THE BANKING SYSTEM OF ROMANIA

Anda Fratica
Raluca Ichim
Tempea Roxana
AN OVERVIEW OF THE BANKING SECTOR OF
ROMANIA NOWADAYS

The banking sector of Romania made up of 40 banks at the end of
December 2012 finances mainly the Romanian economy, providing
about 92% of the total financing granted by the Romanian financial
system. The banking system has proven to be resilient during the
crisis, continuing to grant funding to the economy of Romania.

The economic growth outlook generated by the absorption of
European funds, the level of financial and bank intermediation of
almost 40% and respectively 57%, make Romania be an attractive
destination for investors who invest in banking sectors.

The banking sectors assets stood at 83 billion, their weight against
the Gross Domestic Product (GDP) amounting to 62%.

SHORT HISTORY OF THE ROMANIAN BANKING
SYSTEM


The first modern commercial bank was established in the Romanian
Principalities in 1865 under the name of The Bank of Romania. The
bank was organized as a limited joint-stock company.

The Bank of Romania was initially set up as an issuing and commercial
bank by the English and French investors who governed the Banque
Imperial Ottomane.


Four years later the Romanian Government revoked the Bank of
Romanias monopoly of issue. This institution operated further as a
private commercial bank until its liquidation in 1948 by the communist
regime.
The establishment of the modern-type banking system designed to
replace money lenders and trade houses that had developed healthily
before the mid of the 19
th
century, was a low process until the setting up
of the National Bank of Romania, on 1880.


The National Bank of Romania was designed not only to pay the role of
state financing and note issuing, but also to perform purely commercial
banking functions. With the provisions of the law governing its
establishment, the new banking institution was a joint-stock company.

On the eve of World War 1, the Romanian banking industry was highly
concentrated, being dominated by 9 leading commercial banks, called
the big Romanian banks. In the 1913 these banks held 70% of the
total commercial banks resources, while 188 small and middle-size
banks held the remainder of the total resources.


Soon, after the communist took the power, all the Romanian and
foreign-controlled banks were liquidated, except for the National Bank
of Romania, the National Company of Industrial Credit and the Saving
Bank.

THE BANKING SYSTEM IN ROMANIA AFTER 1989

The issuing of the Law on banking activities and the Law concerning
the Statute of the National Bank of Romania represented the
beginning of the organization of the banking system in accordance
with the market economy principles.


The new banking system started its activity on December
1
st
,1990. Its structure has been organized in two tier levels: The
National Bank of Romania as the Central Bank and the commercial
banks.

THE NATIONAL BANK OF ROMANIA AND ITS
ROLE IN THE BANKING SYSTEM

The National Bank of Romania (NBR) is
an independent, public institution, that has
the exclusive right to issue currency, being
the sole institution vested with the power to
issue legal tender in the form of notes and
coins to be used as means of payment on
the territory of Romania.

The NBR supports the general economic
policy of the Government without prejudice
to its primary objective which is providing
and maintaining price stability.

NBRs main responsibilities are:

devising and pursuing monetary policy and exchange rate policy;

licensing, regulating and prudential supervising of credit institutions,
promoting and monitoring the appropriate operating of payment
systems in order to ensure financial stability;

issuing banknotes and coins as legal tender on Romanias territory;

establishing the foreign exchange norms and its supervision;

managing Romanias foreign reserves.

NATIONAL BANK OF ROMANIAS POWER

The National Bank of Romania has the following main statutory powers:

to issue and apply the monetary and exchange rate policy
to authorize, regulate and supervise the credit institutions from the
prudential point of view, as well as to promote and monitor the good
functioning of the payment system;
to issue currency as legal payment means on the Romanian territory
to establish the foreign currency regulations and supervise the
observance of the same
to administrate the international reserves of Romania

Operations with credit institutions(settlement, deposit, discount and
payment services; lending operations; monitoring, authorizing and
supervising the payments system; supervising credit institutions;
performing paid services, upon the express request of credit
institutions, regarding collection and transmission of payment
incidents and credit risk; establishing the regime of the minimum
compulsory reserves which credit institutions need to maintain with
NBR).

Operations with the State treasury(opening and operating State
treasurys current account; acting as state agent for establishing the
credit institutions which are eligible to accept and maintain deposits of
the State treasury; acting as State agent for performing discounts on
the general current account of State treasury).
Operations performed by the National Bank of Romania

Operations with treasury bills on the primary market
Based on various protocols concluded with the Ministry of Finance,
NBR may act as a State agent with regard, inter alia, to:
placements with third parties of treasury bills and other Romanian
state negotiable instruments; and
registration, deposit and transfer of treasury bills as well as
payments of related principal, interest and bank commissions.
Gold and foreign assets operations (establishing and maintaining
the States international reserves; entering transactions with gold
bars and other precious metals, as well as with currencies and
treasury notes; entering transactions with foreign currency ).
THE SUPERVISION AND CONTROL OF THE NATIONAL BANK OF ROMANIA

When granting loans, banks must be careful that applicants are
credible in repaying them at maturity. Therefore, banks have to ask
the applicants to guarantee the loans under the conditions
established by their norms.

