The new approach! Cristina Lazarescu Bank Deposit Guarantee Fund Romania High-level Seminar on Challenges for European Deposit Insurance Systems: Funding, Investment Practices and Reimbursement. February 26, 2015, Warsaw, Poland

Looking behind in history … Bonds versus Deposits Weight of assets class in total assets

How big are we? Deposit Guarantee Fund EUR 930 million Bank Resolution Fund EUR 80 million Exposure coverage ratio:  eligibile deposits= 2,40%  covered deposits=3,00% as of EUR 1 billion

What does the current investment policy look like? Eligible instruments:  Romanian Government Securities, other sovereign securities.  Term deposits  Other financial instruments of the credit institutions. Investment guidelines:  min 60% Government Securities  max 25% deposits and other financial instruments  min 10% monthly liquidity depending on market conditions  gradual reduction of the duration  held-to-maturity(HTM) bond’s portfolio  local currency

… and the big challenge is… …by the end of the 2015 reduce weight of deposits out of total assets (up to 30% each month)!!!

Investments according to the EU Directive DGSs must be invested in a low-risk and sufficiently diversified manner. The Investment instruments compliant with Regulation (EU)No. 575/2013 are the following:  Debt securities which would receive a 0% risk weight under the Standardised Approach for credit risk.  Debt securities which would receive a 20% or 50% risk weight under the Standardised Approach for credit risk and other qualifying items.  … and other assets that are considered as liquid and safe by the Central Bank

What shall we invest in? The following assets as far as they comply with Investment Grade (BBB/Baa3):  Sovereign bonds and Treasury-bills  Debt securities issued by International organizations and development banks  Corporate bonds (Minimum grade : A-/A3)  Bank bonds (Minimum grade : BBB-/Baa3)  Money market instruments  Covered bonds (Minimum grade : BB-/Ba3) The Romanian financial market is at the early stage.

How do we overcome this ? Our biggest concerns …. short term liquidity and diversification. What shall we do?  Reduce tenor in deposits  Acquiring sovereign bonds  Investing in REPO agreements  Investing in foreign denominated bonds  Actively managing the bonds portfolio

Banking environment concern… Greece- could turn out to be the European Pandora Box? Top 3 of Romanian Banking System

Another concern….falling rates 1-5 years Romanian Treasury Bonds Source: Reuters

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