Ebury: Romanian currency is a victim of the government but it could post small short-term rebound if the new measures are scaled back

Sorin Melenciuc 07/02/2019 | 15:54

The Romanian currency proves to be another victim of the government but it could post a small short-term rebound if the government decides to scale back on its new measures, according to a Ebury Romania analysis.

„The depreciation was a direct result of the government’s decision to introduce the so-called ‘tax on greed’ and the change in sentiment towards the country’s assets that followed. Markets are not fond of the tax and punished Romania with the sell-off both in the equity as well as the debt market,” says Johan Gabriels, Manager Ebury Romania and Bulgaria.

The EUR/RON rose by as much as 2 percent throughout the previous month – very significant considering the closely managed currency regime, according to Ebury.

Ebury indicates six reasons why the “greed tax” is wrong: the  levy on banks is very high and might lead to consolidation in the sector, the tax is tied to ROBOR which creates significant problems for the central bank, taxing banks could not be enough to save the country’s finances, the levy could negatively affect economic growth in the country, the tax was a surprise and news flow suggests a conflict between the central bank and the government.

“A tax on financial assets is not new and not necessarily a bad concept. It has already been introduced in other countries of the region. However, implementation details and the resulting potential distortions mean investors perceived the government’s decision as a net negative,” Ebury said.

The bank’s financial assets are taxed on a quarterly rate that increases alongside the average 3 to 6 months ROBOR increases.

At current rates, it roughly equals a yearly rate of 1.2 percent, which is more than twice the rate in Poland or Hungary.

The tax is likely going to significantly limit potential profits for the sector and could create issues for the smaller lenders, which in turn could reduce competition in the sector, Ebury points out.

“We are negative regarding the Leu’s prospects based on the twin deficits, the central bank’s pause in raising rates, new government taxes and their potential effects and potential imposition of the Excessive Deficit Procedure mentioned above. It is, however, possible that the extent of the recent sell-off was a bit overdone and – especially if the government decides to scale back on its new measures – the Leu could post a small short-term rebound,” Ebury estimates.

However, in a statement deemed ‘confusing’ by the central bank, the prime minister’s adviser announced recently that the tax could be ended if the NBR changed the formula in which the ROBOR is calculated or scrapped the rate.

“This is not anything concrete (nor exactly positive per se), but it could suggest that the government might be open to changing the guidelines. It already prompted a small rebound of banking shares of some of Romania’s biggest lenders,” Ebury says.

Ebury, established in 2009 and headquartered in London, is one of the fastest growing FinTechs, with over 650 employees and offices in 11 European countries, Canada and Dubai.

Ebury has opened its office in Bucharest this year. Johan Gabriels, Ebury Romania’s CEO, is a former head of Royal Bank of Scotland (RBS) Romania and Banca Carpatica.

Ebury has recently warned that the biggest worries about Romania are its fiscal policy, political situation, and the external standing, while a possible excessive deficit procedure by the European Commission might bring troubles for RON.

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