Articles

Recent regulatory amendments within the Romanian banking system

04 February 2004 (Invest Romania)

After a 2 year period during which several projects for the amendment of the Banking Law have been analysed by banking specialists, the Romanian Parliament has passed Law no. 485/2003 for the amendment of the Banking Law no. 58/1998. The new regulations came into effect according to the new Constitution within 3 days from their publication (10.12.2003), except for certain chapters that are set to enter into force as from the date Romania becomes a member of the EU.

The amendments brought by the new law are significant, from specific banking terms and banking activities to the authorisation of significant shareholders, bank’s administration, risk funds, but also the bank prudential supervision, special administration and liquidation rules.

New rules on banking activities performed by Romanian entities in EU member states or by entities from this zone in Romania have been also issued, intending to create a banking law for a market on which the freedom of capital movement is guaranteed.

With respect to the specific banking terminology, the new law has diversified it by establishing the principle that banking activities shall be carried out in Romania through authorised credit institutions, defining concepts such as: credit institution, as opposed to financial institution; electronic money issuer institution, ancillary services company; financial holding, holding company, parent company. We also mention that the definition for significant shareholders has also been reviewed for the purpose of harmonizing the banking terminology with that used for the capital markets field (a shareholder holding a participation or voting rights over 10%).

Banking activities have been broaden, including with the possibility of performing, subject to their authorisation, capital markets activities without being requested to create a distinct company. However, financial leasing operations shall be performed directly by banks only starting with the date Romania shall become a member of the EU, until then such activities being carried out, as until the present, through distinct companies.

Banks have become entitled to perform activities related to movable or immovable assets, including lease of movable or immovable assets towards third parties, subject to specific conditions being met. Furthermore, with respect to the assets obtained through enforcement of bank debts, these shall have to be sold by the bank within 1 year from the date of their acquiring, the NBR having the possibility to extend this term.

The bank management shall have to consist of bank employees, who shall also be entitled to become members of the board of directors (case in which, the number of board of directors members shall be set in such a manner that the directors who are not also part of the bank management to hold a majority number).

Moreover, the meaning and the limits of confidentiality within the banking field have been better defined within the amendments to the Banking Law.

With respect to the changes in the share capital of a bank, although the Banking Law provisions requiring approval from the NBR for all such changes have been repealed, the Norms on changes in the status of banks that provide for the prior approval by the NBR of banks’ share capital level are still in force according to the transitory provisions of the new law.

According to the new Banking Law, the level and type of investments allowed to be made by banks has been changed, that is, any financial participation held directly or/and indirectly by a bank consisting in shares or other such titles in entities other than credit institutions, financial institutions, insurance companies or ancillary companies shall not exceed: (a) 15% of its own funds; (b) 20% of the respective entity’s share capital, or, if the case, of the total value of titles issued by the respective entity. Moreover, it has been provided that the total value of such participations must not exceed 60% of the bank’s own funds. Also, for prudential supervisory activities purposes, the terms and conditions subject to which the NBR shall issue its approval of the bank’s participations in other entities has been detailed, including that for those participations that are not subject to a prior approval, a notification towards the NBR shall still be required within 5 days from their acquiring.

The conditions in which the participations of significant shareholders are supervised by the NBR have been extensively amended. Thus, any individual or legal person or group of persons that intends to become a significant shareholder of a bank shall have to notify this to the NBR, subject to the conditions provided by the law, the NBR being entitled to oppose to such participation within maximum 3 months from receipt of notification.

The NBR shall have to be notified upon any intention of a significant shareholder of increasing its participation or quota of voting rights by reaching or exceeding 20%, 33% or 50% of the share capital or total number of voting rights or by which the bank would become its subsidiary. Furthermore, the NBR must be notified with respect to any intention of a significant shareholder of decreasing its participation or quota of voting rights under 10%, 20%, 33% or 50%, as well as if the bank would become its subsidiary. Additionally, banks shall be compelled to immediately inform the NBR with respect to any acquisition or transfer of their shares that shall exceed or fall under the levels described above.

The level and conditions of the banking prudential supervisory activities for the purpose of protecting the bank’s clients interest and insuring the strength and viability of the entire banking system have been detailed by the new law, including with respect to financial holdings, credit institutions, financial institutions, insurance companies or other entities related to the bank.

If we are to consider that since the amendment of the Banking Law, the NBR has also issued new regulations with respect to supervision of: bank clientele; investments made by electronic money issuer institutions; bank’s own funds and their internal audit; bank’s solvability and other major risks, and that the Government has also issued a new Ordinance on the judicial reorganisation and bankruptcy procedures for credit institutions, it becomes clear that Romania is currently undergoing one of its major reform steps within the banking sector in view of its accession to the EU and meeting the freedom of capital requirements thereof.