Banks must comply with the following prudential requirements as
stated in the regulations of the National Bank of Romania:
the minimum level of solvency;
minimum exposure to a single debtor;
minimum exposure aggregate;
minimum level of liquidity determined according to the deadlines of
the amounts receivable and the banks commitments;

the classification of granted loans and of uncased interest rates to
them and the setting up of specific risk provisions;
currency position;
resource management and investments of the bank.

The National Bank of Romania supervises the operations performed
by banks, Romanian legal entities and the branches of foreign
banks, on the basis of the prudential reports drown up according the
law and implemented regulations of the National Bank of Romania,
as well as through on-site and of-site inspections.
COMMERCIAL BANKS

The second tier of the Romanian banking system is made-up
of credit institutions, distinctively regulated depending on their
status of Romanian or foreign legal entities.

1. Concept of Credit Institution and Bank.
Credit institution types
Depending on the nature of the credit institution share capital,
the following types of credit institutions operate in Romania:
public credit institutions, which are state-owned, such as the
Savings House, reorganized as a joint-stock banking
company;
private credit institutions, being those with private capital
(domestic and/or foreign).

2. Incorporation and operation of Romanian credit
institutions

According to Romanian law, commercial banks may only be
established as joint-stock companies. For the incorporation
purpose the approval of the National Bank of Romania is
necessary. Pursuant to the banks incorporation, the National
Bank of Romania grants the operational authorization.

Romanian commercial banks may establish branches and
other secondary headquarters (agencies and other similar
secondary seats) on the Romanian territory, in accordance
with the National Bank of Romania regulations.


3. Organization of foreign credit institutions activity

Foreign banks may perform banking activities in Romania either by
incorporating a subsidiary in Romania, which will be a Romanian
bank and shall thus conduct its banking activity based on the NBR
authorization, or by establishing branches in Romania, which are
subject to NBR authorization procedure in case the parent bank is a
non-EU credit institution. Additionally, foreign banks may establish
representative offices in Romania.

4. Banking secrecy

Banks must observe the confidential nature of banking
transactions and services rendered, including the identity of
account holders. According to law each person entitled to
have management or leading responsibilities, as well as all
individuals participating in the banks activities are bound by
professional secrecy. All these persons may not use or
disclose, neither during their activity, nor after termination of
their activity, facts or information, which, if becoming public,
might affect the interests and the prestige of the bank or of
any client of the bank.

5. Prudential requirements

Credit institutions are required to observe prudential requirements, on
an individual or consolidated level, as the case may be, in accordance
with NBR regulations, including but not limited to:
solvency;
liquidity;
maximum exposure towards a single debtor and maximum
aggregate exposure;
exposure towards persons that are in special relations with the bank;
currency risk;
quality of assets,
establishment and use of risk provisions;
organization and internal control.

6. Prohibited transactions

According to banking legislation, credit institutions are forbidden to
enter into, among other things, the following operations:
dealing with movable or immovable goods, except for those
expressly accepted to be performed by credit institutions under
certain conditions provided by the banking legislation ;
creating pledges over the banks own shares to secure the banks
debts;
granting loans or rendering other types of services to clients
conditioned by the sale or purchase of the banks shares or by the
clients acceptance of other services unrelated to the loan or the
product/service required;
granting loans secured with shares issued by the bank or another
entity from the group;
accepting deposits, or other reimbursable funds, titles or other values
from the public when the bank becomes insolvent; and
granting loans conditioned on the clients acceptance of other
services that are not related to such a crediting operation.



Privatization of State-owned banks

Privatization methods
Banks may be subject to privatization under any of the following
methods:
increase of registered capital by private capital contribution in
cash, pursuant to public offer or private placement;
sale of shares managed by the Authority for State Assets
Recovery (AVAS), only against cash with payment in full;
combination of the two methods described above.

The privatization of banks is based on valuation reports and
feasibility studies concluded by specialized entities, in
accordance with the international standards.

Privatization process limits

Romanian or foreign individuals or legal entities acting directly or
indirectly, individually, or jointly with third parties, may not
acquire more than 20% of total share capital of banks earmarked
for privatization, except for reputable international financial
banking institutions.

The law also forbids the following operations:
anticipated share sale and purchase agreements, as well as
any other agreements concluded prior to privatization;
loans granted by Romanian-based banks for payment of
shares acquired from AVAS or for payment of the subscribed
shares in case of a share capital increase of banks earmarked
for privatization;
shares in banks earmarked for privatization may not be
purchased with loans granted by Romanian entities;
loans obtained abroad may be used to purchase such shares,
but said shares cannot be pledged as security for the loan
repayment.


