The National Bank of Romania (NBR) Regulation number 1/2008 with respect to the transformation of financial institutions into credit institutions was published and came into force in the Official Gazette on January 30 2008. The general framework with respect to the possibility of the transformation of financial institutions into credit institutions was initially provided by the Government Emergency Ordinance number 99/2006 on capital institutions and capital adequacy (the Banking Law). The Banking Law also provides that secondary norms related to the above matter may be issued by the NBR. Consequently, in accordance with such competences, the NBR issued the Regulation.
The Banking Law defines a financial institution as an entity whose main object of activity is the acquisition of holdings in other entities as well as the development of one or more activities related to crediting, leasing, payment services and capital markets. It defines a credit institution as (i) an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits on its own account, or (ii) an institution issuing electronic money (electronic money institution). The main distinction between the two above entities is that, in contract with credit institutions, financial institutions are not entitled to receive deposits and other repayable funds.
The Regulation provides that financial institutions may transform into any form of credit institution. The transformation process involves two main stages: (i) the approval of the transformation of the financial institution into a credit institution, and (ii) the functioning authorisation of the resulting credit institution.
According to the Regulation, a financial institution undergoing transformation into a credit institution must submit to the NBR an application requesting the approval for the transformation together with the adequate documentation required by the Law (that is, NBR Regulation number 11/2007 related to the authorisation of Romanian credit institutions and of the subsidiaries of foreign credit institutions) for the authorisation of the resulting credit institution.
Moreover, the financial institution must submit the individual or, as the case may be, the consolidated financial statements with respect to the quarter preceding the filing date of the transformation application. The financial statements must be signed by the authorised representatives of the financial institution and audited by a financial auditor.
Together with these documents the financial institution must also submit an action plan, which must be drafted in accordance with the provisions of NBR Regulation number 11/2007. It must include information about the financial institution (for example, its existing circumstances and the level of specific risk provisions for the credit registered in its accountancy records in the four quarters preceding the filing date of the transformation application).
In order to ensure the quality of the debt portfolio of the transforming financial institution, the Regulation states that the rate of the credit risk related to the portfolio of the financial institution must not exceed the yearly average of the Romanian banking system, which is calculated and published by the NBR in each of four quarters before the application requesting approval for the transformation. The share capital of the transforming financial institution must comprise cash contributions exclusively, and must be entirely paid, with contributions in kind not being permitted. The shares of the financial institution must be registered and each share must provide the right to one vote.
According to the Regulation, the NBR shall give a decision on an application requesting approval for transformation into a credit institution a maximum four months from the date the respective application was submitted. The NBR may approve or reject the transformation into a credit institution. However, if it rejects the transformation, it has the obligation to explain its decision.
By approving the transformation of a financial institution into a credit institution the NBR does not automatically guarantee that the financial institution shall also obtain the functioning authorisation for the resulting credit institution. The approval for the transformation constitutes merely the permission given to the financial institution to begin the formalities with respect to the transformation, and to fulfil all the conditions required for authorisation of the future credit institution.
With respect to obtaining the functioning authorisation of the resulting credit institution, in a maximum of two months from the NBR approval the financial institution must perform all the formalities required by the laws and regulations for the envisaged credit institution. It must register the transformation with the Trade Registry and submit several documents provided by the Regulation to the NBR.
The NBR will make a decision on the functioning authorisation a maximum of four months after the submission of the required documents. If the NBR does not authorise the functioning of the resulting credit institution, the approval for the transformation will be revoked.