Romania: Recent Macroeconomic & Banking System Developments April 2017

1 Inflation rate

annual percentage change 8

6

4

Inflation target: 2.5% ±1 pp 2

0 CPI –excl. VAT CPI ‐2 adjusted CORE2 –excl. VAT adjusted CORE2 ‐4 Dec.11 Dec.12 Dec.13 Dec.14 Dec.15 Dec.16

Source: National Institute of Statistics, National Bank of Romania

2 Contributions to annual inflation rate

contribution to annual inflation rate; percentage points 6 first‐round effects of VAT rate cuts tobacco and alcohol 4 volatile prices administrated prices adjusted CORE2 2

0

‐2

‐4

‐6 Jul.16 Jul.15 Jul.14 Jul.13 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jun.16 Jun.15 Jun.14 Jun.13 Oct.16 Oct.15 Oct.14 Oct.13 Apr.16 Apr.15 Apr.14 Apr.13 Feb.17 Feb.16 Sep.16 Feb.15 Sep.15 Feb.14 Sep.14 Feb.13 Sep.13 Dec.16 Dec.15 Dec.14 Dec.13 Aug.16 Aug.15 Aug.14 Aug.13 Nov.16 Nov.15 Nov.14 Nov.13 Mar.16 Mar.15 Mar.14 Mar.13 May.16 May.15 May.14 May.13

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

3 Producer prices

Domestic PPI –Romania Non‐domestic PPI –EA19 and commodity prices

%, yoy %, yoy %, yoy 10.0 12 75 industry industry* intermediate goods 7.5 10 60 energy commodity index (rhs) capital goods 5.0 consumer goods 8 45

2.5 6 30

0.0 4 15

‐2.5 2 0

‐5.0 0 ‐15

‐7.5 ‐2 ‐30

‐10.0 ‐4 ‐45 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jan.12 Feb.17 Oct.16 Jan.17 Oct.15 Jan.16 Oct.14 Jan.15 Oct.13 Jan.14 Oct.12 Jan.13 Jan.12 Apr.16 Apr.15 Apr.14 Apr.13 Apr.12 Oct.16 Oct.15 Oct.14 Oct.13 Oct.12 Feb.17 Apr.16 Apr.15 Apr.14 Apr.13 Apr.12

*) data not available for February 2017 Source: Eurostat, International Monetary Fund

4 Inflation forecast

annual percentage change annual percentage change 12 12 uncertainty interval 10 10 annual CPI inflation rate (previous round) 8 8 annual CPI inflation rate (net of the VAT 6 6 first‐round effect) Inflation target: 2.5 ±1pp 4 annual CPI inflation rate 4

2 2

0 0

‐2 ‐2

‐4 ‐4 2014 2015 2016 2017 2018 Q4 Q4 Q4 Q4 Q4

Note: According to the February 2017 Inflation Report. The uncertainty interval was calculated based on the forecast errors in the NBR projections during 2005‐2016. The magnitude of forecast errors is positively correlated with the time horizon they refer to. Source: National Institute of Statistics, National Bank of Romania projections and calculations

5 Exogenous pressures on inflation

Administered prices annual inflation

end of period, %  Dynamics of administered prices: 9 November 2016 IR  The forecast for 2017 was revised February 2017 IR 6 downwards by 1.9 percentage points, 3 mainly amid scrapping a number of 0 non‐tax fees and charges starting ‐3 ‐6 February (primarily the subscription 2014 2015 2016 2017 2018 for national radio‐TV services) Q4 Q4 Q4 Q4 Q4 Volatile food prices annual inflation  The trajectory of volatile food prices: end of period, % 9  Is based on the assumption of normal 6 agricultural years domestically 3 0 ‐3 November 2016 IR ‐6 February 2017 IR ‐9 2014 2015 2016 2017 2018 Q4 Q4 Q4 Q4 Q4 Source: NIS, NBR projections

6 Annual adjusted CORE2 inflation projection – determinants –  Upward path, as a result of: Contributions to annual adjusted CORE2 inflation (pp) 5  The successive fading‐out of first‐round 4 statistical effects of the standard VAT rate 3 cuts 2 1  The gradual build‐up of inflationary 0 pressures stemming from fundamental ‐1 factors: ‐2 ‐3 . increase in excess demand, prompted by the ‐4 expansionary fiscal policy stance and the ‐5 higher disposable income ‐6 . the evolution of import prices for consumer 2014 2015 2016 2017 2018 goods, amid the advance in dynamics of Q4 Q4 Q4 Q4 Q4 VAT external prices import prices (consumer goods) . upward trajectory of inflation expectations* output gap inflation expectations driven by these factors annual adjusted CORE2 inflation rate, net of the VAT first‐round effect (%) annual adjusted CORE2 inflation rate (%)

