National Bank of Romania

Romania’s c-bank signals green light on dividend payments


The National Bank of Romania (BNR) has cleared lenders in the country, some of which are controlled by foreign financial groups from Austria, France, Italy, the Netherlands and Greece, to pay dividends to shareholders following a two-year hiatus due to the Covid-19 fallout, local business daily Ziarul Financiar reported on Monday (Oct. 18).

In 2020, some of the largest banks that were preparing to distribute to shareholders dividends from the big profits obtained in 2019 changed their minds, following BNR’s recommendation, considering the unfavorable impact of the coronavirus crisis on the Romanian economy and decided to use much of the profits to consolidate their own funds and investments.

This year, the limitation on the distribution of dividends related to 2020 or 2019 earning continued, and banks were able to allocate at most 15% of the cumulative earnings over the two years for dividends.

The solvency of the banking system may decrease by about 2 percentage points after the resumption of dividend distribution, according to BNR assessments.

Meanwhile, BNR raised its benchmark interest rate by 25bps to 1.5% at its October meeting, as expected, for the first time since 2018. The central bank said it will maintain firm control over money market liquidity as short-term inflation will be significantly higher than previous forecasts under the impact of supply-side shocks, in particular larger hikes in energy prices.

Romania interest rate
(Source: National Bank of Romania)

“Looking at the recent developments in consumer prices, Board members showed that the annual inflation rate had exceeded the upper bound of the variation band of the target to a significantly larger extent in the first two months of 2021 Q3 and had mildly outpaced the forecast, going up from 3.94 percent in June to 4.95 percent in July and to 5.25 percent in August. It was observed that the new pick-up as well had been driven almost entirely by exogenous CPI components, with the major impact coming that time round from the considerable hike in natural gas and electricity prices in July, alongside the more subdued influences of the further rise in fuel prices, mainly on account of other fuels than petrol and diesel” the minutes of the monetary policy meeting of the Board of BNR on 5 October 2021 revealed.

The move aims to bring back and maintain the annual inflation rate, which is projected to climb 5.6% by year-end, in line with the 2.5% ±1 percentage point flat inflation target, in a manner conducive to achieving sustainable economic growth in the context of the fiscal consolidation process, while safeguarding financial stability.

Furthermore, the BNR Board decided to raise the deposit facility rate to 1.00 percent, from 0.75 percent, and the lending (Lombard) facility rate to 2.00 percent, from 1.75 percent. Furthermore, the NBR Board unanimously decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

Meanwhile, Moody’s changed Romania’s outlook to “stable” from “negative”, citing growth prospects backed by private businesses and European Union funds while S&P Global Ratings affirmed the country at BBB-/A-3 with stable outlook.

However, the Romanian leu is down 1.7% overall this year, the region’s worst performer.