Starting 1 January 2012, Romanian banks will be using International Financial Reporting Standards (IFRS) instead of local accounting standards (RAS). The change will leave the banks “over-provisioned,” JPMorgan said.
Under RAS, banks may only reduce provisions against collateralized loans which are now doubtful or bad by 25% of the value of their collateral. Under IFRS, banks may use 100% of the market value of the collateral, the report noted.
By law, local banks cannot hold open forex positions per currency larger than 10% of their own funds (capital, reserves and profit), so the over-provisioning in foreign currency must be quickly converted into lei, the American lender noted.
“Although there is a six-month derogation (subject to approval from the central bank), meaning that the banks can preserve the FX position for up to six months, banks’ own internal rules would force them to close positions quickly in any case,” the report said.
JPMorgan estimates the quantity of foreign currency to be converted into lei at EUR1 billion to EUR1.5 billion. This could push the leu up 3% to 4.2 per euro, the bank said.
The American lender recommends selling euros on short term. The bank sees the entry at 4.31 per euro and sets the target at 4.2 per euro, with stop-loss orders at 4.35 per euro.
Wednesday morning, the leu opened at 4.312 per euro and slid below 4.31 per euro in early trade, amid low volumes.