BNR: "The Romanian economy faces a series of structural vulnerabilities"

Our country's economy faces a series of structural vulnerabilities, which, in the absence of appropriate measures, can contribute to the amplification of systemic risks to financial stability, at the same time affecting the ability to direct investment flows to critical economic areas, the related release states The report on financial stability for December 2023, published yesterday by the National Bank of Romania.

According to the NBR, the structural vulnerabilities of our country's economy are: (i) the low payment discipline in the economy and the vulnerabilities in the companies' balance sheets, (ii) the low level of financial intermediation, (iii) the demographic problem and (iv) climate change.

"The sector of non-financial companies continues to present significant capitalization deficiencies, an important percentage of companies (29.5 percent in 2022) having negative equity, and almost a third register a level of capital below the regulated limit," the report states.

On the other hand, the banking sector is passing through a favorable period from the perspective of the main financial and prudential indicators. The solvency of the sector (22.3 percent) is adequate and above the European average, liquidity indicators have seen an improvement compared to 2022, and the main indicators of asset quality (the rate of non-performing loans and the degree of coverage with provisions) place the banking sector in low risk category according to the European Banking Authority, the release states.

According to the BNR, banking profitability remains high in European comparison, but in the domestic context, both the profitability of banking assets and that of capitals were in the last decade below similar values recorded in the real economy.

"The annual impact of the implementation of a tax of 2% of the banking turnover is equivalent to 1.5% of the total own funds of the Romanian legal entities' credit institutions, which could affect the degree of financial intermediation", the report states.

Regarding the systemic risks to financial stability, the BNR mentions that there is an intensification of economic and geopolitical uncertainties at the global level.

The risk generated by external developments, as a result of global uncertainties in the context of the energy crisis, the war in Ukraine and the conflict in the Middle East, assessed at a severe level and expected to gain increased relevance in the coming period, is one of the risks mentioned in report.

Also, the tension of macroeconomic balances, including as an effect of regional and international geopolitical developments, as well as from the perspective of the future conduct of fiscal and revenue policy, is another risk.

The delay in the structural reforms undertaken by the authorities and, implicitly, in the absorption of European funds, especially through the National Recovery and Resilience Plan (PNRR), is another risk mentioned by the BNR.