*) backward‐ and forward‐looking Note: The annual adjusted CORE2 inflation is calculated as a quarterly average, in line with its econometrically‐modelled determinants. Source: NBR calculations

7 Potential causes for inflation to deviate from the projected path

Balance of risks to the Causes inflation path is assessed to be in equilibrium

External coordinates: – volatility of capital flows to emerging economies, given the adjustment of the monetary policy stances of the world’s major central banks, the implications of the new US Tilted to the Administration’s economic policies on the world economic outlook, the Brexit, and the upside issues facing the European banking system –the prospects for economic growth and inflation in the euro area/EU and across major emerging economies

Uncertainty about fiscal and income policies: –potential deviations from the set of fiscal measures included in the 2017 draft budget Tilted to the on either revenue or expenditure side upside –favouring fiscal or wage‐related measures aimed at boosting less sustainable domestic demand components to the detriment of those meant to increase capital expenditures

Global commodity prices (food, energy) In equilibrium

Administered price dynamics, conditional upon available information: Tilted to the – uncertainties surrounding the future adjustments in natural gas and electricity prices downside

8 Inflation expectations Economic agents* Financial analysts

balance of answers (%), 3M moving average, s.a. 20 annual percentage change 6

trade inflation rate 1 year ahead 15 5 services inflation rate 2 years ahead 10 consumers 4 5 3 Inflation target 0 2 ‐5 1 ‐10

‐15 0

‐20 ‐1 Jul.16 Jul.15 Jul.16 Jul.15 Jan.17 Jan.16 Jan.15 Jan.17 Jan.16 Jan.15 Jun.16 Jun.15 Jun.16 Jun.15 Oct.16 Oct.15 Oct.16 Oct.15 Apr.16 Apr.15 Apr.16 Apr.15 Sep.16 Feb.17 Sep.15 Feb.16 Feb.15 Sep.16 Feb.17 Sep.15 Feb.16 Feb.15 Dec.16 Dec.15 Dec.16 Dec.15 Aug.16 Aug.15 Aug.16 Aug.15 Nov.16 Nov.15 Nov.16 Nov.15 Mar.17 Mar.16 Mar.15 Mar.17 Mar.16 Mar.15 May.16 May.15 May.16 May.15

*) 3‐month horizon for trade and services companies and 12‐month horizon for consumers; the annual inflation staying inside the ±5 percent variation band indicates price stability Source: EC‐DG ECFIN survey, National Bank of Romania survey among financial analysts

9 Economic activity Real GDP Economic confidence* annual precentage change, gross data points, s.a. 12 8.5

8.1 6 6.9

0 4.8 4.4 4.2 3.9 3.5 3.1

0.6 ‐6 1.1 industry 0.8

‐ services ‐12 consumer construction retail ‐18 ESI 7.1 ‐ ‐24 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 f) European Commission ‐ Economic Forecast, Winter 2017 *) deviation from the historical average (Apr. 2002 –Mar. 2017) Source: National Institute of Statistics

10 Contributions to growth Demand Supply

contributions, percentage points percentage change contributions, percentage points percentage change 15 15 10 10 industry services 8 8 10 10 agriculture construction 6 net taxes on products 6 real GDP (rhs) 5 5 4 4

0 0 2 2

‐5 ‐5 0 0 final consumption ‐2 ‐2 ‐10 gross fixed capital formation ‐10 net export ‐4 ‐4 change in inventories ‐15 real GDP (rhs) ‐15 ‐6 ‐6

‐20 ‐20 ‐8 ‐8 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016

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

11 Domestic demand Private consumption Investment

annual percentage change annual percentage change annual percentage change 30 40 20 household final consumption 25 durables (excl. auto) 30 15 non‐durables 20 auto 20 10

15 10 5

10 0 0

5 ‐10 ‐5

0 ‐20 ‐10 gross fixed capital formation (rhs) ‐5 ‐30 civil engineering works ‐15 buildings equipment ‐10 ‐40 ‐20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016

