Credit risk remains the main vulnerability of the Romanian banking sector says BNR

Financial stability in Romania remained “robust” in 2010, against the backdrop of difficult global and domestic economic conditions but credit risk remains the main vulnerability of the local banking sector, according to the 6th Financial Stability Report released by the National Bank of Romania (BNR).

“Looking ahead, the pressure on bank asset quality is expected to start abating, amid a gradual consolidation of economic growth and tighter risk management by banks. Other challenges for the coming period refer to managing the contagion risk likely to become manifest in the event of adverse developments on global markets driven by the sovereign debt crisis or the considerably slower growth in developed economies, achieving a more balanced breakdown by currency of flows of new loans, and ensuring a more flexible set of early intervention tools to address credit institutions potentially in distress,” reads the report. These challenges require further efforts towards preserving adequate solvency, provisioning and liquidity, as well as for additional prudential measures, say BNR representatives.

The Report shows that the risks to the banking sector were adequately managed in 2010 through the credit institutions’ own efforts, which translated into higher solvency, provisioning and liquidity. “The National Bank of Romania continued and diversified its cautious macro