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NATIONAL BANK OF ROMANIANATIONAL BANK OF ROMANIA 1


ContentsContents

Macroeconomic Developments …………………………………………..3Inflation

Economic Growth

Current Account

Fiscal Sector

Banking System Developments …………………………………………19

Financing Arrangement with the EU, IMF and other IFIs ….……......30


Macroeconomic Developments


Inflation followed an uneven downward path, its volatility beingInflation followed an uneven downward path, its volatility being largely largely brought about by the nonbrought about by the non--core componentscore components ……

-2

0

2

4

6

8

10

Jan.

07

Apr

.07

Jul.0

7

Oct

.07

Jan.

08

Apr

.08

Jul.0

8

Oct

.08

Jan.

09

Apr

.09

Jul.0

9

Oct

.09

Jan.

10

Apr

.10

Jul.1

0

Oct

.10

Jan.

11

Apr

.11

Jul.1

1

Oct

.11

Jan.

12

Apr

.12

Jul.1

2

Oct

.12

Jan.

13

Apr

.13

adjusted CORE2 volatile prices administered prices tobacco and alcohol

contribution to annual inflation rate; percentage points

Source: National Institute of Statistics, National Bank of Romania calculations


0

1

2

3

4

5

6

7

8

9

10

I2012

II III IV I2013

II III IV I2014

II III IV I2015

0

1

2

3

4

5

6

7

8

9

10

uncertainty interval

4-quarter inflation rate (eop)

variation band*

annual inflation target

annual percentage changeannual percentage change

Source: National Institute of Statistics, National Bank of Romania projections and calculations

*) ±1 percentage point around the central target

Flat multi-annual inflation target (Dec./Dec.): 2.5% starting 2013

Note: According to the May 2013 Inflation Report. The uncertainty interval was calculated based on the forecast errors of the annual CPI inflation rate in the NBR projections during 2005-2012. The forecast errors are positively correlated to the time horizon to which they refer.

……and is seen reentering the NBR target band in the latter half ofand is seen reentering the NBR target band in the latter half of 20132013


Determinants of annual adjusted CORE2 inflation projectionDeterminants of annual adjusted CORE2 inflation projection

Inflation expectations* are seen abating over the projection interval, under the impact of an adequate monetary policy stance and of the anticipated absence of adverse supply-side shocks

Inflationary pressures from import prices are considered low, due to a favourable shock on the leu effective exchange rate in early 2013 and moderate effects from external price increases

The negative output gap continues to have a disinflationary impact throughout the forecast interval

*) backward- and forward-looking Note: The annual adjusted CORE2 inflation is calculated as a quarterlyaverage, in line with its econometrically-modelled determinants.

Source: NBR calculations

-2

0

2

4

6

8

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

Contributions to annual adjusted CORE2 inflation (pp)

VAT

import prices

output gap

inflation expectations

annual adjusted CORE2 inflation rate (%)


-8

-6

-4

-2

0

2

4

6

8

10

2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1

GDP GDP excl. agr.

annual percentage change

Source: NIS, NBR calculations

Economic growth resumed in 2011 and is seen accelerating in 2013Economic growth resumed in 2011 and is seen accelerating in 2013 ……


…… largely as a result of strengthening industrial activitylargely as a result of strengthening industrial activity, , ……

-3.1

9.310.3

2.7

-5.5

5.5

7.5

2.4

8.2

2005 2006 2007 2008 2009 2010 2011 2012 2013Jan.-Apr.

Source: National Institute of Statistics

annual percentage change, gross data

Apr.13/Apr.12: 18.9%; Apr.13/Mar.13: 4.0%



-10

-5

0

5

10

15

20

25

rubber andplastic

materials

electricalequipment

motorvehicles

textiles wearingapparel

footwear wood furniture

Automotive industry Light industry Wood and woodmanufacturing

2012

Jan.-Apr. 2013

%, yoy

…… especially in the exportespecially in the export--oriented sectorsoriented sectors……


60

80

100

120

140

160

2009 2010 2011 2012 Jan.-Apr. 2013

exports to non-EU markets

exports to EU markets

higher demand for motor vehicles

higher demand for electrical equipment

%, 2008=100

Source: Eurostat, National Institute of Statistics

…… on account of rapidly increasing external demand from both EU on account of rapidly increasing external demand from both EU and and nnonon--EU markets (EU markets (particularlyparticularly for the automotive sector)for the automotive sector)


-20

-15

-10

-5

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1-8

-6

-4

-2

0

2

4

6

8

10

actual final consumption of households actual final consumption of general government

gross fixed capital formation net exports

change in inventories real GDP (rhs)

percentage points percent

Source: National Institute of Statistics, National Bank of Romania calculations

TThe recent spur in economic growth is he recent spur in economic growth is therefore therefore entirely attributable entirely attributable to net exportsto net exports, , ……


