JPMorgan: Romanian Leu To Gain 3% Vs Euro In Coming Days
Romania’s leu is bound to strengthened by 3% against the euro over the next few weeks as local lenders prepare to transition to international accounting standards and will be exchanging euros to put the resulting excess liquidity into their reserves, US investment bank JPMorgan said in a report.
Starting 1 January 2012, Romanian banks will be using International Financial Reporting Standards (IFRS) instead of local accounting standards (RAS). The change will leave the banks “over-provisioned,” JPMorgan said.
Under RAS, banks may only reduce provisions against collateralized loans which are now doubtful or bad by 25% of the value of their collateral. Under IFRS, banks may use 100% of the market value of the collateral, the report noted.
By law, local banks cannot hold open forex positions per currency larger than 10% of their own funds (capital, reserves and profit), so the over-provisioning in foreign currency must be quickly converted into lei, the American lender noted.
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