However, despite the rising level of bad loans (14% of total lending in December 2011), the local banking system is well capitalized and private lending is recovering, the EBRD said in its updated strategy report for Romania.
The EBRD’s Board of Directors has adopted a new three-year strategy for the eastern European country, which outlines the bank’s key priorities to support the nation’s further transition.
The document noted Romania’s capital market is illiquid and lacks price transparency, depriving lenders of the tools for proper asset-liability-management.
“Significant vulnerability arises from the large maturity mismatch on their balance sheets as long term assets, such as mortgage loans, are mostly financed by deposits under the assumption that the deposit base will remain stable,” EBRD said.
Given about 65% of the deposits are in domestic currency, there is also a foreign exchange risk, the bank added.
EBRD said Romania’s primary mortgage market is still underdeveloped, compared to other central and eastern European markets, with a ratio of total outstanding mortgages to gross domestic product of less than 5%, compared with over 50% in the EU.