Annual Report 2017 Annual Report 2017 NOTE
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Annual Report 2017 Annual Report 2017 NOTE The Annual Report for 2017 was examined and approved by the National Bank of Romania Board on 19 June 2018 and was submitted to the Parliament of Romania pursuant to Law No. 312/2004 on the Statute of the National Bank of Romania. Some of the data for the period covered are provisional and will be updated as appropriate in the subsequent publications of the National Bank of Romania. Totals may not add up and minor differences from the percentage changes in charts and tables may occur, due to rounding. The source of data used in charts and tables was indicated only when data were provided by other institutions. All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. National Bank of Romania, 25 Lipscani Street, postal code 030031, Bucharest Telephone: +4021/312 43 75; Fax: +4021/314 97 52 Website: http://www.bnr.ro ISSN 1453-3928 (versiune tipărită) ISSN 1584-0921 (versiune online) ISSN 1584-0921 (versiune e-Pub) Contents Overview 8 Chapter 1. Global environment and domestic macroeconomic developments 16 1. Global environment 17 Box 1. Escalation of protectionist tendencies: context and potential effects 18 2. Domestic macroeconomic developments 24 2.1. Economic activity 24 Box 2. Cyclical and structural influences in recent developments in the current account balance 27 2.2. Prices and costs 37 Box 3. Post-crisis dynamics of total factor productivity (TFP): a sectoral analysis 41 2.3. Fiscal developments 47 Chapter 2. Monetary policy of the National Bank of Romania 50 1. Policy objective 51 2. Policy decisions 51 Box 4. Credit to the private sector and liquidity in the economy – developments and determinants 57 3. Use of monetary policy instruments 66 4. Policy outlook 69 Chapter 3. Financial stability 74 1. The NBR’s role in implementing macroprudential framework 75 2. Main assessments on financial stability 78 2.1. Indebtedness of non-financial corporations and households 78 2.2. Banking sector 82 Box 5. Structural developments in the banking sector in Romania 89 2.3. Non-bank financial sector 94 2.4. Financial markets 95 3. Instruments supportive of prudential supervision and financial stability 96 3.1. Central Credit Register 96 3.2. Payment Incidents Register 98 4. Developments in the field of bank recovery and resolution 99 Chapter 4. Licensing and regulation of financial institutions 104 1. Licensing and notification of financial institutions 105 2. Regulatory framework for credit institutions 106 3. Legal framework for institutions within the regulatory scope of the National Bank of Romania 108 4. Regulatory guidelines in 2018 110 Chapter 5. Prudential supervision of financial institutions 112 1. Supervision of credit institutions 113 1.1. Size and structure of the banking system 113 1.2. Performance of the banking sector 115 1.3. Assessment of banking risks 123 2. Supervision of guarantee schemes 127 3. Supervision of non-bank financial institutions, payment institutions and electronic money institutions 127 3.1. Non-bank financial institutions 128 3.2. Payment institutions 131 3.3. Electronic money institutions 131 4. Monitoring the application of international sanctions, prevention of money laundering and terrorist financing 131 Chapter 6. Currency issue 136 1. Developments in currency in circulation outside banks 137 2. NBR’s cash payments and collections in its relation with credit institutions/the State Treasury 139 3. Currency processing and withdrawal from circulation of unfit currency 141 4. Numismatic issues 141 5. Detected leu counterfeits 142 Chapter 7. Payment and settlement systems 144 1. ReGIS 145 2. SaFIR 147 3. TARGET2 system 148 4. Authorisation and oversight of payment and settlement systems 151 Chapter 8. Management of international reserves 154 1. Developments in Romania’s international reserves in 2017 155 2. Management of international reserves in a tense global economic and financial environment, marked by heightened uncertainty 156 2.1. External economic and financial developments 156 2.2. The manner to achieve strategic goals 158 3. Developments in the gold stock in 1990-2017 160 3.1. Measures to increase the international reserves 160 3.2. Recent international trends in central banks’ approach to the gold reserve 170 3.3. Conclusions 171 Chapter 9. Romania’s balance of payments and international investment position 174 1. Current account and capital account 175 2. Financial account 177 3. Romania’s international investment position – main components 178 Chapter 10. International relations 182 1. The NBR’s activity at EU level 183 1.1. The European context – developments in economic, financial and banking policies 183 1.2. NBR participation in European structures 186 1.3. Technical cooperation 189 1.4. EU medium-term financial assistance 190 2. International financial relations 191 Chapter 11. The convergence of the Romanian economy and the new EU economic governance framework 196 1. Romania’s progress towards convergence 197 Box 6. Regional convergence