-3.7

-5.5

-3.3

-5.8

-8.4 -8.6

-10.4

-13.4

-11.6

-4.2 -4.4 -4.5-3.9

1.2

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Q1

percent of GDP

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

2008

2009

2010

2011

2012

2013

Q1

current transfersincomeservicestrade balancecurrent account balance

EUR million


…… the the favourablefavourable dynamics of which dynamics of which contributed tocontributed to a significant improvement a significant improvement in the current account balancein the current account balance


Public debt remains well below the Maastricht criterion Public debt remains well below the Maastricht criterion and is seen stabiliand is seen stabilissing under 39% of GDPing under 39% of GDP,, ……

13.46 11.05 9.80 8.75 7.6911.46

14.85 17.07 19.20

5.284.74

2.56 4.05 5.72

12.17

15.61

17.6218.60

15.8

23.6

12.812.4

18.7

13.4

30.5

34.737.8 38.6

0

5

10

15

20

25

30

35

40

45

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f*

Source: Ministry of Public Finance, National Bank of Romania, National Institute of Statistics

held by residents

held by non-residents

percent of GDP

Note: Government securities in MFIs portfolio as a share of GDP in Dec.07=1.4%, Dec.08=2.1%, Dec.09=7.1%, Dec.10=9.6%, Dec.11=10.8%, Dec.12=11.7% and Apr.13=10.8% *) 2013-2016 Convergence Programme

f) forecast


…… bbutut has been the sole contributor to the MLT external debt growth has been the sole contributor to the MLT external debt growth

Source: National Bank of Romania

MLT External Debt

9.18.2 8.5 7.017.0

25.335.5

39.237.7 36.1 37.1 36.7

10.011.3

10.7

10.2

10.7

13.517.9 21.1 25.1 28.8

7.85.7 8.710.27.2

5.53.21.00.9

7.8

0.47.9

12.40

10

20

30

40

50

60

70

80

90

100

110

2004

2005

2006

2007

2008

2009

2010

2011

2012

Apr.

2013

public and publicly guaranteed debt*private debt deposits of non-residentsIMF loans (without MPF)**

EUR billion

Total External Debt

18.3 24.6 28.638.7

51.865.6

72.9 75.9 78.7 80.3

3.26.3

12.6

19.9

20.6

15.6

19.522.8 20.3 20.6

0

10

20

30

40

50

60

70

80

90

100

11020

04

2005

2006

2007

2008

2009

2010

2011

2012

Apr.

2013

ST debt(majority private debt)

MLT debt

EUR billion

**) IMF borrowings under the Stand-By Arrangement concluded with the IMF, excluding the amount received by the MPF from the IMF according to Government Emergency Ordinance No. 99/2009

*) external loans taken directly/guaranteed by the MPF and local general government in compliance with the legislation on public debt, including Government Emergency Ordinance No. 99/2009 ratifying the Stand-By Arrangement between Romania and the IMF


-1.2

-1.2

-2.2

-2.9

-5.7

-9.0

-6.8

-5.6

-2.9 -2

.6 -2.4

-2.5 -2

.3

-3.5

-4.9

-7.9

-9.5

-6.2

-4.0

-2.7

-1.7 -1

.4

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013p 2014p-5

-4

-3

-2

-1

0

1

2

3

4

5

general government balance (ESA95)

structural balance*

fiscal impulse** (rhs)

percent of GDP

* defined as cyclically-adjusted balance net of one-off and temporary measures** defined as the change in the structural primary budget balance (+ is fiscal consolidation)Source: AMECO, Ministry of Public Finance

p) projection

percent

After peaking at 9% of GDP in 2009, the public deficit After peaking at 9% of GDP in 2009, the public deficit was successfully brought down to below 3% in 2012was successfully brought down to below 3% in 2012 ……


Cumulative change in the structural primary budget balance, 2009-2012

8.66.2

6.04.6

4.03.4

3.02.7

2.72.4

2.11.9

1.60.9

0.50.4

0.30.3

GRROLVEEHULTCZSIITIE

MTPLPTDESKESFRAT

pp of GDP

Source: AMECO, NBR calculations

……as a result of the second largest fiscal consolidation effort inas a result of the second largest fiscal consolidation effort in the EU the EU ……


GR

RO LV

EEHULT

CZSI IT

IE MTPL

PTDESKES

FR

AT

BG

BEUK

DKSE

NL

LU

FI

CY y = -0.7999x - 1.4474R² = 0.6467

-8

-6

-4

-2

0

2

4

6

8

10

-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3Structural balance at the onset of the crisis, 2008 (% of GDP)