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

12 Industrial output

annual percentage change annual percentage change 12 15

10 10 8

5 6 10.3 9.3 4 7.5 7.8 0 5.5 6.1 5.8 2 2.7 2.4 2.7 1.7 ‐5 0

‐2 ‐10 ‐5.5 total industry ‐4 mining and quarrying ‐15 ‐6 manufacturing electricity, gas, steam and air conditioning supply ‐8 ‐20 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan.2017 Jan.2017 Source: National Institute of Statistics

13 Recent developments in industry Industrial production Employees in industry

contributions to the annual rate, pp annual rate, % 25 4 4 ↓ 2016 ↑ 2016 ↑ Jan.2017 ↑ Jan.2017 auto industry 20 electrical 3 3 equipment 15 2 2 10 manufacturing metallurgy energy production and supply 5 1 1 pharma food industry chemicals 0 machinery and 0 0 equipment furniture ‐5 light industry coke products mining rubber ‐1 ‐1 ‐10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 construction ↓ 2016 materials ↑ 2016 2015 2015 2015 2015 2016 2016 2016 2016

‐15 Jan.2017 ↓ Jan.2017 ↓ Jan.2017 mining ‐20 energy production and supply ‐20 ‐15 ‐10 ‐5 0 5 10152025 other manufacturing sub‐sectors Ox: average annual growth rate in 2016, % auto and related industries (rubber, electrical equipment) Oy: average annual growth rate in Jan.2017, % industry (rhs) Source: National Institute of Statistics, National Bank of Romania calculations

14 Labour market conditions Number of employees Labour market tightness

annual change, thou. persons contributions to the annual rate, percentage points 200 20 0.25

100 16 0.20

0 tightness indicator* (rhs)

12 gross average 0.15 ‐100 wage in budgetary sector ‐200 construction 8 0.10 gross minimum wage agriculture ‐300 market services industry 4 0.05 ‐400 public sector gross average wage economy‐wide (excl. the effects shown separately)

‐500 0 0.00 Q4 Q2 Q4 Q2 Q4 Q2 Q4

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2013 2014 2014 2015 2015 2016 2016 Jan.2017 Jan. *) calculated as a ratio of job vacancy rate to ILO unemployment rate; a higher level indicates tighter labour market conditions Source: Eurostat, National Institute of Statistics, National Bank of Romania calculations

15 External trade in goods Trade flows Exports of goods Imports of goods

nominal index, 2006 = 100 percent percent 450 100 100 other products other products 400 90 90 base metals base metals 80 80 350

70 chemical and rubber products chemical and rubber products 70 300 textiles, apparel, footwear 60 textiles, apparel, footwear 60 250 mineral products 50 mineral products 50 food, beverages, tobacco 200 40 food, beverages, tobacco 40 150 30 30 machinery, equipment machinery, equipment 100 exports of goods 20 and transport means and transport means 20 imports of goods 50 10 10

0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan.2017

Source: National Bank of Romania

16 Current account balance

percent of GDP EUR billion EUR billion 12 1.5 1.1 1.2 ‐ ‐ 8 0.7 ‐ 2.3 ‐ 1.0 4

4.8 0 4.8 4.9 ‐ ‐ 5.1 ‐

‐ 0.5 ‐4

‐8 0.0 8.6 ‐ ‐12

primary income ‐0.5 10.4 ‐16 ‐ secondary income secondary income

11.8 services ‐20 ‐ primary income ‐1.0 trade balance services ‐24 current account balance trade balance 13.8 ‐ current account balance ‐28 ‐1.5 2016 2017 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan. Jan.

Source: National Institute of Statistics, National Bank of Romania

17 Trade balance Trade in goods balance Trade in services balance

EUR billion*, fob‐fob contributions, percentage points change vs 2013, % 4 80 80 net exports of ICT services net exports of other services 2 net exports of services (rhs) GVA in ICT services (rhs) 0 60 60

‐2

‐4 40 40

‐6

‐8 20 20 ‐10 2013 2014 2015 2016

consumer goods capital goods intermediate goods goods not elsewhere classified 0 0 goods deficit 2014 2015 2016 Jan.2017

*) according to BPM6, goods under outward processing trade arrangements are excluded

