June 22, 2012 / 7:14 PM / 7 years ago

Romania banking system at risk from European crisis

WASHINGTON, June 22 (Reuters) - The IMF on Friday warned that Romania’s banking system is vulnerable to Europe’s debt crisis and urged Bucharest to strengthen its financial sector oversight and crisis management framework.

The International Monetary Fund made the comments after it completed a fifth review of Romania’s economic performance, which would make an additional $651.3 million available to the country under a 24-month stand-by arrangement.

Romania, the European Union’s second-poorest member, wants to continue treating the facility as precautionary and has no intention of drawing the funds.

“Romania’s banking system remains vulnerable to spillovers from elsewhere in Europe owing to close financial sector ties,” the IMF said on completion of the review which brings to $3.35 billion the total resources available to Romania under the arrangement.

The fund said Romanian banks have good capital adequacy and provisions were high, but non-performing loans continue to rise.

“Monetary conduct also needs to remain cautious and exchange rate policy should limit foreign exchange intervention as long as the impact of a weakening currency on prices and balance sheets remains modest,” the IMF said.

Romania’s economic growth was projected to pick up in the second half of the year, with inflation remaining under control and the fiscal and external positions continuing to improve.

“However, with external downside risks looming large, a steadfast implementation of all program commitments, including structural measures, is needed to preserve macroeconomic stability and boost potential growth,” the IMF said.

“The budget deficit target has been eased slightly to allow for some countercyclical spending. Strict spending discipline will nonetheless be required to meet the revised target,” the IMF added.

Reporting By Lucia Mutikani; Editing by Andrew Hay

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