“Continued uncertainties, particularly regarding the financing resources of Romanian subsidiaries of foreign banks, generate a still rather tense environment in the interbank market and, subsequently, more usage of the BNR’s credit facilities,” the central bank said in a statement.
BNR announced the key rate stayed at 5.25% on Wednesday. However, the more important thing here is that it clearly states in an official release that uncertainties about financing of foreign-held Romanian banks by parent banks persist and they cause increased usage of its credit facilities. In other words, the central bank replaces via loan facilities the funding that parent banks are no longer granting to their Romanian subsidiaries, thus turning into a surrogate parent for all the foreign-held Romanian banks.
Funding of Romanian subsidiaries by their parent banks is vital for their operation. The Romanian subsidiaries of foreign banks have grown reliant on foreign funding to keep going and as such they ended up piling loans two or three times higher than the deposits attracted.
The central bank highlighted in its official release about the monetary policy in March the greater role it played in regulating liquidity, but the wording at the time was much vaguer, talking about “distribution of liquidity” and “intensification of the liquidity regulatory role of the central bank.”
Now, however, governor Mugur Isarescu says it clearly that foreign banks are reducing exposures to Romania: “We’ve definitely had exposure reduction in the last six weeks. The preliminary data show that this deleveraging has clearly affected Romania. On the other hand, you get rid of the debt. That is both good and bad,” Isarescu explained on Wednesday. “We want to boost lending but not debt at the same time. If you want debt to increase, you have to agree to a lending decline. As long as we have limited resources, we have to get the loan from somewhere else.”
Isarescu did not hesitate to criticize the reliance of foreign-held banks on the funding from their parent banks to keep their local operations going.
(English version by Loredana Fratila-Cristescu)