NATIONAL BANK OF ROMANIA NATIONAL SECURITIES

COMMISSION

Regulation no.16/21/14.12.2006
regarding large exposures of credit institutions and investment firms

CHAPTER 1
General provisions

Art.1 - (1) This regulation settles the legal framework for supervising,
monitoring and reporting of large exposures.
(2) This regulation applies to credit institutions, Romanian legal persons and
branches of third countries credit institutions established in Romania.
(3) Central bodies are responsible for settling the legal framework regarding
large exposures of credit cooperatives within cooperative networks. The issued
regulations will take into consideration the provisions of the present regulation
as far as large exposures of credit cooperatives are concerned and will not
stipulate requirements less restrictive than those provided herein. In this regard
regulations issued by the central body will be submitted for approval to the
National Bank of Romania.
(4) This regulation is accordingly applied to investment firms as well as to
management companies which have as their regular business the management of
individual investment portfolios, Romanian legal persons, excepting the
provisions of Chapter III - Non – arm’s length transaction, which are exclusively
applied to credit institutions, Romanian legal persons and branches of third
countries credit institutions established in Romania. In this regard, any reference
to the National Bank of Romania is considered to be made to the National
Securities Commission, on a case by case basis.
(5) This regulation applies at individual and consolidated level, as the case may
be, according to the provisions of NBR-NSC Regulation no.17/22/2006
regarding the consolidated supervision of credit institutions and investment
firms.
(6) Central bodies are responsible for applying this regulation on a cooperative
network level.

Art.2 - (1) The terms and expressions mentioned in this regulation have the
meanings provided by the Government Emergency Ordinance no.99/2006
regarding credit institutions and capital adequacy.
(2) For the purpose of this regulation the terms subsidiary and parent
undertaking have the meanings provided at art.6 para.(2) and para.(3).
(3) For the purpose of this regulation the expression group of connected clients
means one or more natural and/or legal persons:
a) who, unless it is shown otherwise, constitute a single risk because one of
them, directly or indirectly, has control over the other or others; or
b) between whom there is no relationship of control as set out in point (a) but
who are to be regarded as constituting a single risk because they are so
interconnected that, if one of them were to experience financial problems, the
other or all of the others would be likely to encounter repayment difficulties.
(4) For the purposes of Chapter III – Non – arm’s length transactions, the
below mentioned terms and expressions have the following meanings:
a) group – more entities (members), gathered on the basis of a certain criterion.
The meaning of credit institution’s group is the “group of connected clients” the
credit institution belongs to. For the purposes of this definition, the particular
case of a single entity (member) group, natural or legal person, is also taken into
account;
 b) entity or member within a group – any entity or member, natural or legal
person, which belongs to a group; in the credit institution’s group case it will
also be understood the credit institution itself;
c) joint control – control sharing over an economic activity;
d) significant influence – the authority to participate in the decision making
process regarding the financial policy and running of an economic activity,
which doesn’t represent control or joint control over those policies;
e) group of natural persons with significant influence over one or more entities
belonging to the credit institution’s group - any group established by natural
persons, members of a group of connected clients, which has/exercises a
significant influence over the credit institution’s group.
For the purposes of applying this definition within this regulation, only those
groups of natural persons with significant influence, which have in their
constitution at least one member who is an employee of an entity/entities
belonging to the credit institution’s group, are taken into account. Moreover, for
the purposes of this definition, the particular case of a single member group of
natural persons with significant influence is also taken into account.
f) Non – arm’s length transaction – any transaction concluded by the parties
from other positions than those representing adverse economic interests.
(5) In order to understand the character of a non – arm’s length transaction will
be taken into account without limitation the following:
a) the credit institution availability to conclude an identical or similar
transaction with any another person, proved by the large access to this type of
transaction;
b) the terms under which similar transactions are concluded which prevail at
the moment of concluding that transaction.
c) an asset settlement or a liability offset at a different value than the fair value.
 (6) Under the terms considered at para.5 lett.b) the following could be
mentioned:
a) in the case of lending transactions: credit assessment, term, interest rates,
schedule, securities requirements;
b) in the case of deposit transactions – the interest granted.
(7) Some of the most often met cases of groups of natural persons with
significant influence are:
a) the group of a family members where one member has executive power.
Moreover, there may be cases where there is a relationship similar with the one
of control between a family member and another person. In these situations the
family members together with the respective person represent a group of natural
persons with significant influence;
b) the group of a family members where one member is administrator or
significant shareholder in one of the credit institution’s group entities and
another is an employee of the same/another entity in the respective group.
(8) The terms and expressions: central banks, multilateral development banks,
public sector entities, have the meaning provided by the NBR-NSC Regulation
no.14/19/2006 on credit risk treatment using the standardised approach, for
credit institutions and investment firms.
(9) The expressions: funded credit protection and unfunded credit protection
have the meanings provided by the NBR-NSC Regulation no.19/24/2006 on
credit risk mitigation techniques used by credit institutions and investment firms.
(10) The meaning of expressions institutions and investment firms is provided
by the NBR-NSC Regulation no.13/18/2006 concerning the determination of
minimum capital requirements for credit institutions and investment firms.

