Mugur Isărescu: Issue of CHF-denominated loans
Presentation by Mr Mugur Isărescu, Governor of the National Bank of Romania, in front of
the Budget and Finance Parliamentary Commission, Bucharest, 10 February 2015.
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Ladies and gentlemen, Members of Parliament,
First of all, I would like to thank you for the invitation to present, together with my central
bank colleagues, the stance and action steps adopted by the National Bank of Romania in
relation to the issue of CHF-denominated loans in Romania.
I assure you that we deem this debate to be very useful at the current juncture. The
members of the central bank's top management have come before you in line with the legal
obligation stipulated in the NBR Statute (Law 312/2004) of providing the Parliament and the
general public with quality information for a clear image of the policies and the measures
adopted by the National Bank of Romania in fulfilling its tasks.
I. The Swiss National Bank's decision
The public debate on CHF-denominated loans started on 15 January 2015, when the Swiss
National Bank removed the 1.2 EUR/CHF floor, which led to the immediate and significant
appreciation of the Swiss franc against the euro, the US dollar and other currencies. The
decision adopted by the monetary authority of Switzerland took into account the fact that the
floor - implemented in September 2011, when the Swiss franc was substantially overvalued
against the euro - had become increasingly difficult to keep in place given the quantitative
easing initiated by the European Central Bank and the significant capital inflows into
Switzerland. The CHF appreciation against the leu was inevitable, even if the domestic
currency had a relatively stable evolution against the reference currency (euro).
The literature refers to the Swiss franc as a safe haven currency. Owing to the small size of
the local financial market, against the background of foreign capital inflows, the Swiss franc
tends to strengthen significantly versus other currencies in times of turmoil on international
markets.
The measures the National Bank of Romania can take in order to influence the exchange
rate of the domestic currency against the Swiss franc are limited. The CHF/RON exchange
rate is set indirectly. The euro is Romania's reference currency on the FX market, given the
intensity of the country's trade with euro area states, the EU membership and Romania's
intention to adopt the euro in the future. The EUR/RON exchange rate is the result of the
foreign currency demand and supply generated by trade and financial flows, while the
CHF/RON exchange rate is determined indirectly depending on the EUR/RON and
EUR/CHF exchange rates. The developments in the EUR/CHF exchange rate depend on the
foreign currency demand and supply between the euro area and Switzerland, Romania
having no influence on its quotation. The EUR/RON exchange rate is relatively stable and it
reflects the favourable performance of fundamentals. The recent depreciation of the RON
against the
CHF is therefore entirely attributable to the appreciation of the CHF versus the EUR, USD
and other currencies, as a result of the Swiss National Bank removing the 1.2 floor, following
the European Central Bank's quantitative easing decision.
The NBR's intervention to bring the CHF/RON exchange rate back to the 14 January 2015
level is not possible, as the international arbitrage does not allow that only the CHF/RON
exchange rate be influenced, while keeping unchanged the exchange rates of the leu versus
the other currencies.
In order to reverse the impact on the CHF/RON exchange rate following the Swiss National
Bank's decision, the leu would have to appreciate versus the euro to approximately RON 3.7
per euro. This EUR/RON exchange rate level could be maintained only temporarily, as
pushing the EUR/RON exchange rate down to a level much lower than that perceived by the
market to be correct would require considerable foreign currency sales (amounting to EUR
billions) not only for achieving this objective, but also for enabling the systematic
interventions necessary for subsequently maintaining this exchange rate.
This intervention by the NBR would have short-term effects and significant economic
consequences. The sizeable contraction in foreign currency reserves would trigger the
worsening of investor perception, as mirrored by the rise in risk premia. The external
borrowings would become costlier for the state and the private sector, while the risk of
speculative attacks on the domestic currency would increase.
The massive appreciation of the leu versus the euro would lead to the strong erosion of
Romania's external competitiveness, having therefore a negative impact on the performance
of Romanian exports. Under the circumstances, the economic activity would post a
contraction, also reflected in an unfavourable evolution of the number of jobs. Furthermore,
the decrease in exports, accompanied by the simultaneous spur in imports, would generate a
worsening of the trade balance. In such a context, additional corrective pressures would
emerge on the EUR/RON exchange rate towards the pre-intervention level. Mention should
be made that the NBR's foreign currency sales would imply the absorption of liquidity in lei
from the money market, leading to a substantial increase in domestic currency interest rates.
