Banks are bringing back funds deposited abroad

Staring last year, for the first time in the last twelve years after all, the banks in the Romanian banking system decided to no longer take their foreign currency out of the country and deposit it in foreign banks’ safes. Is it possible that the banks did not have as much foreign currency as they used to? Or did they prefer to increase exposure to the Romanian market, as the placements here have begun to provide higher yields than any foreign bank would? The answer lies somewhere in between.
Whereas the banks operating in Romania had about $1.46bn (1997) or $1.34bn placed in deposits with foreign banks, this index has been following a downward trend since 2002: the deposits with foreign banks had gone down to $0.91bn by December 31, 2002 and furthermore, they had reached a $0.84bn low by February.
“This trend has started to show when people became aware of the fact that the Romanian economy has begun to work better, that the macroeconomic indicators have taken an upward trend or that the National Bank has started to take the net foreign currency buyer stand and remove the foreign currency surplus from the market. Under the circumstances, it was only natural that banks would rethink their exposure on the Romanian market, especially when it comes to financing,” Victor Andrei, Citibank Romania treasurer told Ziarul Financiar.
Claudiu Cercel, head of the market operations department within Banca Romana pentru Dezvoltare (Romanian Development Bank – BRD) – Societe Generale (SocGen), feels the reason why the deposits made with the foreign banks have dropped is the increase in the foreign currency non-governmental lending, which was the fastest-growing last year. Another reason is the fact that “the banking deposits in ROL have started being preferred to those in euros or dollars, while the banks did not have as much foreign currency as they used to.”
The decline in the foreign currency resources the banks had available for investments was also caused, as treasurers say, by the increase in the mandatory minimal foreign currency reserves (from 22% to 25% of the total foreign currency deposits), which resulted in less cash for the banks. Setting up minimal foreign currency reserves is a several hundred million dollar operation if taking the entire banking system into account.
“To keep it short, I believe the decline in the deposits made with foreign banks is the result of the hard ROL policy the central bank has been promoting, which encourages ROL savings and foreign currency credits,” Cercel says. oana.nuta@zf.ro