Recommendation NCMO No. R/3/2021
on compliance with the provisions of EBA Guidelines on the specification and disclosure of systemic importance indicators - EBA/GL/2020/14
- The European Banking Authority Guidelines on the specification and disclosure of systemic importance indicators – EBA/GL/2020/14, issued under Art. 16 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing an European Supervisory Authority (European Banking Authority);
- Articles 15 to 20 of NCMO Regulation No. 2/2017 on the methodology and procedures used for setting capital buffers and the scope of these instruments, as subsequently amended and supplemented, specifying the NCMO tasks to identify and to report data of G-SIIs.
- EBA/GL/2020/14 are also addressed to designated authorities referred to in Art. 131 para. (1) of Directive 2013/36/EU, other than the competent authorities, i.e. to the National Committee for Macroprudential Oversight (NCMO) at a national level;
- Directive 2013/36/EU regulates the activity of: (i) credit institutions, under the supervisory scope of the National Bank of Romania and of (ii) investment firms, supervised by the Financial Supervisory Authority;
- So far, no global systemically important institutions (G‑SII) were identified within the Romanian banking system, given the relatively small-sized institutions on the domestic banking market. An entity can be classified as G-SII where its leverage ratio exposure measure exceeds EUR 200 billion (as provided for in para. 6 of EBA/GL/2020/14) on a consolidated or individual basis;
- Pursuant to Art. 16 para. (3) of Regulation (EU) No 1093/2010, competent authorities and financial institutions shall make every effort to comply with the guidelines, by implementing provisions into their practices.
– the provisions of Art. 3, para. (1), letters c) and k), para. (2), let. b), and para. (4), together with those of Art. 4, para. (1), let. a) of Law No. 12/2017 on the macroprudential oversight of the national financial system,
The General Board of the National Committee for Macroprudential Oversight has issued this recommendation:
The National Bank of Romania and the Financial Supervisory Authority, in their capacity as sectoral financial supervisory authorities, are recommended to comply with the provisions of the European Banking Authority Guidelines on the specification and disclosure of systemic importance indicators – EBA/GL/2020/14 from the date when there are relevant institutions (G-SIIs) within their jurisdiction and to ensure their enforceability against the relevant institutions.
Recommendation NCMO No. R/2/2021
for the implementation of Recommendation ESRB/2020/15 amending Recommendation ESRB/2020/7 on restriction of distributions during the COVID-19 pandemic
Having regard to:
- 3 para. (2) let. a) of Law No. 12/2017 on the macroprudential oversight of the national financial system
- ESRB Recommendation on restriction of distributions during the COVID-19 pandemic (ESRB/2020/7)
- Recommendation ESRB/2020/15 amending Recommendation ESRB/2020/7 on restriction of distributions during the COVID-19 pandemic
- The major role played by the financial system in economic recovery in the context of the COVID-19 pandemic crisis
- the provisions of Art. 3, para. (1) let. f) and the provisions of Art. 4, para. (1) let. a) of Law No. 12/2017 on the macroprudential oversight of the national financial system,
The National Committee for Macroprudential Oversight has adopted this recommendation:
- The National Bank of Romania and the Financial Supervisory Authority, in their capacity as competent authorities, are recommended to request credit institutions, investment firms, insurance and reinsurance companies under their supervisory remit to refrain at least until 30 September 2021 from undertaking any of the following actions, which have the effect of reducing the quantity or quality of own funds at consolidated and/or individual level:
- (a)Make a dividend distribution or give an irrevocable commitment to make a dividend distribution;
- (b)Buy-back ordinary shares;
- (c)Create an obligation to pay variable remuneration to a member of a category of staff whose professional activities have a material impact on the financial institution’s risk profile.
The exception to this are financial institutions that apply heightened caution in carrying out any of those actions and the resulting reduction does not exceed the conservative threshold set by their competent authority.