This would not only deter leu-denominated lending and foster foreign currency lending (which
would become cheaper), but it would also imply considerably higher costs for borrowers with
outstanding leu-denominated loans. In other words, a low currency risk would come at the
expense of a higher interest rate risk.
Moreover, the strengthening of the domestic currency would induce a deflationary shock
across the Romanian economy, with the potential of creating a loop of mutually-reinforcing
falling prices and broad-based delay in consumption, conducive to economic downturn and
consequently to layoffs.
Apart from the adverse economic effects, the NBR's intervention to help the domestic
currency appreciate against the CHF to a level similar to that recorded prior to the Swiss
National Bank removing the 1.2 EUR/CHF floor would also impact public policy. Such an
intervention would result in changing the benchmark currency on the foreign exchange
market from EUR to CHF, contradicting not only the economic reality, but also the EU
membership legally binding Romania to adopt the single currency at a certain point in time.
As for the possibility of the NBR imposing a ban on CHF-denominated loans, such a decision
would have entailed the restriction of CHF-denominated capital flows, thus violating one of
the fundamental prerequisites of Romania's accession to the EU: full capital account
liberalisation, completed in 2006.
Besides, even assuming such a measure had been possible, it would have affected trade
with and investment from Switzerland, as well as the financing of CHF hedged borrowers
(exporters, as well as employees of companies with Swiss capital, whose incomes are
expressed in CHF).
The relevant presence of Swiss capital in Romania is pointed out by the direct investment
from Switzerland, which totals around EUR 2 billion, as well as by the number of companies
with Swiss capital (over 2,000). These companies' annual turnover is worth about
EUR 7 billion, while the number of employees has ranged between 50,000 and 60,000
(nearing the number of CHF borrowers). The main Swiss investors in Romania are present in
significant economic sectors: building materials, energy, petrochemicals, pharmaceuticals,
food industry, tobacco, agriculture and stockbreeding. Over the last years, trade flows with
Switzerland exceeded the EUR 250 million threshold for exports and the EUR 400 million
threshold for imports.
The situation generated by the CHF appreciation should be approached rationally, rather
than emotionally. First and foremost, before coming up with a solution, we should make sure
that the situation has stabilised. Frequently, FX markets tend to overreact at the incipient
stage of such events. From this standpoint, mention should be made that about 40% of the
rise in the CHF/RON exchange rate was already corrected: it started off at 1 CHF =
3.74 RON on 14 January 2015, peaked at 4.58 on 23 January and stood at 4.21 on
9 February 2015.
Moreover, given the considerable financial impact, time is necessary for solutions to be
formulated so that the additional burden generated by the stronger CHF might be rationally
and realistically shared among the parties involved.
To sum up, we believe that, before adopting any measures, the following should be
analysed: the actual situation of CHF-denominated loans in Romania, the current economic
environment, the approach to the effects generated by the stronger CHF in other countries in
the region, as well as the viability of the solutions recommended.
II. Information on CHF-denominated loans
CHF-denominated loans do not pose a systemic risk because they hold a small share in
GDP and also in total loans.
CHF lending to the private sector stands for 1.4% of Romania's GDP, while Poland and
Hungary report levels five and seven times higher respectively. The proportions are the same
as regards the share of CHF-denominated loans in total private sector loans: in Romania
they account for 4.7%, while Poland and Hungary report levels three and five times higher
respectively. The weight of CHF lending in total loans to non-financial corporations and
households in Romania has followed a downward path since 2012, to 4.7% of total loans to
these sectors. The development is also attributable to the notable decline in
CHF-denominated loans granted since 2009.
CHF-denominated loans were almost exclusively taken by individual borrowers. These loans
account for around 10% of total loans to households, and individuals with CHF-denominated
loans (75,412) account for 2.1% of the total number of individual borrowers. For comparison,
in Poland, the number of CHF borrowers exceeds 500,000.
The rationale behind the boom in CHF lending during 2007-2008 is in close connection with
the social factors. The CHF borrowing costs were lower at the credit agreement date, which
ensured easier access to lending for lower income borrowers, as well as larger loans for
larger income borrowers. On the other hand, the unfavourable developments in the CHF may
have a major adverse impact on debtors' capacity to repay the loans. A simulation of the
instalments of a standard loan in CHF, RON and EUR respectively, extended in December
2008, shows that: (i) at the credit agreement date, the monthly instalments on
CHF-denominated loans were lower compared with similar monthly instalments on loans
granted in RON or EUR, and (ii) the impact of the change in the exchange rate and/or the
interest rate was stronger on CHF loans than on those in the other currencies.
