The NCMO meeting of 14 October 2021

2021-Oct-15 | Meetings

The third meeting of this year of the General Board of the National Committee for Macroprudential Oversight (NCMO) was held on 14 October 2021 by written procedure.

During the meeting, Board members examined analyses and adopted measures concerning macroprudential policy and systemic risk, namely the regular analyses on the recalibration of the countercyclical capital buffer (CCyB) and the structural capital buffers: the capital buffer for other systemically important institutions (O-SII buffer) and the systemic risk buffer (SyRB).

In addition, the NCMO General Board was informed of: (i) the withdrawal of the authorisation of City Insurance S.A., (ii) the systemic risks identified across the domestic financial system, (iii) the impact of credit institutions’ funding plans on the flow of loans to the real economy and (iv) the implementation of Recommendation ESRB/2020/8 on monitoring the financial stability implications of debt moratoria, and public guarantee schemes and other measures of a fiscal nature taken to protect the real economy in response to the COVID-19 pandemic.

On this occasion, Board members unanimously approved the following measures:
NCMO Recommendation No. R/7/2021 on the countercyclical capital buffer in Romania – Following the recent acceleration in the dynamics of loans to the private sector, amid the recovery from the sharp economic contraction seen in the context of the pandemic outbreak, and the persistent tensions surrounding macroeconomic equilibria, the National Bank of Romania is recommended to raise the countercyclical buffer rate to 0.5 percent from 0 percent as of 17 October 2022.

The European Union witnesses a normalisation trend of macroprudential policy, after several Member States announced their decision to raise the countercyclical buffer rate, concurrently with waiving the restrictions on dividend distribution.

The high levels of voluntary capital reserves built up by the banking sector and of liquidity indicators, exceeding the EU averages, allow capital to be conserved, without affecting the loan supply, in the context of a robust profitability in recent years. Considering the still high level of uncertainty over macroeconomic developments at national and international level, the National Bank of Romania is recommended to further monitor developments in the economy and lending. The implementation of the measure starting with the final quarter of next year gives the NCMO the flexibility and opportunity to revise it, depending on the macroeconomic conditions and the developments in lending.

NCMO Recommendation No. R/8/2021 on the capital buffer for other systemically important institutions in Romania – whereby the National Bank of Romania is recommended to impose, starting 1 January 2022, a capital buffer for other systemically important institutions (O-SII buffer), on an individual or consolidated basis, as applicable, calculated based on the total risk exposure amount for all the credit institutions identified as having a systemic nature based on the data reported as at 30 June 2021. The recommendation proposes a new calibration methodology for the O-SII buffer, which considers the scores obtained by systemic banks in the first assessment stage that determines the mandatory indicators recommended by the European Banking Authority (EBA), using six equal 500-basis point buckets (the bucketing approach). The O-SII buffer rate for each systemic credit institution is to be published on the NCMO website by 1 December 2021.

The NCMO General Board decided not to extend the period of implementation of NCMO Recommendation 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. Taking into account the substantial capital reserves and the prospects for the distribution of dividends in the case of credit institutions in Romania, resuming a microprudential approach is deemed appropriate as concerns the assessment of capital adequacy and the dividend distribution plans. This approach is also substantiated by the small number of such credit institutions and the significant differences in the financial and prudential statements of banks, so that a microprudential approach could be more effective in this context. It is worth noting that the European Central Bank announced, in July 2021, that it decided not to extend the recommendation that limited dividend distributions beyond 30 September 2021. The decision was adopted after the stress test results were published on 30 June 2021, showing that the European banking sector had sufficient capital reserves to withstand adverse shocks. Additionally, the European Systemic Risk Board (ESRB) adopted a similar position and decided not to extend the implementation deadline of Recommendation ESRB/2020/15 in the ESRB General Board’s meeting of 23 September 2021.

The National Committee for Macroprudential Oversight was established by virtue of Law No. 12/2017 on the macroprudential oversight of the national financial system, thus ensuring that Recommendation of the European Systemic Risk Board (ESRB) No. 3/2011 on the macroprudential mandate of national authorities was implemented. The NCMO brings together representatives of the National Bank of Romania, the Financial Supervisory Authority and the Government of Romania. The NCMO’s mission is to ensure coordination in the field of macroprudential oversight of the national financial system by setting the macroprudential policy and the appropriate instruments for its implementation.