in the European Union 201 2. Developments in the European Union’s economic governance 209 Chapter 12. External communication of the National Bank of Romania 216 1. Public relations 217 2. Financial education 223 Chapter 13. Statistics and economic research 230 1. Statistical activity 231 2. Economic research 232 2.1. Monetary policy 232 2.2. Macroeconomic modelling 233 2.3. Financial stability 236 2.4. Economic papers and analyses 237 2.5. Guidelines and objectives of the research activity in 2018 239 Chapter 14. Legal activity of the National Bank of Romania 242 Chapter 15. The institutional framework and the organisation of the National Bank of Romania 246 1. Decision-making bodies and corporate governance 249 Members of the National Bank of Romania Board 250 2. The relationship of the NBR with the Parliament of Romania and other state institutions 255 3. Organisational developments 260 3.1. Human resources management 260 3.2. Information technology 261 Organisation Chart of the National Bank of Romania as at 31 December 2017 264 Chapter 16. Financial statements of the National Bank of Romania as at 31 December 2017 266 1. Overview 267 2. Recognition of monetary policy operations 267 3. Recognition of foreign currency asset/liability management operations 269 4. Effects of changes in the exchange rates and in the market prices of international reserve assets 270 5. Conclusions 271 National Bank of Romania Financial Statements 31 December 2017 (audited by Ernst & Young Assurance Services) 273 Independent Auditor’s Report 275 Balance sheet as at 31 December 2017 278 Income statement for the year ended at 31 December 2017 280 Notes to the financial statements for the year ended at 31 December 2017 281 Statistical section 313 Abbreviations 322 Tables 323 Charts 324 NATIONAL BANK OF ROMANIA 7 Overview In 2017, when economic activity posted a notable pick-up worldwide as well, Romania reported its fastest growth rate after the outbreak of the global financial crisis (6.9 percent), standing out as one of the EU’s frontrunners. The chief driver of Romania’s economy growth continued to be consumer demand, fuelled by stimulative conditions – in terms of wages and employment – on the labour market and the fiscal and budgetary easing measures. Given that a significant part of domestic absorption is covered by imports, their advance outpaced that of exports, so that economic growth was accompanied by a widening of the current account deficit to 3.4 percent of GDP. Although this level remained below the indicative threshold of the scoreboard and was fully financed by stable capital flows, the path of this macroeconomic variable in the past few years is a source of concern, as most of the EU Member States recorded over the same period either current account surpluses or decreasing deficits. The general government deficit stood at 2.9 percent of GDP, nearing again the ceiling set under the Stability and Growth Pact, i.e. 3 percent of GDP, amid the further expansionary fiscal policy stance. Having displayed negative values throughout the previous year, the annual inflation rate marginally re-entered positive territory in January 2017 and ran by mid-year at levels well below the lower bound of the ±1 percentage point variation band of the 2.5 percent target, before entering the band in September and swiftly reaching its upper half, where it ended the year at 3.3 percent. While the very low annual inflation rates in 2017 H1 owed to the effects of some fiscal measures taken at the beginning of the year (such as the cut in the standard VAT rate and the scrapping of the special excise duty on motor fuels), the upward path visible throughout the year, which persisted into the first months of 2018, mirrored the increase in excess aggregate demand, the pressure on companies’ production costs (wages, transportation, utilities) and worsening inflation expectations, especially in the short run. The action of these factors was doubled – especially starting September – by a number of supply-side shocks (or assimilated thereto), including hikes in administered prices (sharper in case of electricity), costlier fuels, due to higher oil prices and the reintroduction of the excise duty on motor fuels, successive pick-ups in the dynamics of food prices amid temporary supply shortages at European level. In this challenging environment, monetary policy was geared towards bringing the annual inflation rate back into line with the flat target and keeping it there over the medium term, in a manner further supportive of economic growth, but also conducive to anchoring inflation expectations in the medium to long run. Specifically, in the first three quarters of 2017, the NBR preserved the characteristics of key policy instruments, before initiating in Q4 the adjustment of the monetary policy stance by narrowing, in two consecutive steps of ±0.25 percentage points each, the corridor NATIONAL BANK OF ROMANIA 9 Annual Report ▪ 2017 of interest rates on standing facilities around the policy rate and shifting to the firm management of liquidity in the banking system.