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

18 Current account deficit financing EUR billion 12

9 3.8 4.1 6 3.7 2.9 1.2 3 2.7 3.0 3.9 0 1.2 0.6 ‐2.3 ‐2.3 ‐3.9 ‐3 ‐3.4 ‐3.4 ‐6 ‐5.8 ‐2.0 ‐1.2 ‐9 ‐4.0

‐12 ‐1.0 2014 2015 2016

other flows* NBR reserve assets, net (increase "‐" / decrease "+") direct investment portfolio investment capital transfers deposits external loans current account balance

*) mainly consist of trade credits and advances and other accounts Source: National Bank of Romania

19 Nominal exchange rate (daily data) EUR/RON 2.8

3.2

3.6

4.0

4.4

4.8 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jul.11 Jul.10 Jul.09 Jul.08 Jul.07 Jul.06 Jul.05 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jan.12 Jan.11 Jan.10 Jan.09 Jan.08 Jan.07 Jan.06 Jan.05 Oct.16 Oct.15 Oct.14 Oct.13 Oct.12 Oct.11 Oct.10 Oct.09 Oct.08 Oct.07 Oct.06 Oct.05 Apr.16 Apr.15 Apr.14 Apr.13 Apr.12 Apr.11 Apr.10 Apr.09 Apr.08 Apr.07 Apr.06 Apr.05

Source: National Bank of Romania

20 Real effective exchange rate

index, 2010=100 index, 2010=100 120 120 GDP deflator producer prices, total industry export deflator producer prices, capital goods 115 ULC manufacturing producer prices, consumer goods 115

110 110

105 105

100 100

95 95

90 90 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2010 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016

Source: European Commission Source: European Commission, Eurostat, NBR calculations

21 Unit labour cost developments

annual percentage change 20

10

0

‐10

ULC measures –variation band ULC measures –average value ‐20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 Jan.2017

*) Q1 data available only for unit wage costs in industry Note: ULC measures include the annual dynamics of unit labour costs economy‐wide (based on both the number of persons employed and the hours worked) and unit wage costs in industry.

Source: Eurostat, National Institute of Statistics, National Bank of Romania estimates

22 Romania: foreign reserve assets Romania: international reserves EUR billion EUR billion 48 48 banks' foreign exchange reserves NBR foreign exchange reserves 44 NBR foreign exchange reserves gold 44 gold 40 40

36 36

32 32

28 28

24 24

20 20

16 16

12 12

8 8

4 4

0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan.2017 Mar.2017 Source: National Bank of Romania

23 Official reserves adequacy

EUR billion (amounts needed to reach the thresholds set in terms of the relevant metrics) 60 official reserves new ARA‐metric (100‐150 percent)** 50 3 months of prospective imports* 100 percent of short‐term external debt (resid. maturity) 20 percent of M3

40

30

20

10

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan. * 12m prospective imports of goods and services ** This indicator is calculated based on the IMF's measure developed for emerging market economies. A broader‐based metric is considered in order to capture risk sources such as external liabilities, external demand contraction and capital flight. For a flexible exchange rate regime, New ARA‐metric = 30% of ST debt (resid. maturity) + 10% of Other liabilities + 5% of Prospective exports of goods and services + 5% of Broad Money. Source: International Monetary Fund, National Bank of Romania

24 Total external debt Long‐term external debt EUR billion EUR billion 110 private debt 110 ST debt (majority private debt) public and publicly guaranteed debt* 100 100 LT debt deposits of non‐residents 90 22.8 20.9 19.2 IMF loans (without MPF)** 90 19.5 18.9 SDR allocations from the IMF 80 21.0 23.4 23.7 80 15.6 70 70 20.6 37.2 60 36.1 36.3 34.3 60 37.7 32.7 50 31.7 31.8 50 19.9 39.2 40 79.9 78.9 40 74.1 77.1 75.8 12.6 66.7 70.6 69.0 68.5 35.5 30 21.1 25.2 30 6.3 17.9 30.3 51.9 25.3 32.8 13.5 31.6 32.2 31.9 20 38.7 12.4 17.0 20 28.6 8.2 8.5 7.7 24.6 10.8 10 10.2 7.2 6.5 10 11.3 10.7 9.1 10.2 6.1 5.7 8.7 4.7 4.9 3.6 0 3.2 5.5 3.8 0 2005 2006 2007 2005 2006 2007 2017*** 2008*** 2009*** 2010*** 2011*** 2012*** 2013*** 2014*** 2015*** 2016*** 2017*** 2008*** 2009*** 2010*** 2011*** 2012*** 2013*** 2014*** 2015*** 2016***