Art.3 - (1) "Exposures", for the purposes of this regulation, shall mean assets
and off-balance-sheet items referred to in the NBR-NSC Regulation
no.14/19/2006 on credit risk treatment using the standardised approach, for
credit institutions and investment firms, without application of the risk weights
or degrees of risk provided therein.
(2) Exposures arising from the items referred to in Annex to the NBR-NSC
Regulation no.20/25/2006 on the treatment of counterparty credit risk of
derivative instruments, repurchase transactions, securities or commodities
lending or borrowing transactions, long settlement transactions and margin
lending transactions shall be calculated in accordance with one of the methods
set out in that regulation.
(3) For the purposes of this regulation, provisions of art.4 of NBR-NSC

Regulation no.20/25/2006 on the treatment of counterparty credit risk of

derivative instruments repurchase transactions, securities or commodities lending
or borrowing transactions, long settlement transactions and margin lending
transactions, shall also apply.
(4) Credit institutions will assess the assets and of balance sheet items
according to the National Bank of Romania Order no.5/2005 for approving
accounting regulations compliant with European Directives applicable to credit
institutions, with the subsequent changes and additions, and, as the case may be,
according to the Regulation (EC) no.1606/2002 concerning the international
accounting standards application.

Art. 4 - All elements entirely covered by own funds are excluded from the
calculation of exposures, provided that such own funds are not included in the
credit institution's own funds for the purposes of Article 126 of the Government
Emergency Ordinance no.99/2006 regarding credit institutions and capital
adequacy and art.2 of NBR-NSC Regulation no.13/18/14.12.2006 concerning the
determination of minimum capital requirements for credit institutions and
investment firms or in the calculation of other monitoring ratios provided for in
other regulations.
 Art. 5 - Exposures shall not include either of the following:
a) in the case of foreign exchange transactions, exposures incurred in the
ordinary course of settlement during the 48 hours following payment; or
b) in the case of transactions for the purchase or sale of securities, exposures
incurred in the ordinary course of settlement during the five working days
following payment or delivery of the securities, whichever is the earlier.

Art. 6 - (1) For the purposes of this regulation, the term credit institution shall
cover the following:

a) a credit institution, as referred to in Article 7 para.(1) point (10) of the

Government Emergency Ordinance no.99/2006 regarding credit institutions and
capital adequacy, including its branches in third countries;
b) any private or public undertaking, including its branches, which meets the
requirements provided for in the definition of "credit institution" referred to in
Article 7 para.(1) point 10 of the Government Emergency Ordinance no.99/2006
regarding credit institutions and capital adequacy, and has been authorised in a
third country.
(2) For the purposes of this regulation, the term parent undertaking means a
parent undertaking within the meaning of art.7 para.(1) point 19 lett.a) – lett.e) of
the Government Emergency Ordinance no.99/2006 regarding credit institutions
and capital adequacy as well as any undertaking which, in the opinion of
National Bank of Romania, effectively exercises a dominant influence over
another undertaking (a subsidiary undertaking).
(3) For the purposes of this regulation, the term subsidiary means an
undertaking linked by a relationship with a parent undertaking in one of the
situations mentioned at para.(2), as well as any undertaking over which, in the
opinion of National Bank of Romania, a parent undertaking effectively exercises
a dominant influence.
 CHAPTER III
Large exposures
Section 1
Large exposures reporting and monitoring

Art.7 - (1) A credit institution's exposure to a client or group of connected

clients shall be considered a large exposure where its value is equal to or exceeds
10% of its own funds.
(2) National Bank of Romania may settle differently from the credit institution
a “group of connected clients” structure.
(3) Any transaction which leads to a large exposure, as defined at para.(1) or to
its increase, shall be settle only with the prior approval of the credit institution
board of directors or directors. Such a transaction can be done only with the
common agreement of the credit institutions’ directors settled in the articles of
association and/or by the decision of credit institution statutory bodies. The
board of directors will monthly assess those transactions approved by the
directors which are of the type mentioned at para.(1), in order to ensure itself that
those transactions are compliant with the strategy, policies and limits related to
credit risk approved by it.

