In a special comment released earlier today, Moody’s said the crisis is likely to affect Romania’s banking system through several channels, including a weakening demand for exports and a slowdown in foreign direct investment, as well as a potential weakening of parent banks’ commitment to their operations in the country.
Romania’s high level of foreign-currency lending, which accounts for over than 60% of total loans, represents an additional risk factor for the local system, the agency noted.
“These transmission mechanisms will likely reduce funding availability, weaken asset quality, increase losses and pressure capital; which, in turn, may increasingly exert pressure on bank ratings in Romania,” Moody’s said.
Moody’s expects asset quality will deteriorate, or at least it will remain under significant pressure because of the weakening operating environment.
In addition, non-performing loans are likely to rise further if the local currency weakens, while the parent banks could reduce financing to their Romanian subsidiaries.
“The local banks would have to realign their business models, which would likely suppress profits due to slower growth and more intense competition on lending and deposit margins,” Moody’s said.