Debt discharge law can trigger increase of NPLs rate

Debt discharge law could trigger increase of non-performing loans rate, BNR official argues

Newsroom 15/06/2016 | 14:48

The debt discharge law compels banks to calculate additional capital and can lead to the increase of the non-performing loans (NPL) rate, First Deputy of the National Bank of Romania (BNR) Florin Georgescu argues.

According to the BNR official, legislative instability may lead to the increase of the non-performing loans rate in the banking system, given that from the moment the debt discharge law is published in the Official Gazette, banks are compelled to increase their capital requirements.

“There are several factors that can trigger the increase of the non-performing loans rate in the Romanian banking system. The main factor is the unpredictability of the legal framework,” Georgescu told the audience at a conference on NPLs, before singling out as an example the debt discharge law, which entered into force on May 13.

Georgescu also stressed that, in the short term, in order to keep under control the NPL rates, Romania should avoid “counterproductive originalities” and ensure that the stability and predictability of the national legal framework, which should be synchronized with the European space, is maintained.

The BNR official also cautioned that banks must maintain a fair balance between the desire to improve the quality of balance sheets and the rapid relaunch of lending activity. According to the BNR official, in the long term, banks must “show responsibility in lending, combined with a solid risk management, in order to avoid the accumulation of new bad loans balances.”