- In calibrating the conservative threshold, competent authorities should pay due regard to:
(a) the objective of this Recommendation, in particular the need for financial institutions to maintain a sufficiently high level of capital in order to mitigate systemic risk and to contribute to economic recovery, taking into account the risks of a deterioration of the solvency position of the real sector in view of the pandemic,
(b) the assurance that the overall level of distributions of financial institutions is significantly lower than in the recent years prior to the COVID-19 crisis,
(c) the specificities of each sector within the respective competent authority’s supervisory remit.
- The National Bank of Romania and the Financial Supervisory Authority are recommended to engage in bilateral dialogue with financial institutions under their supervisory remit, before the latter undertake any of the actions mentioned in point 1 letter (a) or (b).
- The competent authorities are recommended to apply the following criteria to the implementation of this Recommendation:
- (a) pay due regard to the principle of proportionality, taking into account, in particular, the nature of financial institutions and their ability to contribute to the mitigation of systemic risk from a financial stability perspective that arises from the COVID-19 crisis and to the economic recovery;
- (b) avoid regulatory arbitrage;
- (c) regularly assess the impact of restrictions on distributions they have imposed in light of the objectives of this Recommendation.
In order to implement point 1 letters (a) and (b) of this Recommendation and to assess whether it is appropriate to apply the restrictions at sub-consolidated or at individual level, competent authorities are recommended to adhere to the following principles:
(a) Principle 1: Whilst taking into account the need to prevent or mitigate systemic risk to financial stability in their Member State and in the Union, competent authorities should support the smooth functioning of the internal market and recognise the need for the financial sector to provide a sustainable contribution to economic growth in Member States and the Union as a whole.
(b) Principle 2: Competent authorities should ensure that any restriction does not entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole.
(c) Principle 3: Competent authorities should closely cooperate with each other and with the relevant resolution authorities, including in colleges, where applicable.
Recommendation NCMO No. R/1/2021
on the countercyclical capital buffer in Romania
Having regard to:
- the provisions of Art. 3, para. (2), letter b) and para. (3) of Law No. 12/2017 on the macroprudential oversight of the national financial system and the provisions of NCMO Regulation No. 2/2017 on the methodology and procedures used for setting capital buffers and the scope of these instruments, as subsequently amended and supplemented, namely Art. 4-9 on the countercyclical capital buffer, as well as Art. 1 on the application of capital buffers,
- the objective of the countercyclical capital buffer (CCyB) to improve the banking sector’s resilience to potential losses generated by excess credit growth. The CCyB is built up in periods of excess credit growth as an add-on to the capital conservation buffer and may be released during credit crunches in order to absorb losses. The countercyclical buffer rate, expressed as a percentage of total risk exposure amount of credit institutions with credit exposures in Romania, shall range between 0 percent and 2.5 percent and shall be calibrated in steps of 0.25 percentage points or multiples of 0.25 percentage points. Where justified, a CCyB rate higher than 2.5 percent of total risk exposure amount may be set.
- The COVID-19 pandemic had a strong impact on the national economy throughout 2020, with effects also on the lending activity;
- While the economic revival in the second part of the year exceeded expectations, and the start of the vaccination campaign has strengthened the prospects of overcoming the health crisis, the high uncertainty surrounding the timing and the intensity of recovery in the period ahead further renders macroeconomic developments difficult to assess.
- In the current context, the banking sector has a key role in financing the real economy in order to cushion the impact of the COVID-19 crisis, with measures for easing macroprudential requirements being widely adopted across the European Union.
- the provisions of Art. 3, para. (1) letters b), e) and i) and the provisions of Art. 4, para. (1) of Law No. 12/2017 on the macroprudential oversight of the national financial system,
The National Committee for Macroprudential Oversight has issued this recommendation:
In view of the developments in loans to the private sector, as well as of the significant uncertainties surrounding the economic and financial developments at national and international level generated by the spread of COVID-19 infections, the National Bank of Romania is recommended to maintain the countercyclical buffer rate at 0 (zero) percent. Moreover, the NBR is recommended to further monitor developments in the economy and lending at aggregate and sectoral levels, with a focus on the impact of COVID-19 pandemic on household and corporate financing by credit institutions.