Agreement with the IMF ends speculations on Romania's country risk

CDS for Romania have been significantly adjusted after negotiations with the IMF came to a close, with Romania’s risk perception improving compared with Hungary’s. The cost of insurance against credit risk for Romania, reflected in the levels of the so-called CDS (credit default swap) fell by over 3 percentage points against the peak hit in March, with levels declining to around 4.37 points amid an improved country risk perception. For example, for a one million-euro loan, insurance for Romanian risk now costs 43,700 euros, compared with 74,000 euros in March. This cost can be added to the basic price of a funding, such as the EURIBOR rate for a certain maturity. Thus emerges a prospective cheapening of funding in foreign currency, and one could even see an opening of access to eurobond issuing, considering that, especially over the last two years, CDS have become a significant component when it comes to assessing credit risk and implicitly to setting the cost of funding. “CDS fell significantly against the March peak and this, combined with the external funding agreement and the reduction in minimum reserve requirements, should stimulate foreign currency lending. However, what’s appropriate for the Romanian economy is not funding in foreign currency, but in Romanian currency,” said Nicolaie Alexandru-Chidesciuc, senior economist of ING Bank.