Opening remarks for the 13th edition of the Regional Seminar on Financial Stability
Mugur Isărescu, Governor of the National Bank of Romania
Bucharest, September 12, 2019
Ladies and gentlemen, good morning and welcome!
This is the thirteenth edition of our international seminar on financial stability
organized by the National Bank of Romania together with the International Monetary
Fund. We would like to express our gratitude for the IMF's constant involvement and
support in the successful outcome of this international seminar.
Traditionally, the seminar takes place at the NBR training center in Sinaia, an
enchanting place at the foot of the mountains, where the effects of autumn on the
vegetation can be admired. This year we have decided that the seminar is to be held
in Bucharest, because these days Bucharest is the host of the International George
Enescu Music Festival, which you will attend tonight.
We are happy to welcome representatives from central banks in the region, from our
Dutch-Belgian IMF Constituency, as well as academia and think tanks.
Last year's edition was about the lessons we drew after the global financial crisis from
a macroprudential perspective, but throughout time, various topics have been
addressed, as well, like:
- resolution and financial intermediation;
- macrostability and systemic risks;
- macroprudential instruments and policy framework.
Ladies and gentlemen,
The seminar makes every effort to put forward challenging topics and I hope this year's
edition is no exception. Over the next two days, we will cover subjects in the area of
financial inclusion, Small and Medium Enterprises financing, climate-related risks and
their implications for financial stability. These topics are relatively new. They were not
on the agenda of macroprudential policymakers a decade ago. Nowadays, these
subjects, along with fintech, aging or inequality are high on the agenda of policy
discussions, not only in the financial stability fora, but also in monetary policy
meetings. Therefore, we consider it worthwhile to dwell more on some of these topics
during the seminar.
I am confident the discussions will be very interesting, just by looking at the diversity
of panelists: central bankers, representatives of the Bank for International
Settlements, the European Commission, Bruegel or the Council for Economic and
Policy Research. Not to mention our partners from the International Monetary Fund
who will also provide their perspective.
Lower financial inclusion is an increasing concern across countries, especially in
emerging economies. The topic is linked with another concern represented by income
inequality. The financial system can play an important role in amplifying or cutting
down both. However, macroprudential authorities might not be among the best-suited
institutions to deal with such phenomena. The evidence we have so far shows that, in
the short term, macroprudential policies may reduce financial inclusion when
implementing credit constraints, especially for borrowers that are more vulnerable to
possible income or interest rate shocks (generally, lower-income individuals).
Macroprudential instruments like debt service-to-income (DSTI) or loan-to-value (LTV)
are very powerful in preserving financial stability, but the access to credit for
households from the lower income percentile might be affected.
However, in the long run, these macroprudential policies might have a positive
contribution to preserving the wealth of borrowers, underpinning also financial
inclusion. This is also the Romanian experience.
When we entered the European Union in 2007, we had to get rid of all our
macroprudential measures like LTV (loan-to-value) or DSTI (debt-service-to-income),
because at that time such instruments were considered to hinder the free movements
of capital. We reintroduced these measures in 2009, after the outbreak of the crisis.
The bulk of non-performing loans we witnessed came exactly from exposures dating
back to the time when the above-mentioned measures had been lifted (2007-2008)
and the most affected borrowers were from lower-income buckets. For these
individuals, higher access to finance and better financial inclusion in the short run
implied over the medium and long term difficulties in repaying debts and, in many
cases, negative equity for their balance sheets. Our lesson is that improving financial
inclusion should take place in a sustainable manner. Macroprudential instruments
might hurt this inclusion in the short term, but they will support it in the medium and
long run. Our active involvement in raising the degree of financial education of the
population is crucial for reaching the same objective. I am very interested to hear your
views and experience on this matter. The first day of our seminar is dedicated to this
topic.
The second day of the seminar targets mainly the corporate sector. The Small and
Medium Enterprises' access to finance is also important for financial stability. Small
and Medium Enterprises constitute the overwhelming majority (99 percent) of
businesses at European level, with important contributions both in terms of value
added generated by non-financial corporations (57 percent) and employment (67
percent). Increasing access to finance in this sector is among the EU priorities. It is also
true that this portfolio accounted for the highest post-crisis NPL ratio in the European
Union. At its peak, the average NPL ratio for Small and Medium Enterprises reached
around 20 percent at European Union level. In Romania, the ratio was 35 percent,
while the NPL ratio for microenterprises accounted for 53 percent. Therefore, the
same lesson learnt from the household sector also applies here: the Small and Medium
Enterpises' financial inclusion should unfold in a sustainable way.
On the other hand, the experience with macroprudential instruments for companies is
extremely limited at the European level. For example, France has recently
implemented a measure focusing on highly indebted firms, but it applies only to large
companies. Therefore, I think that deepening this area of research is very useful for
macroprudential policymakers. In Romania we have also tried to come up with
solutions that might improve Small and Medium Enterprises' financial inclusion. Our
macroprudential authority - the National Committee for Macroprudential Oversight,
comprising representatives from the central bank, the Ministry of Public Finance, and
the Financial Supervisory Authority - adopted last year a recommendation to the
Government, seeking to improve financial discipline in the economy and the financial
soundness of firms. I strongly believe that addressing these structural vulnerabilities in
the corporate sector will significantly increase the number of bankable firms and
enhance the financial inclusion of Small and Medium Enterprises.
Last, but not least, the climate-related topics have become more and more prominent
worldwide. The financial system should not ignore the effects of climate risks. Central
banks and supervisory authorities have joined the scene. There is a significant interest
at EU level in the role of sustainable finance, a High-Level Expert Group on Sustainable
Finance being established by the Union. The Network for Greening the Financial
System, that brings together 34 members, out of which 8 are central banks and
supervisory authorities, highlighted the role of climate risks as a source of financial
vulnerabilities. Not only the increased frequency and severity of extreme weather can
translate into economic and financial losses for the real economy and the financial
system, but consequences can also arise from transitioning to a low-carbon economy.
Governments' climate policy, new technologies and consumer preferences will be the
main drivers influencing the developments in carbon-intensive sectors. Having in mind
the important ramifications, a coherent policy mix is needed in order to ensure a
smooth transition to low-carbon economies and to preserve financial stability. This is
a new challenge that the corporate sector should face as well.
Ladies and gentlemen,
From the beginning, the aim of this seminar was to bring together experts from the
region to discuss current financial stability challenges and to exchange knowledge in
dealing with such challenges. A constant, over the past three years, is the special
session dedicated to young professionals' research at the central banks.
Along with the IMF's involvement, we intend to continue and build on the tradition of
this international seminar, bringing together experienced central bankers both from
advanced, as well as emerging market and developing economies for an open and
enriching exchange of views on relevant financial stability issues.
On this note, allow me to stop here and wish every success to the works of this
seminar.
Thank you!