Jan. Jan. *) 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 **) 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 ***) according to the IMF's BPM6 Source: National Bank of Romania

25 Public debt (according to ESA2010) percent of GDP 45 39.4 40 held by residents 37.3 37.8 38.0 37.6 34.2 35 held by non‐residents 29.9 30 18.7 17.1 19.1 25.7 24.8 18.2 25 23.2 17.4 22.4 21.3 7.9 15.3 20 7.2 18.6 7.9 4.3 15.7 12.0 4.7 13.2 15 3.0 12.3 12.7 2.6 4.4 5.3 10 19.0 20.7 20.7 18.9 17.8 17.5 17.0 16.8 14.5 14.0 14.6 12.7 11.3 5 9.6 8.3 7.9 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Note: Government securities in MFIs portfolio as a share of GDP in Dec.07=1.4%, Dec.08=2.1%, Dec.09=7.0%, Dec.10=9.4%, Dec.11=10.6%, Dec.12=11.6%, Dec.13=11.1%, Dec.14=11.3%, Dec.15=11.2%, Dec.16=10.9% and Feb.17=10.5%.

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

26 General government balance (according to ESA2010)

percent of GDP

‐0.8 ‐0.8 ‐0.8 ‐1.1 ‐1.4 ‐1.9 ‐2.1 ‐2.1 ‐2.8 ‐2.8 ‐3.4 ‐3.7 ‐3.6

‐4.6

‐5.5 ‐5.4

‐6.9

‐9.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f e) estimate Source: Ministry of Public Finance, National Institute of Statistics f) European Commission –European Economic Forecast, Winter 2017

27 Policy rate and bank interest rates to non‐bank clients

%p.a. %p.a. 50 25 policy rate (end of period) policy rate (end of period) 3M ROBOR (monthly average) new deposits of non‐financial corporations new loans to non‐financial corporations new deposits of households 40 20 new loans to households

30 15

20 10

10 5

0 0 Jul.04 Jul.05 Jul.06 Jul.07 Jul.08 Jul.09 Jul.10 Jul.11 Jul.12 Jul.13 Jul.14 Jul.15 Jul.16 Jul.04 Jul.05 Jul.06 Jul.07 Jul.08 Jul.09 Jul.10 Jul.11 Jul.12 Jul.13 Jul.14 Jul.15 Jul.16 Jan.04 Jan.05 Jan.06 Jan.07 Jan.08 Jan.09 Jan.10 Jan.11 Jan.12 Jan.13 Jan.14 Jan.15 Jan.16 Jan.17 Jan.04 Jan.05 Jan.06 Jan.07 Jan.08 Jan.09 Jan.10 Jan.11 Jan.12 Jan.13 Jan.14 Jan.15 Jan.16 Jan.17

Source: National Bank of Romania

28 Loans to the private sector –stock – real annual percentage change* real annual percentage change* 30 30 total households

lei‐denominated loans total foreign currency‐denominated loans 20 non‐financial corporations & financial 20 corporations other than MFIs

10 10

0 0

‐10 ‐10

‐20 ‐20 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jul.11 Jul.10 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jan.12 Jan.11 Jan.10 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jul.11 Jul.10 Oct.16 Oct.15 Oct.14 Oct.13 Oct.12 Oct.11 Oct.10 Apr.16 Apr.15 Apr.14 Apr.13 Apr.12 Apr.11 Apr.10 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jan.12 Jan.11 Jan.10 Oct.16 Oct.15 Oct.14 Oct.13 Oct.12 Oct.11 Oct.10 Apr.16 Apr.15 Apr.14 Apr.13 Apr.12 Apr.11 Apr.10 *) based on CPI

Source: National Institute of Statistics, National Bank of Romania

29 Financial intermediation* –stock – percent of GDP 55 foreign currency‐denominated loans 50 lei‐denominated loans loans to non‐financial corporations a.o. 45 loans to households 39.2 39.2 39.5 40 37.8 37.9 35.4 34.3 35 31.6 30.6 29.0 30 19.5

