In an attempt to regulate the activity, transactions and operations of non-banking entities, the Government of Romania, following the suggestions of the National Bank of Romania (NBR), took the initiative to enact Government Ordinance 28/2006 on the regulation of financial-fiscal measures, the Provisions on Lending Activity Carried out by Non-banking Financial Institutions (NBFIs), as further amended (GO 28/2006). GO 28/2006 imposed on the NBR the obligation to issue at a later stage specific norms laying down rules for the transposition and implementation of its provisions.
Among those rules, the NBR issued a specific regulation; Norm16/2006, setting out and detailing rules governing own funds of NBFIs, which has recently been amended by NBR Norm 9/2008 (collectively, Norm 16/ 2006).
The concept of own funds, transposed and implemented by the NBR, is purported to determine the following ratios and marks of the activities carried out by NBFIs: (i) the solvency ratio; (ii) the exposure towards one debtor (as defined in NBR Norm 17/2006, referred to below) and the aggregate exposure (towards all debtors), in accordance with NBR Norm 17/ 2006 on the supervision and monitoring of NBFI exposures (Norm 17/2006); (iii) the equity, plus the so-called additional capital (consisting of the items listed below); and (iv) the drafting, preparation and finalisation of NBFIs' financial statements. NBR Norm 16/2006 lays down rules governing the mandatory minimum level, the calculation and the reporting to the NBR of own funds by NBFIs .
Own funds are applicable only to those NBFIs that are or have been registered with the NBR's Special Register and that are compliant with the following criteria: (i) the outstanding own equity and borrowed funds are at least L50 million ($16 million); and (ii) the outstanding loans or other financing granted and the commitments undertaken are at least L25 million.
An NBFI's large gross exposure towards a sole debtor will be at least 10% of its own funds, while the aggregate net large exposures towards all persons having special relationships therewith should not exceed 25% of its own funds.
Own funds consist of own capital and additional capital.
Own capital consists of: (i) fully subscribed and paid-up share registered capital (equity); (ii) fully collected share capital premiums (shares issuance, contribution, merger, spin-off, split-up or split-off, conversion and other share capital premiums); (iii) legal reserve; (iv) corporate reserve and contractual reserves; (v) other reserves, except for those counted for in the additional capital, to be used for the purpose of increasing the share capital or for loss recovery and registered within the NBFI's financial statements; and (vi) the positive fiscal result carried forward from the previous fiscal years, after profit distribution. For the establishing purpose of own capital, the following will have to be deducted by the NBFI: (i) the loss carried forward; (ii) the loss of the current fiscal year; (iii) the non-amortised (non-depreciated) value of the incorporation costs and expenses; (iv) the non-amortised value of research and development costs and expenses; (v) the non-amortised value of concessions, patents, licences, trade marks and other similar rights and assets not included in the goodwill; (vi) the goodwill net value; (vii) advance payments for intangible assets; (viii) the company's own redeemed shares for the purpose of decreasing the share capital; and (ix) the value of operations performed under favourable conditions.
Additional capital includes the: (i) reserves and special funds; (ii) reserves from revaluation of intangible assets; (iii) subordinated loans granted to the NBFI; and (iv) others (retained profits and other reserves). The latter will thus have to cumulatively meet the following conditions: (i) they are at the NBFI's disposal, ready to be used immediately and unconditionally for covering any lending risks or losses; (ii) they are registered in the NBFI's accounting books and records; and (iii) their level is determined by the NBFI's relevant bodies).
The NBFI will assess, monthly, the level of own funds in accordance with the monthly trial balance and will report the same to the NBR on a monthly basis.
NBFIs will be bound to ensure and maintain the minimum mandatory level of own funds (that of the share capital of the NBFIs).
An NBFI's failure to comply with requirements under Norm 16/2006 will result in the NBR imposing sanctions and penalties on the relevant NBFI.
With the enactment of such rules, the NBR has set another milestone in the regulation of the non-banking financial market, thus allowing and setting the limits for a sound and diligent management and monitoring of financial transactions on the Romanian market.
Delia Nitescu and Matei Dimitrie Giugariu