Cum

mulative consolidation effort 2009-2012 (pp of G

DP)*

* def ined as the change in the primary structural budget balance in 2012 against 2008


…… which which reflectsreflects the size of the fiscal gap at the crisisthe size of the fiscal gap at the crisis’’ onsetonset


7.9

6.7

5.5

4.1

3.8

3.7

3.7

3.6

3.6

2.8

2.7

2.1

2.0

1.7

1.4

1.2

1.1

0.7

0.4

IECYESMTBEPTLTSKFRPLSI

NLGRRO

ITFI

ATCZLU

pp of GDP


A comparatively small fiscal consolidation effort is left in ordA comparatively small fiscal consolidation effort is left in order er to reach the mediumto reach the medium--term structural fiscal balance objective term structural fiscal balance objective


Banking System Developments


Deleveraging brought fDeleveraging brought financial intermediation inancial intermediation toto its 2008 level its 2008 level ……

9.414.1 16.3 16.3 15.9 14.8 14.7 14.4

11.3

12.7

19.322.2 24.0 25.2 25.4 24.0

4.87.4

11.4

19.3 19.5 18.711.8

13.3

15.4

18.419.2 19.9 20.5 21.3

6.3

10.317.2

20.0

17.8

20.7

16.6

20.7

26.8

35.638.5 39.9 40.0 40.1 38.4

0

5

10

15

20

25

30

35

40

45

50

2004 2005 2006 2007 2008 2009 2010 2011 2012

percent of GDP

loans to non-financial corporations a.o.loans to householdsforeign currency-denominated loanslei-denominated loans

*) loans to the private sector/GDPSource: National Institute of Statistics, National Bank of Romania


…… with the stock of loans with the stock of loans toto both households and companies both households and companies posting negative real annual growth ratesposting negative real annual growth rates

Source: National Institute of Statistics, National Bank of Romania

-20

0

20

40

60

80

100

Jan.

08

Jul.0

8

Jan.

09

Jul.0

9

Jan.

10

Jul.1

0

Jan.

11

Jul.1

1

Jan.

12

Jul.1

2

Jan.

13

lei-denominated loans

total

foreign currency-denominated loans

-20

0

20

40

60

80

100

Jan.

08

Jul.0

8

Jan.

09

Jul.0

9

Jan.

10

Jul.1

0

Jan.

11

Jul.1

1

Jan.

12

Jul.1

2

Jan.

13

households

total

non-financial corporations & financialcorporations other than MFIs

real annual percentage change*

*) based on CPI

real annual percentage change*


The main focus of deleveraging seemThe main focus of deleveraging seemss to have been FX lending, to have been FX lending, which has been the driver of the decline observed in the LTD ratwhich has been the driver of the decline observed in the LTD ratioio, , ……

0

50

100

150

200

250

Dec

.05

Mar

.06

Jun.

06S

ep.0

6D

ec.0

6M

ar.0

7Ju

n.07

Sep

.07

Dec

.07

Mar

.08

Jun.

08S

ep.0

8D

ec.0

8M

ar.0

9Ju

n.09

Sep

.09

Dec

.09

Mar

.10

Jun.

10S

ep.1

0D

ec.1

0M

ar.1

1Ju

n.11

Sep

.11

Dec

.11

Mar

.12

Jun.

12S

ep.1

2D

ec.1

2M

ar.1

3

percent

total lei foreign currency

* based on monetary survey dataSource: National Bank of Romania

Loan-to-Deposit Ratio*


…… aa welcome development given that Romania has the highest share welcome development given that Romania has the highest share of FX lending among of FX lending among CEECsCEECs with a floating exchangewith a floating exchange--rate regimerate regime

8.6

29.7

57.5 61.9 62.973.1

86.0

0

10

20

30

40

50

60

70

80

90

100

CzechRepublic

Poland Hungary Romania Bulgaria Lithuania Latvia

foreign currency domestic currency

percent

Source: central bank websites

The share of the foreign currency component in loans to the private sector– April 2013 –


Significant drop in Significant drop in FX consumer lendingFX consumer lending

8.4

59.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Ja

n.07

Mar

.07

May

.07

Jul.0

7S

ep.0

7N

ov.0

7Ja

n.08

Mar

.08

May

.08

Jul.0

8S

ep.0

8N

ov.0

8Ja

n.09

Mar

.09

May

.09

Jul.0

9S

ep.0

9N

ov.0

9Ja

n.10

Mar

.10

May

.10

Jul.1

0S

ep.1

0N

ov.1

0Ja

n.11

Mar

.11

May

.11

Jul.1

1S

ep.1

1N

ov.1

1Ja

n.12

Mar

.12

May

.12

Jul.1

2S

ep.1

2N

ov.1

2Ja

n.13

Mar

.13

the share ofhousing loansin total newloans in EUR

the share ofother loans intotal newloans in EUR

the share ofconsumerloans in totalnew loans inEUR

Source: financial institutions' reports


Interbank mInterbank moneyoney--market interest rates declined significantlymarket interest rates declined significantly, , ……

2

3

4

5

6

7

8

9

10

Jan.