26.6 20.1 21.0 18.9 20.4 23.5 25.0 21.8 24.7 18.3 23.7 25 19.2 18.1 20.9

20.6 16.3 15.1 15.4 12.4 17.8 20 14.1 12.6

16.5 15.3 15 11.3 13.2 10.2

10 11.7 19.6 19.1 18.9 18.4 17.5 17.1 16.6 16.2 16.2 16.0 15.6 15.5 15.3 15.2 14.9 14.5 14.5 14.2 14.0 13.8 13.4

5 11.3 9.3 7.4 6.3 0 4.8 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

*) loans to the private sector / GDP Source: National Institute of Statistics, National Bank of Romania, National Commission for Prognosis

30 Domestic credit

lei billion, end of period 400 loans to the private sector loans to the government sector total 350 100)

= 300

2017 250

200 February

CPI, 150 by

100 (deflated 50

0 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jul.11 Jul.10 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jan.12 Jan.11 Jan.10 Sep.16 Sep.15 Sep.14 Sep.13 Sep.12 Sep.11 Sep.10 Nov.16 Nov.15 Nov.14 Nov.13 Nov.12 Nov.11 Nov.10 Mar.16 Mar.15 Mar.14 Mar.13 Mar.12 Mar.11 Mar.10 May.16 May.15 May.14 May.13 May.12 May.11 May.10

Source: National Institute of Statistics, National Bank of Romania

31 Broad money (M3)

lei billion percent 350 100

90 300 100) 80 =

250 70 2017

60 200 50 February

150 40 CPI,

by 100 30

20 50 (deflated 10

0 0 Jan.10 Jan.11 Jan.12 Jan.13 Jan.14 Jan.15 Jan.16 Jan.17 Jan.10 Jan.11 Jan.12 Jan.13 Jan.14 Jan.15 Jan.16 Jan.17 Sep.10 Sep.11 Sep.12 Sep.13 Sep.14 Sep.15 Sep.16 Sep.10 Sep.11 Sep.12 Sep.13 Sep.14 Sep.15 Sep.16 May.10 May.11 May.12 May.13 May.14 May.15 May.16 May.10 May.11 May.12 May.13 May.14 May.15 May.16

currency in circulation overnight deposits deposits with an agreed maturity other marketable instruments* of up to and including two years

*) repurchase agreements, money market fund shares and units, negotiable debt securities with a maturity of up to and including two years Source: National Institute of Statistics, National Bank of Romania

32 Private sector deposits (in real terms) lei‐denominated deposits foreign currency‐denominated deposits

lei billion lei billion 200 200 corporations* households corporations* households 180 180 100) 160 160 =

140 140 2017

120 120

100 100 February

80 80 CPI,

by 60 60

40 40

(deflated 20 20

0 0 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jul.11 Jul.10 Jul.16 Jul.15 Jul.14 Jul.13 Jul.12 Jul.11 Jul.10 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jan.12 Jan.11 Jan.10 Jan.17 Jan.16 Jan.15 Jan.14 Jan.13 Jan.12 Jan.11 Jan.10 Oct.16 Oct.15 Oct.14 Oct.13 Oct.12 Oct.11 Oct.10 Apr.16 Apr.15 Apr.14 Apr.13 Apr.12 Apr.11 Apr.10 Oct.16 Oct.15 Oct.14 Oct.13 Oct.12 Oct.11 Oct.10 Apr.16 Apr.15 Apr.14 Apr.13 Apr.12 Apr.11 Apr.10

*) non‐financial corporations and financial corporations other than MFIs

Source: National Institute of Statistics, National Bank of Romania

33 Loan‐to‐deposit ratio* percent 250 232.7

200

150 137.3

107.3 100 93.8 80.8

50 68.4

total lei foreign currency

0 Jun.06 Jun.07 Jun.08 Jun.09 Jun.10 Jun.11 Jun.12 Jun.13 Jun.14 Jun.15 Jun.16 Sep.06 Sep.07 Sep.08 Sep.09 Sep.10 Sep.11 Sep.12 Sep.13 Sep.14 Sep.15 Sep.16 Dec.05 Dec.06 Dec.07 Dec.08 Dec.09 Dec.10 Dec.11 Dec.12 Dec.13 Dec.14 Dec.15 Dec.16 Mar.06 Mar.07 Mar.08 Mar.09 Mar.10 Mar.11 Mar.12 Mar.13 Mar.14 Mar.15 Mar.16