Art.8 - (1) Credit institutions shall report every large exposure to the National
Bank of Romania.
(2) Reporting of all large exposures shall be done at least four times a year.
(3) Regarding exposures exempted under Art. 14 para.(1) lett. a) – lett.b),
lett.d) –lett. e) and lett.g) – lett.i) credit institutions may not report them as laid
down in paragraph 1, and the reporting frequency may be reduced to twice a year
for the exposures referred to in Art. 14 (1) lett.c) and lett.f), art.14 para. (3) lett.a)
- lett.b) and art.14 para.(5) lett.e).
(4) Where a credit institution invokes para.(3), it shall keep a record of the
grounds advanced for at least one year after application of provisions of para.(3),
so that the National Bank of Romania may establish whether this approach is
justified.

Art.9 Credit institutions shall analyse their exposures to collateral issuers for
identifying possible concentrations, according to their internal rules, and report
to National Bank of Romania any significant findings.

Section 2
Large exposures limits

Art. 10 - (1) A credit institution may not incur an exposure to a client or group
of connected clients the value of which exceeds 25% of its own funds.
(2) Where that client or group of connected clients is the parent undertaking or
subsidiary of the credit institution and/or one or more subsidiaries of that parent
undertaking, the percentage laid down in para.(1) shall be reduced to 20%.
(3) A credit institution may not incur large exposures which in total exceed
800% of its own funds.
(4) Credit institutions shall at all times comply with the limits laid down in
paragraphs (1) – (3) in respect of their exposures.
(5) If in an exceptional case exposures exceed the limits laid down in
paragraphs (1) – (3), that fact shall be reported without delay to the National
Bank of Romania which may, where the circumstances warrant it, allow a
limited period of time in which credit institution to comply with the imposed
limits.
 Art.11 - The National Bank of Romania may impose limits more stringent than
those laid down in art.10.

Art.12 - For the purposes of art.14-17, the term "guarantee" shall include credit
derivatives recognised under NBR-NSC Regulation no.19/24/14.12.2006 on
credit risk mitigation techniques used by credit institutions and investment firms,
other than credit linked notes.

Art.13 - Where, under Art. 14-17, the recognition of funded or unfunded credit
protection may be permitted, recognition shall be subject to compliance with the
eligibility requirements and other minimum requirements, set out under NBR-
NSC Regulation no.19/24/14.12.2006 on credit risk mitigation techniques used
by credit institutions and investment firms for the purposes of calculating risk-
weighted exposure amounts under NBR-NSC Regulation no.14/19/14.12.2006
on credit risk treatment using the standardised approach, for credit institutions
and investment firms.

Art.14 - For each of the bellow mentioned exposures the difference between
the value of that exposure and the result of its multiplication with the
corresponding weight shall be exempted from the application of Art.10 para. (1)
– (3):

(1) Zero weighting:

