of 1 January 216. Countercyclical capital buffer Limit excessive credit growth % The buffer has been applied since 1 January 216. O SII buffer Mitigate the systemic risk generated by the size of institutions 1 of total risk exposure amount of the institution, solely for systemically important banks The buffer has been activated as of 1 January 216. Systemic risk buffer Prevent or mitigate long term non cyclical systemic or macroprudential risks 1 of total exposure amount to which it applies, solely for selected banks; it does not add to the O SII buffer The buffer has been activated as of 31 March

33 Minimum capital requirements have increased in 216 as a result of implementing capital buffers Minimum required Common Equity Tier 1 capital to risk weighted assets ratio all banks 16 banks 14 banks Up to 31 December 215 Since 216 Source: NBR 33

34 VII. Special feature: Residential real estate market Residential property prices re embarked on an upward path in Residential property prices, annual nominal change Mar.5 Sep.5 Mar.6 Sep.6 Mar.7 Sep.7 Mar.8 Sep.8 Mar.9 Sep.9 Mar.1 Sep.1 Mar.11 Sep.11 Mar.12 Sep.12 Mar.13 Sep.13 Mar.14 Sep.14 Mar.15 Sep.15 Bucharest (yoy nominal rate of change) rest of the country (yoy nominal rate of change) total (yoy nominal rate of change) Source: NIS, UNNPR (National Union of Notaries Public in Romania), Eurobank Property Services (EPS), NBR calculations The price for a standard flat in Bucharest Year EUR/sqm* 26 1, , , , , * The price for a standard 3 room flat with a 7 sqm area. Source: NIS, UNNPR, Eurobank Property Services (EPS), NBR calculations 34

35 Households access to house purchase has improved The number of years required for purchasing a home has diminished from 22 in 28 to 7 in The price to income ratio and its deviation from the average no. of years Households expectations on their financial situation over the next 12 months index Dec.2 Sep.3 Jun.4 Mar.5 Dec.5 Sep.6 Jun.7 Mar.8 Dec.8 Sep.9 Jun.1 Mar.11 Dec.11 Sep.12 Jun.13 Mar.14 Dec.14 house price to income ratio deviation of the house price to income ratio from the longterm average (average for the period under review) EU Euro area Romania Source: NIS, UNNPR, Eurobank Property Services (EPS), NBR calculations Source: European Commission 35

36 Housing loans and housing supply have picked up in tandem with prices Dynamics of house prices and of housing loans Number of completed dwellings and number of related building permits 8 thousands Dec.5 May.6 Oct.6 Mar.7 Aug.7 Jan.8 Jun.8 Nov.8 Apr.9 Sep.9 Feb.1 Jul.1 Dec.1 May.11 Oct.11 Mar.12 Aug.12 Jan.13 Jun.13 Nov.13 Apr.14 Sep.14 Feb.15 Jul housing loans (annual nominal rate of change) residential property prices (annual nominal rate of change) Source: NIS, UNNPR, Eurobank Property Services (EPS), NBR calculations Source: NIS number of completed dwellings number of building permits 36

37 Households access to housing loans has risen Credit access index for housing loans or other real estate investment loans Loan to value and the number of years of saving for the average down payment on housing loans 2.4 index 8 5 no. of years DSTI for borrowers with housing loans or other real estate investment loans (rhs) credit access index credit access index (using actual LTV ratio) LTV at origination (rhs) no. of years of saving for the required down payment Source: NIS, UNNPR, Eurobank Property Services (EPS), National Agency for Fiscal Administration, NBR calculations Source: NBR, NIS, UNNPR, Eurobank Property Services (EPS), National Agency for Fiscal Administration, NBR calculations 37

38 Housing loan related costs declined Interest rates on loans for house purchase declined, in line with changes in the monetary policy rate, while banks eased credit standards amid the improvement in macroeconomic conditions and the rebound on the real estate market Interest rates on leu denominated housing loans have converged with those on EUR denominated credit, thereby fostering domestic currency lending and the mitigation of credit risk Source: NBR Interest rate on new housing loans Jan.7 Sep.7 May.8 Jan.9 Sep.9 May.1 Jan.11 Sep.11 May.12 Jan.13 Sep.13 May.14 Jan.15 Sep.15 average lending rate on new business (EUR) average lending rate on new business (lei)

39 yet credit access may be hampered in the future Borrowers will need more time to save the necessary amount for down payment if the law on debt discharge is implemented The monthly installment could increase by around 45 for an average housing loan in domestic currency and by about 4 for an average housing loan in euro Number of years of saving for the down payment on a housing loan The increase in a housing loan installment following the implementation of the law on debt discharge 8 6 no. of years 7.9 1,2 1, 8 6 lei , "First Home", 5% down payment Housing loan, 15% down payment Housing loan, 35% down payment Note: Calculations for a household consisting of two persons, with average income, a savings rate of 25%, value of the dwelling = EUR 6,, house price reduction = 1%. Source: NIS, NBR, NBR calculations Loans in lei Before Loans in euro (lei equivalent) Note: Calculations for an average housing loan, maturity = 3 years, interest rate increase = 15 basis points, 1 year reduction of maturity. Source: CCR, NBR, NBR calculations Loans in lei After Loans in euro (lei equivalent) 39

40 The 1 key messages of the April 216 Financial Stability Report Romania has a solid macroeconomic position. However, Romania faces a severe systemic risk generated by the uncertain and unpredictable legislative framework in the financial and banking field. The fiscal consolidation trend has reverted. A high systemic risk of an external nature has emerged: the possible exit of the United Kingdom from the European Union. The heightened uncertainty externally should not be compounded by vulnerabilities on the domestic front. The NBR fully repaid the 29 loan from the IMF. The banking sector has consolidated further and the contagion risk has declined. Domestic currency loans became prevalent in the loan stock. Payment discipline, albeit improving, remains a major vulnerability in the corporate sector. Households access to loans for house purchase has improved, but may be hampered by the recent legislative initiatives. 4

41 Thank you! 41