*) based on data in the monetary balance sheet

Source: National Bank of Romania

34 Analysis ratios for the banking system

Capital adequacy indicators Liquidity indicators

percent percent 20 45 5 39.3 18 36 4 16 immediate liquidity 14 27 3 liquidity ratio (rhs) 12 2.0 18 2 10

8 9 1 solvency ratio 6 Tier 1 capital ratio for credit risk 0 0 4 Tier 1 capital ratio total capital ratio (CRD IV/CRR) Jun.09 Jun.10 Jun.11 Jun.12 Jun.13 Jun.14 Jun.15 Jun.16 Dec.08 Dec.09 Dec.10 Dec.11 Dec.12 Dec.13 Dec.14 Dec.15 Jan.17*

2 Dec.16* Tier 1 capital ratio (CRD IV/CRR) Immediate liquidity = (cash, demand deposits and time deposits with 0 banks+ unpledged government securities)/ Total liabilities (prudent level > 30%) Liquidity ratio = effective liquidity/required liquidity Jun.09 Jun.10 Jun.11 Jun.12 Jun.13 Jun.14 Jun.15 Jun.16 Sep.09 Sep.10 Sep.11 Sep.12 Sep.13 Sep.14 Sep.15 Sep.16 Dec.08 Dec.09 Dec.10 Dec.11 Dec.12 Dec.13 Dec.14 Dec.15 Mar.09 Mar.10 Mar.11 Mar.12 Mar.13 Mar.14 Mar.15 Mar.16

Dec.16* (regulated threshold = 1) *) indicators are calculated based on data in prudential reports, prior to submission of audited annual accounts Source: National Bank of Romania

35 Banking system profitability

percent lei million 25 4,475 5,000 4,401 4,259 20 3,696 4,000 15 2,533 3,000 2,206 2,247 2,410 10 1,468 2,000 489 1,153 597 1,193 1,170 816 818 5 210 284 1,000 49 0 0 ‐516 ‐5 ‐777 ‐1,000 ‐10 ‐1,588 net profit (rhs) ‐2,000 ‐15 ‐2,342 ROA ‐3,000 ‐20 ROE ‐4,000

‐25 ‐4,667 ‐5,000 Jun.13 Jun.14 Jun.15 Jun.16 Sep.13 Sep.14 Sep.15 Sep.16 Dec.06 Dec.07 Dec.08 Dec.09 Dec.10 Dec.11 Dec.12 Dec.13 Dec.14 Dec.15 Mar.13 Mar.14 Mar.15 Mar.16 Jan.17* Dec.16* *) indicators are calculated based on data in prudential reports, prior to submission of audited annual accounts Note: Starting January 1, 2012, Romanian credit institutions apply the IFRS for accounting purposes.

Source: National Bank of Romania

36 Banking indicators percent

Indicators Dec.12 Dec.13 Mar.14 Jun.14 Sep.14 Dec.14 Mar.15 Jun.15 Sep.15 Dec.15 Mar.16 Jun.16 Sep.16 Dec.16* Jan.17*

Capital adequacy

1 Total capital ratio (former solvency ratio) 14.9 15.5 16.3 17.0 17.1 17.6 18.6 18.1 18.7 19.2 19.5 19.1 18.8 18.3 x 2 Tier 1 capital ratio (Tier 1 capital / total risk exposure amount) 13.8 14.1 14.5 14.9 14.5 14.6 16.1 15.6 16.3 16.7 17.2 16.8 16.6 16.2 x 3 Common equity Tier 1 capital ratio (common equity Tier 1 capital / total risk exposure amount) … … … … 14.5 14.6 16.1 15.6 16.3 16.7 17.2 16.8 16.6 16.2 x 4 Leverage ratio (1) 8.0 8.0 8.6 7.9 7.6 7.4 8.3 8.0 8.3 8.2 8.7 8.6 8.6 8.3 x