The number of CHF borrowers is on the decline (by 31.8% in November 2014 compared with
December 2008, i.e. by around 35,200). The drop is due to loan repayment, loan conversion
into another currency, their removal from the balance sheets or their sale. The number of
CHF borrowers fell at a faster rate compared with the household loan dynamics at aggregate
level, the number of debtors moving down 15% between December 2008 and November
2014. The number of CHF loans witnessed a similar development.
Credit risk associated with CHF-denominated loans is relatively higher compared with other
currencies. In November 2014, the NPL ratio on household loans in CHF stood at around
12% versus 9.4% for all foreign currency-denominated loans to households, yet the
dynamics were similar to those of foreign currency-denominated loans overall.
Recent studies also identify heightened risks and correspondingly high costs associated with
CHF loans to unhedged borrowers at an international level, particularly in non-euro area
countries.
Individuals with CHF-denominated loans are not a homogeneous group. The distribution of
such loans shows a large variety in terms of: loan destination, loan value, borrowers' income
level, borrowers' indebtedness level, and loan maturity.
CHF-denominated loans to households have had different purposes. About 35% of
CHFdenominated loans are housing loans and 58% of them are mortgage-backed consumer
loans. Real estate lending to households is mostly denominated in EUR, with
CHFdenominated loans accounting for merely 7.7% of the said loans versus 37% in Poland.
CHF-denominated loans are not homogenous in terms of value. Large value loans
(exceeding CHF 47,000) are concentrated: 25% of borrowers hold two thirds of the loan
stock. At the other end, another 25% of borrowers have taken small value loans (lower than
CHF 4,000), accounting for only 1% of the loan stock.
The breakdown of CHF borrowers by income group points to the existence of vulnerable
social groups among them. About half of the CHF borrowers have a net monthly income
lower than lei 1,500 and up to 75% of them have a net monthly income lower than lei 2,500.
The average DTI ratio of CHF borrowers currently stands at 92%, higher than in December
2008, i.e. 64%. Indebtedness distribution is strongly uneven, as borrowers with a net monthly
income below lei 2,500 are currently over-indebted, as a result of both income contraction
during the crisis and CHF appreciation. Borrowers whose income is below the average wage
economy-wide were the hardest hit by CHF appreciation. Debt-servicing costs of borrowers
whose net monthly wage is lower than lei 500 rose by 32.2% of the said income, whereas
those of borrowers with an income higher than lei 3,000 increased by less than 7% of their
net monthly wage.
Designing similar solutions for both borrowers with income lower than lei 700 and an average
DTI ratio of 184% and borrowers with income higher than lei 7,000 and an average DTI ratio
of 26% is not warranted.
CHF-denominated loans are usually long-term loans, with an average residual maturity of
13.2 years. However, about 40% of CHF-denominated loans have a residual maturity shorter
than five years and other 40% of them have a residual maturity longer than 15 years. In fact,
the average value of CHF-denominated loans is significantly higher than that of
leudenominated loans, but it also varies a lot depending on borrowers' income level.
Such disparities argue against applying a similar approach to borrowers' debt-servicing
difficulties: there are various individual specific situations, therefore one size does not fit all,
which calls for the adoption of several differentiated solutions.
CHF-denominated loans are concentrated among a handful of banks (three banks account
for 77% of CHF borrowers and for 69% of the CHF-denominated loan volume; these banks
jointly held 14% of total bank assets in November 2014). Moreover, the net currency position
in CHF was not a source of speculation for banks, given its very low share in total own funds
and its extremely low volatility when compared with other currencies. Mention should be
made that banks showed caution in managing CHF-denominated assets and liabilities.
III. The current economic environment
The analysis of the current economic environment reveals two significant characteristics.
First, Romania has maintained sustainable macroeconomic balances over the last years,
also as a result of the counter-cyclical monetary and prudential policies implemented by the
National Bank of Romania. Romania further enjoys robust economic growth and solid growth
prospects, of 2.7% in 2015 and 2.9% in 2016. The annual inflation rate has remained on a
downward path, while the general government balance and the current account balance
stand at sustainable levels. These arguments show that the movements in the CHF/RON
exchange rate should not be seen as a depreciation of the domestic currency (which is
supported by strong economic fundamentals), but as CHF appreciation following the Swiss
National Bank's decision.
Second, the downtrend in interest rates on leu-denominated loans, also as a result of the
NBR's decisions to gradually cut the monetary policy rate and to pursue adequate liquidity
management, is supportive of the solution of converting foreign currency-denominated loans
into the domestic currency in the case of currently unhedged borrowers.
