The foreign debts of the banking system exceeded 11 billion euros at the end of November 2006, after having surged by around 41% from the level registered in 2005. At the same time, foreign assets dropped although they were already incomparably smaller than liabilities.
Therefore, at the end of November, foreign financing lines contracted by banks increased to a value almost ten times higher than that of foreign assets. In the first eleven months of 2006, the domestic financing accumulated by commercial banks increased by only 19.4%, totalling 34.5 billion euros. Whereas the foreign balance was completely uneven, domestically banks' assets at the end of November totalled 45.2 billion euros, that is more than 10 billions higher than liabilities.
Banks resorted to foreign financing increasingly more often in order to be able to grant loans in both foreign and domestic currency, particularly because the National Bank capped foreign currency lending in the autumn of 2005. Under the circumstances, the banks' actions contributed to the pressures for a RON appreciation, besides boosting foreign currency lending. It was not until 2006 that the effects of the restrictions imposed by the central bank started surfacing and commercial banks started increasing interest rates for raised resources, in an attempt to secure higher RON liquidity volumes.
Nevertheless, the volume of foreign liabilities continued to expand at a fast rate in the autumn of 2006, registering a growth of 285 million euros in a single month.
Under the circumstances, domestic banks' exposure was largely focused abroad. This happened as a series of major banks resorted to loan "exports", which were registered directly in the balance sheets of parent companies, generating a distorted image of banking assets that were reported back to the central bank.
Domestic banks in many cases became loan managers, while parent companies could directly take advantage of the high interest rates on the Romanian lending market. Despite NBR's monetary policy restrictions, foreign currency lending was further boosted last year by the continuing tendency of RON growth, which gained 14% against the euro in real terms. At the same time, some players started contracting Swiss franc-denominated financing lines.
During 2006, the volume of short-term foreign liabilities saw accelerated growth, with 34% peaks in three months, while medium and long-term liabilities stalled until autumn, when they climbed to 4.8 billion euros.
However, short-term liabilities exceeded them as early as the spring, reaching 6.2 billion euros in November.
Once the banking market opens up to European players, the volume of financing released from abroad may continue to expand at a fast rate, as foreign banks will be more competitive through better prices, than those offered by domestic banks, particularly in the case of major financing projects.
Foreign financing
Banking system foreign liabilities topped 11bn euros in late November 2006, after surging by around 41% against the level for 2005
Foreign financing lines contracted by banks had come to be almost 10 times bigger than foreign assets at the end of November
Banks resorted to foreign financing increasingly more often to be able to grant foreign currency and RON loans
Short-term foreign financing continued to increase at a fast pace in 2006
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