Romania's macroprudential oversight body (NCMO), summoned on October 14, recommended the National Bank of Romania (BNR) to allow banks to distribute dividends, raise the countercyclical buffer rate from 0% to 0.5% as of October 17, 2022, and impose a capital buffer for other systemically important institutions (O-SII buffer) on an individual or consolidated basis.

The measures, taken in coordination with the European bodies (ECB primarily), reflects expectations of the worst being over for the banking system, which actually is gaining momentum - hence a countercyclical buffer is needed.

However, the implementation of the buffer (scheduled for one year from now) is subject to monitoring by the NCMO that can amend it depending on the macroeconomic conditions and the developments in lending.

The recommendations transpose a similar decision of the European Central Bank (ECB) from July, when ECB did not extend dividend distribution restrictions after September 30 based on stress test results were published on June 30 2021, showing that the European banking sector had sufficient capital reserves to withstand adverse shocks. Additionally, the European Systemic Risk Board (ESRB) adopted a similar position and decided not to extend the implementation deadline of Recommendation ESRB/2020/15 in the ESRB General Board's meeting of September 23 2021.

Separately, Romania's NCMO recommended raising the countercyclical buffer following the recent acceleration in the dynamics of loans to the private sector, amid the recovery from the sharp economic contraction seen in the context of the pandemic outbreak and the persistent tensions surrounding macroeconomic equilibria.

The NCMO brings together representatives of the National Bank of Romania, the Financial Supervisory Authority and the Government of Romania.

andrei@romania-insider.com

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