10Fe

b.10

Mar

.10

Apr

.10

May

.10

Jun.

10Ju

l.10

Aug

.10

Sep

.10

Oct

.10

Nov

.10

Dec

.10

Jan.

11Fe

b.11

Mar

.11

Apr

.11

May

.11

Jun.

11Ju

l.11

Aug

.11

Sep

.11

Oct

.11

Nov

.11

Dec

.11

Jan.

12Fe

b.12

Mar

.12

Apr

.12

May

.12

Jun.

12Ju

l.12

Aug

.12

Sep

.12

Oct

.12

Nov

.12

Dec

.12

Jan.

13Fe

b.13

Mar

.13

Apr

.13

May

.13

monetary policy rate 1M ROBOR 3M ROBOR effective interbank rate*

percent per annum


* Weighted average for all transactions, irrespective of maturity, with overnight transactions holding the largest share.


…… this decline this decline being passed through slowly being passed through slowly into lending ratesinto lending ratesand more visibly intoand more visibly into deposit rates deposit rates

0

2

4

6

8

10

12

14

16

18

Jan.

10M

ar.1

0M

ay.1

0Ju

l.10

Sep

.10

Nov

.10

Jan.

11M

ar.1

1M

ay.1

1Ju

l.11

Sep

.11

Nov

.11

Jan.

12M

ar.1

2M

ay.1

2Ju

l.12

Sep

.12

Nov

.12

Jan.

13M

ar.1

3M

ay.1

3


NBR policy ratenew lei-denominated loansnew lei-denominated time deposits

% p.a.; monthly average

0

2

4

6

8

10

12

14

16

18

Jan.

10M

ar.1

0M

ay.1

0Ju

l.10

Sep

.10

Nov

.10

Jan.

11M

ar.1

1M

ay.1

1Ju

l.11

Sep

.11

Nov

.11

Jan.

12M

ar.1

2M

ay.1

2Ju

l.12

Sep

.12

Nov

.12

Jan.

13M

ar.1

3M

ay.1

3

NBR policy ratenew lei-denominated loans to householdsnew lei-denominated loans to companiesnew lei-denominated time deposits to householdsnew lei-denominated time deposits to companies

% p.a.; monthly average


The The peak in the peak in the NPLNPL** ratio ratio is yet to be reachedis yet to be reached

7.9

10.2

11.7

14.3

2.8

9.1

11.912.7

13.314.2

15.916.8

17.318.2

19.119.5

0

2

4

6

8

10

12

14

16

18

20D

ec.0

8

Dec

.09

Mar

.10

Jun.

10

Sep

.10

Dec

.10

Mar

.11

Jun.

11

Sep

.11

Dec

.11

Mar

.12

Jun.

12

Sep

.12

Dec

.12

Mar

.13

Apr

.13


*) The NPLs represent gross exposure of loans and related interest overdue for more than 90 days and/or for which legal proceedings were initiated. The definition is in line with the IMF's recommendations and allows international comparisons.Note: Starting January 1, 2012, Romanian credit institutions apply the IFRS for accounting purposes.

percent in total loan portfolio


The banking system remains liquid and wellThe banking system remains liquid and well--capitalicapitalisseded ……

15.0314.6614.6314.8713.43

20.64

21.07

14.88 14.1915.0214.67

13.7613.78

18.12 14.67 14.94

8.258.308.428.607.50 8.07

9.188.93 8.637.32 8.13 7.55 8.11 7.96 7.79 8.02 8.20

1.471.411.391.441.361.34

2.282.59

2.312.13

2.47

1.38 1.35 1.37 1.37 1.42 1.46

0

5

10

15

20

25

30

35

Dec

.04

Dec

.05

Dec

.06

Dec

.07

Dec

.08

Dec

.09

Dec

.10

Mar

.11

Jun.

11

Sep

.11

Dec

.11

Mar

.12

Jun.