The analysis of the latest statistical data points to a further decline in the annual inflation rate,
which followed a lower-than-forecasted path and ran below the lower bound of the variation
band of the flat target, due to the steeper drop in volatile prices and to the increasingly weak
inflation on external markets, overlapping the lingering negative output gap and the ongoing
downward adjustment in inflation expectations. In December 2014, the year-on-year inflation
rate stood at 0.8%, while the average annual inflation rate stuck to 1.1% and the annual
average inflation rate based on the Harmonised Index of Consumer Prices - which is
relevant for assessing convergence with the European Union - came in at 1.4%, the same
as in the previous month.
The fall in the inflation rate allowed for successive policy rate cuts (to an all-time low of
2.25% in February 2015) and for interbank rates to decline markedly to record lows, amid
favourable liquidity conditions in the money market. In August 2014, the NBR resumed the
rate cutting cycle so that in February 2015 the monetary policy rate ran at 2.25% versus
5.25% in June 2013. Moreover, January through November 2014, the NBR gradually
lowered the minimum reserve requirement ratios. Thus, at present the minimum reserve
requirement ratio on leu-denominated liabilities of credit institutions is 10% (from 15% at
end2013) and that on foreign currency-denominated liabilities is 14% (from 20% in December
2013). The aforementioned movements in the policy rate and reserve ratios led to a
significant reduction in the debt service of borrowers with loans in domestic currency, an
increase in leu-denominated loans and a contraction in foreign currency-denominated loans,
confirming the stronger preference for loans in domestic currency. Consequently, the
currency risk has receded.
Prudential indicators show that the banking sector is stable and sound. The loan-to-deposit
ratio (LTD), a relevant financial stability indicator, has fallen below 100%, coming in at 91.3%
in December 2014. The solvency ratio stood at 17.1% in September 2014 against 15.5% in
December 2013, significantly above the international prudential requirements, and liquidity is
at an adequate level.
The removal of non-performing loans from the balance sheets has led to negative profitability
of the banking system, with credit institutions incurring net losses worth around EUR 1 billion
in 2014.
Out of the total stock of loans to households amounting to lei 101 billion, foreign
currencydenominated loans account for the equivalent of lei 62 billion (or 61% of total). Mention
should be made that out of foreign currency-denominated loans worth 62 billion when
expressed in domestic currency, EUR-denominated loans held 83.8%, CHF-denominated
loans accounted for 15.7%, and USD-denominated loans took 0.5%, as of November 2014.
Individuals' substantial foreign currency indebtedness and the adverse movements in the
exchange rates of several currencies of late (the strong appreciation of the CHF and of the
US dollar, as well as the uncertainties surrounding the euro exchange rate) make it even
more difficult for a number of borrowers to repay their debt.
Other countries reported similar repayment difficulties on loans to households as well and
applied various government-backed schemes to support individuals improve their debt
service (the United Kingdom, Ireland, the US, Latvia, Croatia, Iceland).
IV. NBR measures vis-à-vis foreign currency lending
The NBR has implemented at an early stage a mix of measures to deter the unsustainable
increase in foreign currency lending. The measures envisaged: (A) monetary policy,
(B) prudential regulation, (C) prudential supervision, (D) public warnings, and
(E) implementing the recommendations of the European Systemic Risk Board (ESRB) on
lending in foreign currencies. Romania ranks among the countries that had to come up with
unorthodox measures in order to deal with the challenges arising from the full capital account
liberalisation, euroisation of the economy, massive foreign capital inflows, etc. Some of these
measures, previously seen as administrative measures at the moment of their
implementation, are currently deemed macroprudential instruments (e.g., debt service to
disposable income ratio and loan-to-value ratio).
A. Monetary policy
In order to deter foreign currency lending and, implicitly, to strengthen the traditional
channels of monetary policy transmission, the NBR actively used as an instrument the
minimum reserve requirements ratio on foreign currency liabilities. This ratio continued to be
raised during 2004-2006, its level increasing by 5 percentage points each time in August
2004, January 2006 and March 2006 to 40%. Additionally, the NBR extended the scope of
minimum reserve requirements to foreign currency-denominated liabilities with residual
maturity of over two years, as follows: (i) starting February 2005, on the liabilities incurred
subsequent to this date; (ii) starting July, on the liabilities incurred prior to February 2005.
