How can Romanians' exposure to foreign currency risk be curbed?

When two thirds of retail lending is foreign currency-denominated, talks about curbing foreign currency loans appear to come late. In recent years, this major vulnerability of the domestic market has been hidden under speeches about the upcoming euro adoption. However, the scenario of our joining the eurozone is no longer valid and thus foreign currency risk is here to stay for a long time. What is there left to be done?

Individuals’ foreign currency loans hit the equivalent of 65m lei (16m euros) in late February, out of a 100m lei total amount. Foreign currency lending rose by 10% in euros from last year, while lei loans fell by 8%.

After the onset of the crisis, the NBR moved to prevent the exchange rate from posting dramatic increases to limit the deterioration of foreign currency loan portfolios, which could have destabilised the entire banking system. Moreover, borrowers with foreign currency loans have got a breath of fresh air since early 2011, as the leu has fallen by almost 5% against the euro since December 2010. And yet, the NBR is speaking about dampening foreign currency lending.

Whereas there are not too many rapid ways of balancing the currency structure of loan portfolios at present, the NBR governor has recently announced he planned to restrict foreign currency loans. Thus, these could be at least slowed down, but it is not clear how this will be done.