mugur isarescu : issue of chf - denominated loans presentation by mr mugur isarescu, governor of the national bank of romania, in front of the budget and finance parliamentary commission, bucharest, 10 february 2015. * * * 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 /

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. bis central bankers ’ speeches 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