The high restrictiveness thus imposed on the minimum reserve requirements ratio on foreign
currency-denominated liabilities of credit institutions was kept in place until 2009, when the
knock-on effects of the economic crisis on Romania prompted the central bank to implement
a countercyclical monetary policy.
B. Prudential regulation
• In 2003, prior to Romania's joining the European Union, the central bank issued
norms setting forth certain conditions for granting loans to households, such as:
- capping the indebtedness level at 35% of the net income for mortgage loans;
- requiring from borrowers a down-payment of 25%;
- providing real and/or personal collateral equal to at least the amount of the
loan requested for consumer loans that are not intended for goods purchasing;
- capping the LTV ratio at 75%.
• In July-September 2005, additional lending requirements were imposed, as follows:
- capping the overall household debt service ratio at 40% of net income on
condition that the borrowers' commitment arising from mortgage loans does
not exceed 35% of their net income;
- capping aggregate exposure from foreign currency-denominated loans at
300% of the credit institution's own funds, or endowment capital in the case of
branches of foreign credit institutions, for loans granted to households and
companies earning incomes in currencies other than the loan currency.
In the context of Romania's accession to the EU (in 2007), the prudential regulatory
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framework for lending activity was adjusted in line with the provisions of the acquis
communautaire, including the provision on full capital account liberalisation.
• Thus, in order to comply with Romania's commitment to capital account
liberalisation, it was necessary to firstly remove the cap on credit institutions'
aggregate exposure from foreign currency-denominated loans as of 1 January 2007.
Keeping the cap in place would have been tantamount to a capital restriction, i.e. a
breach of Romania's commitment to full capital account liberalisation at the time of
EU accession.
Additionally, in March 2007, the central bank's regulations on lending were aligned
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to the relevant EU practices, which did not comprise any administrative restrictions,
by promoting the bank self-regulation model.
In line with new framework, banks establish maximum indebtedness levels by
category of customers based on internal lending norms, by observing the risk profile
and strategy assumed by banks in relation to borrowers' financial capacity. These
caps are subject to prior validation by the central bank.
• In February 2008, stricter requirements were applied for the provisioning of foreign
currency-denominated loans granted to borrowers earning incomes in currencies
other than the loan currency.
• In August 2008, the regulation on lending to households was amended so that
banks were required to determine borrowers' indebtedness levels in such a way that
the debt service might accommodate the materialisation of currency and interest
rate risks, as well as higher fees and commissions, over the entire life of the loan.
On the same date, the legal provisions were supplemented by imposing the use of
the borrower's annual tax record instead of the monthly income certificate
throughout the income validation process.
• In October 2011, the NBR introduced additional restrictions on foreign
currencydenominated loans to households, consisting in stricter requirements on establishing
the maximum indebtedness level allowed for consumer loans, loan collateralisation,
etc.
C. Prudential supervision
Prudential supervision of credit institutions is one of the NBR's main tasks, according to the
law. To this end, the NBR is empowered to check, based on reports and on-site inspections,
the compliance with legal provisions and with the NBR regulations in order to limit and
prevent risks specific to the banking activity. Based on the examinations and assessments it
undertakes, the NBR ascertains to what extent the management framework, the strategies,
processes and mechanisms implemented by a credit institution ensure the proper
management of risks given the particular risk profile of the credit institution. Thus, the
supervision carried out follows the risk-based approach rather than the compliance-based
one.
In exercising its supervisory task, the NBR issues recommendations, adopts measures and
imposes sanctions on the credit institutions themselves or on their executive and governing
bodies in order to ensure that the proper remedial measures are adopted and compliance
with the regulations in force is restored.
D. Implementation of recommendations of the European Systemic Risk Board
(ESRB) on lending in foreign currencies
At EU level, the first recommendations on lending in foreign currencies were issued by the
ESRB in 2011 (with implementation deadline in December 2012). The recommendations
were not aimed at banning foreign currency-denominated loans by way of administrative
measures, but at setting forth measures that would ensure borrowers have the capacity to
service their debt even in the context of adverse developments. With some of these
recommendations already regulated, the NBR supplemented the national legislation with the
required provisions.
Following up on the action steps of the Romanian authorities, the ESRB concluded that the
aforementioned recommendation had been fully implemented by Romania.