BANKS IN ROMANIA
Other institutions that co-operate with
the Romanian banking system

The Bank Asset Recovery Agency was established in 1999 and is
specialized in taking over non-performing loans and off-balance sheet
items from majority state-owned banks, aiming at recouping them from
the debtors.
The Bank Deposit Guarantee Fund was set up in 1996, by
Government Ordinance no. 39/1996, as a legal entity of public law.
The Funds purpose is:
guarantees the reimbursement of deposits with credit institutions by
natural persons, legal persons or entities without legal personality,
according to the terms and limits established by the law on
the Funds operating;
conducts activities as special administrator, interim administrator or
liquidator of credit institutions, if appointed to act in such a capacity.

Credit Bureau aims to support the participants to the banking
system by providing them real, updated, aggregated and consistent
information regarding individuals who have outstanding loans with
banks or financial companies, who have purchased an asset via
leasing or have been insured against default risk with an insurer.

TransFonD the Company for Fund Transfer and
Settlement, The operator of the Electronic Payment System of
Romania is a private firm established by the banking community of
Romania, having as shareholders the National Bank of Romania
(33,33%) and 25 commercial banks (66,67%).The main line of
business of TransFonD is to provide clearing and settlement
services of cashless payments in national currency for credit
institutions, the National Bank of Romania, the State Treasury and
other financial institutions.

The Romanian Banking Institute (RBI) has as main target
vocational training, by specializing the staff working in banks,
according to the requirements established by credit institutions and
the National Bank of Romania, in cooperation with the Romanian
Banking Association and the programs endorsed by its Board.


The Payments Incidents Bureau is an intermediation center
managing information specific to incidents with payments
instruments (cheques, promissory notes, bills of exchange), both
from the banks point of view (overdraft) and from the social point of
view (lost/stolen/damaged).



The Credit Information Bureau was set up in 2000, in the National
Bank of Romania, as an intermediation center that manages credit
risk information and card fraud information. The system collects,
stores and centralizes information on the exposure of every credit
institution in the Romanian banking system to the debtors that were
granted loans and/or have commitments totaling more than the
reporting threshold, and on payments overdue, as well as information
on card frauds committed by cardholders.

The users of the information in the Credit Information
Bureau database are the reporting entities credit institutions and
mortgage loan companies and the National Bank of Romania.




ROMCARD is joint stock company, set up in 1994 by the five most
important Romanian banks, having as objective the processing of
cards transactions, including cards transactions authorization,
databases administration, national and international switching, cards
transactions processing and settlement, security solutions for e-
commerce services.

The Romanian currency
The Romanian currency is known as the New Leu (RON); prior to
the currency reform of 2005, an earlier Leu (ROL) was in place.
Romania agreed in the late 1990s to be bound by IMF rules on
current account convertibility, liberalizing the regime in place with
regard to international transactions.
On 1 July 2005, the leu was revalued at the rate of 10,000 "old" lei
(ROL) for one "new" leu (RON), thus psychologically bringing the
purchasing power of the leu back in line with those of other major
Western currencies. The term chosen for the action was
"denominare", similar to the English "denomination", to signify not a
conversion, but rather a total reinvention.

Foreign banks play a significant role in the Romanian banking sector,
and in August 2009, as one of a number of measures to mitigate the
impact of the global financial crisis on the Romanian economy the
sector's nine largest foreign players agreed to raise the capital
adequacy levels of their Romanian operators to 10%, and not to
reduce their overall exposure to the country.

The first day brought difficulties adjusting to the new paper currencies
and closed ATMs (that needed reprogramming) and forcing a new
calculation habit that slowed down shops. The old ROL currency
banknotes remained in circulation until December 31, 2006 (coins
remained in circulation only until December 31, 2005), but all accounts
have been converted starting July 1, 2005.

As of 2006, the revaluation is a potential source of confusion,
especially to visitors, since both old and new currency values are
commonly quoted.


Conclusions

In order for the Romanian Banking System to be functional and to
contribute to the development of the economy as a whole, we have
to take into consideration the following aspects:
Supervising the financial stability in order to: enhance the capacity of
efficient allocation of the resources, the absorption of possible
shocks on the real economy;
The growth of the banking systems administrative capacity which
will assure the main objective of this one of assuring the stability of
the prices;
Qualitative study of the surveillance process through: the adaptation
of the NBRs regulations to the risk profile specific to each credit
institution, giving a greater importance of the role that the
management of the institutions has it in managing the banks risks;


Conclusions
Managing the contagion risk which manifested due to the evolution
of international markets as a consequence of the supreme debt
crisis;
Improving the quality of the banking assets;
The balance of the on coins structure of the crediting;
The perspectives of the banking industry and of the national financial
system depend mostly on the remaking the trust, on the success of a
sustainable release of the economy and not at last on the
international evolutions.


THANK YOU!