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How can Romanians' exposure to foreign currency risk be curbed?

How can Romanians' exposure to foreign currency risk be curbed?

Autor: Ciprian Botea

25.04.2011, 23:44 18

When two thirds of retail lending is foreigncurrency-denominated, talks about curbing foreign currency loansappear to come late. In recent years, this major vulnerability ofthe domestic market has been hidden under speeches about theupcoming euro adoption. However, the scenario of our joining theeurozone is no longer valid and thus foreign currency risk is hereto stay for a long time. What is there left to be done?

The gap between lei and foreign currency-denominated retaillending has widened over the past year, with the weight of fundingin foreign currency climbing by 4% in February from a year ago, to65% of the overall volume.

Individuals' foreign currency loans hit the equivalent of 65mlei (16m euros) in late February, out of a 100m lei total amount.Foreign currency lending rose by 10% in euros from last year, whilelei loans fell by 8%.

After the onset of the crisis, the NBR moved to prevent theexchange rate from posting dramatic increases to limit thedeterioration of foreign currency loan portfolios, which could havedestabilised the entire banking system. Moreover, borrowers withforeign currency loans have got a breath of fresh air since early2011, as the leu has fallen by almost 5% against the euro sinceDecember 2010. And yet, the NBR is speaking about dampening foreigncurrency lending.

Whereas there are not too many rapid ways of balancing thecurrency structure of loan portfolios at present, the NBR governorhas recently announced he planned to restrict foreign currencyloans. Thus, these could be at least slowed down, but it is notclear how this will be done.

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