12

Sep

.12

Dec

.12

Mar

.13

Apr

.13

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

solvency ratio

leverage ratio (tier 1 capital/total assets)

liquidity ratio (rhs)

percent


Note: Starting January 1, 2012, Romanian credit institutions apply the IFRS for accounting purposes.


…… aandnd its profitability improved significantly during the last monthsits profitability improved significantly during the last months

713

489

-2,3

42

-100

-192

131

95382

-516

-474-235

44081

6

4,40

1

2,53

3

2,20

6

-766

-777

-15

-10

-5

0

5

10

15

20

25

Dec

.06

Dec

.07

Dec

.08

Dec

.09

Mar

.10

Jun.

10

Sep

.10

Dec

.10

Mar

.11

Jun.

11

Sep

.11

Dec

.11

Mar

.12

Jun.

12

Sep

.12

Dec

.12

Mar

.13

Apr

.13

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000net profit (rhs)

ROE

ROA

percent lei million

Source: National Bank of RomaniaNote: Starting January 1, 2012, Romanian credit institutions apply the IFRS for accounting purposes.


Financing Arrangement with the EU, IMF and other IFIs


A) Public debt

NBR MPFIMF - SDR billions 11.4 10.5 8.6 1.9 0.9 - EUR billions* 12.9 11.9 9.8 2.1 1.0* at the exchange rate on the arrangement approval date by the IMF Board (SDR 1 = EUR 1.1283)

Approved amount Drawn amountEU (EUR billions) 5.0 5.0

Approved amount Drawn amountWorld Bank (IBRD)EUR billions 1.0 1.0

B) Private debt

Approved amount Investment made**

EBRD, EIB, IFC (EUR billions) 1.0 1.3

C) Total amounts approved/drawn under the arrangement (EUR bn.)

Approved amount Drawn amountNBR 10.5 9.5MPF 8.4 8.4Public sector – total 18.9 17.9Private sector 1.0 1.3

TOTAL 19.9 19.2

Source: National Bank of Romania, Ministry of Public Finance

Approved amount Drawn amount Undrawn tranche

** Source: EBRD – Annual Report 2012

On this particular segment of the arrangement,financing was provided directly to private companies. The authorities have not been involved and do not conduct any type of monitoring (contractual conditions, repayment schedule, etc.).

MMultilateralultilateral financingfinancing arrangementarrangement withwith thethe EU, IMF EU, IMF andand otherother IFIsIFIs


RRepaymentsepayments underunder thethe financing arrangementfinancing arrangement withwith thethe EU, IMF EU, IMF and otherand other IFIsIFIs

I. PRINCIPAL REPAYMENTS II. INTEREST AND COMMISSION PAYMENTS III. TOTAL

IMF 3.63 3.10 0.53 IMF 1.14 0.92 0.22 IMF 4.77 4.02 0.75EU EU 0.44 0.44 EU 0.44 0.44WB (IBRD) WB (IBRD) 0.04 0.04 WB (IBRD) 0.04 0.04TOTAL 3.63 3.10 0.53 TOTAL 1.62 0.92 0.70 TOTAL 5.25 4.02 1.23

* repayments to the IMF have been converted into EUR at the exchange rate on the repayment date

I. PRINCIPAL REPAYMENTS II. INTEREST AND COMMISSION PAYMENTS III. TOTAL

TOTAL TOTAL TOTAL

IMF 8.62 6.90 1.72 IMF 0.27 0.23 0.04 IMF 8.90 7.14 1.76EU 5.00 5.00 EU 0.65 0.65 EU 5.65 5.65WB (IBRD) 1.00 1.00 WB (IBRD) 0.20 0.20 WB (IBRD) 1.20 1.20TOTAL 14.62 6.90 7.72 TOTAL 1.12 0.23 0.89 TOTAL 15.75 7.14 8.61

** the amounts due to the IMF were converted into EUR at the exchange rate on 31 May 2013 (SDR 1 = EUR 1.1542)

1) NBR: Jul. 2013 - Dec. 2016; 2) MPF: Jul. 2013 - Dec. 2023

TOTALMPF2

TOTALNBR1

TOTALMPF2

Notes: final repayment to the IMF - February 2016 final repayment to the EC - April 2019 final repayment to the WB - December 2023

Source: National Bank of Romania, Ministry of Public Finance

PUBLIC SECTOR TOTALNBR1

TOTALMPF2

TOTALNBR1

TOTALNBR

TOTALMPF

B) FUTURE REPAYMENTS**

EUR billions

PUBLIC SECTOR EUR billions


TOTAL TOTALNBR

TOTALMPF

TOTALTOTALNBR

TOTALMPF

A) REPAYMENTS MADE* (2009 - June 2013)

EUR billions



PUBLIC SECTOR TOTAL

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