The deep dive taken by the value of the Romanian government securities "has an impact on the bank, but the situation is manageable," according to Stefan Doerfler, the CFO of Erste, speaking of bank BCR in Romania, quoted by Ziarul Financiar.

Similar situations can be found in all markets, he added.

However, the Romanian banks have the highest exposure to government securities, and the decrease in the value of these securities as a result of rising interest rates makes a negative impact on the bank's balance sheets.

Banks have two options: mark to market (depreciate, or mark a loss) the value of the securities that thus will generate (until maturity or until they are sold) a yield in line with the market, of around 8%-9%, based on their new value; or not mark to market their value, thus not mark a loss immediately, and hold them until maturity (but they will generate in this case a lower yield until they mature).

Most of the Romanian banks opted for the latter.

Notably, if the interest rates fall before the maturity of the securities, the banks will have to make the opposite decision: mark a profit or keep the higher yields.

BCR is one of the largest buyers and holders of Romanian government securities.

This topic is extremely important because marking the loss (first option) affects profitability and solvency indicators, and bank shareholders might have to come up with additional capital.

(Photo: Iryna Drozd/ Dreamstime)

andrei@romania-insider.com