A proposed Regulation for amendments and changes to the National Bank of Romania’s Regulation no. 5/2013 regarding prudential requirements for credit institutions and for repeal of other normative documents was published on the National Bank of Romania’s website for public debate
The National Bank of Romania (the "NBR") published a new draft Regulation ("Proposal") for public debate. This new draft Regulation proposed amendments to the NBR’s Regulation no. 5/2013 on prudential requirements for credit institutions and for the repeal of other normative documents (Regulation).
One of the aspects envisaged by the regulatory authority is to supplement the definitions of the terms used in the banking & financial field, especially in terms of lending activity.
The Proposal thus aims to elaborate on and clarify certain important terms pertaining to real estate financing, such as "Commercial real-estate" and "Residential real-estate", as well as the activities related to "Real Estate development".
The term "Real estate development" is defined as activities undertaken by natural persons or legal entities for the purpose of generating income by way of leasing or selling property. These activities may include renovation, construction and building reinforcement.
The definition of "Commercial real-estate" does not specify whether the owner should be a legal entity or natural person, whereas "Residential real-estate" concerns natural persons holding real estate. An important aspect to keep in mind is that both of the aforementioned definitions include real estate acquired for purposes of leasing and the classification of real estate is mainly made based on the use of property.
In clarifying the types of banking loans, the Proposal defines "Project Financing" as being financing indissolubly linked to the cash flow resulting from the selling of the project, and also where all the assets of the project have been taken as security for the project financing.
The regulator wants to clarify some other banking terms, used in banking language, and as a result he also touches a niche domain, i.e. a naval one, by defining the "financing of naval activities".
The Proposal also mentions changes to be made to some articles of the Regulation, as regard the exact transposal of the provisions of the EBA Guide/ GL/2020/06, especially regarding lending risks coverage, and the existence, integration and adaptation of IT systems to the prudential requirements, in a manner that serves as best as possible the risks evaluation.
The main amendments in the Proposal supplement the provisions of the Regulation, with ones expressly mentioning the necessity for the credit institution to adapt their lending policies and procedures for the identifying, evaluating and management of the specific risks deriving from money laundering and combating terrorism. The banks must take into account the impact of "leverage effect" over the debtor and cover all business lines as regard the credit risk, and the newer risk aspects, such as those deriving from climate change, market changes and consumer preferences.
There is an emphasis on the new trend of "green loans". The Proposal expressly refers to the necessity for banks to adapt lending policies and internal regulations in order to include the financing of loans to support environmental sustainability.
The amendments to the Regulation further detail the need for credit institutions to extend and supplement their criteria for assessment of the debtor at the time the credit is granted, extending this assessment to encompass the debtor’s ability to repay the credit and the purpose of the loan, in the specific market in which the customer operates and in situations where events have a significant negative impact on the ability to repay the credit.
A specific analysis is needed to be performed in the real estate field, as regard the income that might be generated by the mortgaged assets, establishing new criteria as to the expertise of the developer in such projects and fulfilment of the legal requirements for the project.
Furthermore, the Proposal supplements the criteria that must be taken into account by the credit institutions, in their evaluation of collateral by way of following a "prudent and proportional" criteria.
The Proposal also mentions that there shall be excluded from the computation of the Funding Net Ratio derivative agreements, according to UE Regulation no. 575/2013, if the following conditions are fulfilled simultaneously, respectively the agreements are concluded with NBR, and serve the monetary policy purposes of NBR, meaning that the derivative agreements are executed based on the specific provisions of NBR, applicable for carrying out the operations for monetary policy of NBR.
Adoption of this Proposal will repeal the NBR Regulation no. 25/2011 on credit institution liquidity, as well as the NBR order no. 20/2011 regarding the reporting of liquidity indicator statements.
The amendments to NBR Regulation No 5/2013 shall apply as of the date of its publication in the Official Gazette of Romania. The relevant adjustments to internal credit institution norms and policies must be made by the 1st of January 2022.