RO households prefer holding their savings in foreign currency

The stock of deposits held by Romanian residents in local banks at the end of July 2019 increased by 8.8% (4.5% in real terms) in year on year terms, to a total of RON 337.8 billion (RON 71.4 bln), as the volume of savings in local currency increased by 6.8%, to RON 220 bln, while the foreign currency savings advanced by 13%, to RON 117 bln, according to data from the National Bank of Romania (BNR).

Firstly, the stock of deposits visibly exceeds the volume of loans extended by local banks (RON 263 billion, or EUR 55.6 bln) and secondly the volume of deposits has been rising faster than the volume of lending (+7.9%, in nominal terms).

This in principle indicates gradual accumulation of resources in local banks, which boast record high solvency ratios (nearly double the minimum required ratios) - on the downside pointing to inefficient use of resources.

Among the categories that advanced the most over the past year, the stock of foreign currency deposits held by households surged by 15.5% in nominal terms, or 12.9% when expressed in euros.

Expected inflation generated by repeated wage hikes created expectations for local currency weakening that are only to some extent shared by banks’ analysts.

Thus, the latest poll among CFA analysts indicate that the euro would trade at RON 4.83 within 12 months, compared to RON 4.725 currently. This still results in expectations for real strengthening of the local currency since the expectations are for 3.5%-4% inflation over the same 12 month period of time.

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