Asset quality

5 Impaired loans to non‐bank clients (gross value) / Total loan portfolio to non‐bank clients (gross value) 21.9 24.3 25.0 23.7 20.6 19.7 19.3 18.1 17.6 15.7 15.4 12.8 11.4 11.2 11.3 6 Impaired loans to non‐bank clients (net value) / Total loan portfolio to non‐bank clients (net value) 12.0 11.6 12.2 11.4 10.2 9.4 9.1 8.4 7.9 7.0 6.8 5.6 5.2 4.8 4.8 7 Impaired loans to non‐bank clients (net value) / Total assets (net value) 7.0 6.5 6.9 6.5 5.8 5.1 5.0 4.7 4.5 3.8 3.8 3.1 2.9 2.6 2.7 8 Non‐performing loan ratio (2) ……20.419.215.313.913.912.812.3……………… 9 Non‐performing loan ratio (3) … … … … 21.5 20.7 20.2 16.2 15.7 13.5 13.5 11.3 10.0 9.5 9.8 10 IFRS provisions for NPLs / NPLs ……68.968.466.269.970.269.069.4……………… 11 IFRS provisions for NPLs / NPLs (EBA's definition) … … … … 54.1 55.6 55.7 56.2 58.1 57.7 58.2 55.6 54.5 56.2 56.8

Profitability

12 ROA (net profit / total assets, average) ‐0.64 0.01 0.67 0.12 ‐0.60 ‐1.32 0.91 0.66 0.83 1.24 1.26 1.27 1.30 1.10 0.87 13 ROE (net profit / own capital, average) ‐5.92 0.13 6.30 1.10 ‐5.58 ‐12.45 8.88 6.44 7.98 11.77 11.69 12.28 12.32 10.67 8.35

Liquidity

14 Immediate liquidity (4) 35.9 41.5 40.4 39.8 38.4 41.1 40.5 38.4 38.4 40.8 38.7 39.2 39.2 40.3 39.3 15 Liquidity ratio (effective liquidity / required liquidity) (5) 1.42 1.53 1.53 1.55 1.60 1.62 1.58 1.62 1.68 1.94 1.92 1.95 1.97 1.99 1.99 Note: *) Indicators are calculated based on data in prudential reports, prior to submission of audited annual accounts. (1) Tier 1 capital / Total average assets (net value) until end‐December 2013 (according to the NBR definition). Once Implementing Regulation (EU) No. 680/2014 entered into force, the indicator was included in the reporting statements in compliance with the said technical standards and is reported accordingly by credit institutions. (2) Based on data reported by all banks (both those calculating the minimum capital requirement for credit risk according to the standard approach and those applying internal rating‐based models). 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.

(3) EBA‐defined indicator, according to which non‐performing exposures are those that satisfy any of the following criteria: (i) material exposures which are more than 90 days past due; (ii) the debtor is assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless of the existence of any past due amount or of the number of days past due. In June 2015, the methodological notes on the FINREP framework at solo level were amended so as to include cash balances with the central bank and other demand deposits with credit institutions in the non‐performing exposure report form.

(4) The numerator of this ratio is represented by cash, demand and time deposits with banks at net value plus unpledged government securities, while the denominator includes total liabilities. (5) According to NBR Order No. 22/2011 and NBR Regulation No. 25/2011; the liquidity ratio is expressed in units. x = it is not the case because the frequency is quarterly. "…" = missing data Source: National Bank of Romania

37 Developments in non‐performing loans % in total loan portfolio 22 20 18 16 14 12

10 21.5 20.7 20.5 20.4 20.2 8 19.2 16.2 15.7 15.3 15.1 13.9 13.9 13.5 6 13.5 12.8 12.3 11.7 11.3 9.8 9.5 4 10.0 2 0 Mar.14 Apr.14 Jun.14 Sep.14 Dec.14 Mar.15 Jun.15 Sep.15 Nov.15 Dec.15 Mar.16 Jun.16 Sep.16 Dec.16* Jan.17* *) indicators are calculated based on data in prudential reports, prior to submission of audited annual accounts Indicator calculated based on prudential reports submitted by all banks (both banks that determine the minimum capital requirement for credit risk based on the standardised approach and banks using internal models‐based approach) for loans meeting the non‐performance criteria (debt service longer than 90 days and/or where judicial proceedings have been initiated). EBA – defined indicator, determined as the ratio between a) the total non‐performing exposures represented by loans and advances (where non‐performing exposure is defined as any exposure satisfying any of the following criteria: (i) material exposures whichare more than 90 days past due; (ii) the debtor is assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless of the existence of any past due amount or of the number of days past due) and b) total exposures represented by loans and advances. In June 2015, the methodological notes on the FINREP framework at solo level were amended so as to include cash balances withthe central bank and other demand deposits with credit institutions in the non‐performing exposure report form. Source: National Bank of Romania

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