E. Public warnings
In the past decade, the NBR has constantly issued public warnings regarding the risks
related to foreign currency loans, including CHF-denominated loans, taken by individuals
earning incomes in currencies other than the loan currency. These recurrent warnings were
disseminated via several communication channels: studies, conferences and seminars on
financial stability and supervision issues, legal colloquia (available on the NBR's website),
statements made by central bank representatives during the quarterly press conferences,
monthly meetings with the representatives of the Romanian Banking Association and other
specialised associations (Association of Financial-Banking Analysts in Romania, National
Association of Romanian Exporters and Importers, etc.). Most warnings were issued
concomitantly with the release of prudential norms and/or restrictions by the NBR. We
hereby underline that these activities are current and permanent, and are reported in the
Annual Reports and the Financial Stability Reports published on the NBR's website.
V. Other countries in the region - approaches to the situation caused by CHF
appreciation
The measures taken by other EU Member States to deal with the challenges posed by
CHF-denominated loans show that the solutions were different relative to the particular
features of such loans in each country. Therefore, Romania must identify solutions that
would fit its own situation. To cherry-pick the favourable components of the measures taken
by other countries without revealing the context and the associated costs would be
counterproductive.
The significant CHF appreciation in early January 2015 has entailed measures tailored to the
particular features of each country. Specifically, Polish authorities recommended banks to
come up with individual solutions to cut down on debtors' debt service. Croatia introduced a
fixed exchange rate of the kuna against the Swiss franc for a one-year period. The
Hungarian authorities took over much of the effort of managing the consequences of the
developments in the CHF/HUF rate; it should be mentioned, though, that CHF-denominated
loans accounted for approximately 50% of local government borrowings and would have had
a significant impact on the budget assuming inaction on the part of the authorities.
VI. Pseudo-remedies vs. realistic and balanced solutions
There may be various ways of action to solve the issue of CHF-denominated loans, but any
negotiated solution should be based on the following principles:
• target those individuals in real need of support;
• reasonable burden-sharing;
• not generate moral hazard, i.e. not lead to unreasonable expectations in the future
(related to not paying the debt service) and not discriminate debtors in other
currencies (RON, EUR, USD);
• not impair financial and banking system stability. Financial system stability is
essential for: (i) ensuring financial intermediation and hence the funding of economic
growth, (ii) job creation, (iii) higher household income, (iv) paving the way for credit
repayment, (v) preserving depositors' confidence in the banking sector;
• comply with the EU Treaty and Romania's accession conditions, i.e. not restrict free
capital movement.
VI.1. Unrealistic solutions
We deem the following solutions as unrealistic given their cost-benefit ratio:
A. NBR intervention to bring the CHF/RON at the level of 14 January 2015, which
would involve an appreciation of the EUR/RON from around 4.4 (where it currently
stands) to 3.7; such an operation would keep the desired level in place only in the
short run, because the level would be unsustainable and would entail arbitrage. The
associated costs would translate into substantial FX reserve losses, seriously
detrimental impact on exports and larger disequilibrium on the FX market
B. Conversion of CHF-denominated loans into lei at exchange rates other than the
market exchange rate applicable on the conversion date.
• Assuming credit conversion at the historical rate in the month of extending the
credit, banks would incur losses (calculated as the difference between the exchange
rate on 23 January 2015, i.e. 4.58, and the historical CHF/RON rate) estimated at lei
5.66 billion (around 0.85% of GDP). Four credit institutions would see their solvency
ratio fall below the minimum regulated threshold. The solvency ratio across the
banking sector would diminish from 17.1% to 14%.
• Credit conversion at the historical rate + 20% would generate losses worth around
lei 4.5 billion for the entire banking sector, while three credit institutions would see
their solvency ratio fall below the minimum regulated threshold. The solvency ratio
across the banking sector would diminish from 17.1% to 14.6%.
• Credit conversion at a monthly average rate (from the credit agreement date to
present) would generate losses worth around lei 3.2 billion for the entire banking
sector, while two credit institutions would see their solvency ratio fall below the
minimum regulated threshold. The solvency ratio across the banking sector would
diminish from 17.1% to 15.3%.
C. Conversion of CHF- and EUR-denominated loans into lei at exchange rates other
than the market exchange rate applicable on the conversion date.
• Assuming the cumulated conversion of CHF- and EUR-denominated loans at the
historical rates in the month of extending the credit, banks would incur losses
(calculated as the difference between historical rates and the exchange rates on
23 January 2015, when the CHF/RON was 4.58 and the EUR/RON was 4.49)
estimated at lei 9.8 billion. The solvency ratio across the banking sector would
diminish from 17.1% to 11.7%. Four credit institutions would see their solvency ratio
fall below the minimum regulated threshold and would require recapitalisation.
• Cumulated credit conversion at the historical rates + 20% would generate losses
worth around lei 5.5 billion for the