a) asset items constituting claims on central governments or central banks

which, if unsecured, would be assigned a 0% risk weight under NBR-NSC
Regulation no.14/19/14.12.2006 on credit risk treatment using the standardised
approach, for credit institutions and investment firms;
b) asset items constituting claims on international organisations or multilateral
development banks which, unsecured, would be assigned a 0% risk weight under
NBR-NSC Regulation no.14/19/14.12.2006 on credit risk treatment using the
standardised approach, for credit institutions and investment firms;
c) asset items constituting claims on Member States' regional governments and
local authorities where those claims would be assigned a 0% risk weight under
NBR-NSC Regulation no.14/19/14.12.2006 on credit risk treatment using the
standardised approach, for credit institutions and investment firms and other
exposures to or guaranteed by such governments and authorities, claims on
which a 0% risk weight is assigned under regulation above mentioned.
d) asset items constituting claims carrying the explicit guarantees of central
governments, central banks, international organisations, multilateral
development banks or public sector entities, where unsecured claims on the
entities providing the guarantee would be assigned a 0% risk weight under NBR-
NSC Regulation no.14/19/14.12.2006 on credit risk treatment using the
standardised approach, for credit institutions and investment firms;
e) other exposures attributable to, or guaranteed by, central governments,
central banks, international organisations, multilateral development banks or
public sector entities, where unsecured claims on the entity to which the
exposure is attributable or by which it is guaranteed would be assigned a 0% risk
weight under NBR-NSC Regulation no.14/19/14.12.2006 on credit risk
treatment using the standardised approach, for credit institutions and investment
firms;
f) asset items constituting claims on and other exposures to central
governments or central banks not mentioned in lett.a) which are denominated
and, where applicable, funded in the national currencies of the borrowers;
g) asset items and other exposures secured, to the satisfaction of National Bank
of Romania, by collateral in the form of debt securities issued by central
governments or central banks, international organisations, multilateral
development banks, Member States' regional governments, local authorities or
public sector entities, which securities constitute claims on their issuer, which
would be assigned a 0% risk weighting under NBR-NSC Regulation
no.14/19/14.12.2006 on credit risk treatment using the standardised approach,
for credit institutions and investment firms;
h) asset items and other exposures secured, to the satisfaction of National Bank
of Romania, by collateral in the form of cash deposits placed with the lending
credit institution or with a credit institution which is the parent undertaking or a
subsidiary of the lending institution;
i) asset items and other exposures secured, to the satisfaction of National Bank
of Romania, by collateral in the form of certificates of deposit issued by the
lending credit institution or by a credit institution which is the parent undertaking
or a subsidiary of the lending credit institution and lodged with either of them;
j) cash received under a credit linked note issued by the credit institution and
loans and deposits of a counterparty to or with the credit institution which are
subject to an on-balance sheet netting agreement recognised under NBR-NSC
Regulation no. 19/24/14.12.2006 on credit risk mitigation techniques used by
credit institutions and investment firms shall be deemed to fall under lett. h).
k) the low-risk off-balance-sheet items referred to in the Annex to the NBR-
NSC Regulation no.14/19/14.12.2006 on credit risk treatment using the
standardised approach, for credit institutions and investment firms, to the extent
that an agreement has been concluded with the client or group of connected
clients under which the exposure may be incurred only if it has been ascertained
that it will not cause the limits applicable under Art. 10 para. (1) – para. (3) to be
exceeded.

(2) 10% weighting:

a) asset items constituting claims on and other exposures to those institutions

which are not credit institutions but fulfill the requirements provided in Art.68
para (2) of NBR-NSC Regulation no.14/19/14.12.2006 on credit risk treatment
using the standardised approach, for credit institutions and investment firms,
with a maturity of one year or less and secured in accordance with the above
mentioned provisions;
b) covered bonds as referred to in Art.55 lett.a) of NBR-NSC Regulation
no.14/19/14.12.2006 on credit risk treatment using the standardised approach,
for credit institutions and investment firms.

(3) 20% weighting:

a) asset items constituting claims on Member States' regional governments and

local authorities where those claims would be assigned a 20% risk weight under
NBR-NSC Regulation no.14/19/14.12.2006 on credit risk treatment using the
standardised approach, for credit institutions and investment firms and other
exposures to, or guaranteed by such governments and authorities, claims on
which a 20% risk weight is assigned under regulation above mentioned;
b) asset items constituting claims on or other exposures to institutions, with a
maturity up to three years. These items can not constitute the respective
institutions’ own funds;
c) bills of trade and other similar bills, with a maturity of one year or less,
bearing the signatures of other credit institutions;
d) covered bonds as referred to in Art.55 lett.b) of NBR-NSC Regulation
no.14/19/14.12.2006 on credit risk treatment using the standardised approach,
for credit institutions and investment firms.

(4) 35% weighting: loans secured, to the satisfaction of National Bank of

Romania, by mortgages on residential property or by shares in Finnish
residential housing companies, operating in accordance with the Finnish Housing
Company Act of 1991 or subsequent equivalent legislation as well as leasing
transactions having as their object a residential property, under which the lessor
retains full ownership of the residential property leased for as long as the lessee
has not exercised his option to purchase. In all these cases the excepted amount
has to be up to 50% of the value of the residential property concerned.

(5) 50% weighting:

a) qualifying holdings in the insurance companies up to 40% of the own funds

of the credit institution acquiring such a qualifying holding;
b) exposures secured, to the satisfaction of National Bank of Romania, by
collateral in the form of securities issued by central governments or central
banks, international organisations, multilateral development banks,
Member States' regional governments, local authorities or public sector entities
other than those referred to in Art. 14(1) lett.g) as well as by collateral in the
form of securities issued by member states’ institutions;
c) the following exposures, when they would receive a 50% risk weight under
NBR-NSC Regulation no.14/19/14.12.2006 on credit risk treatment using the
standardised approach, for credit institutions and investment firms, and only up
to 50% of the value of the property concerned: exposures secured by mortgages
on offices or other commercial premises, or by shares in Finnish housing
companies, operating in accordance with the Finnish Housing Company Act of
1991 or subsequent equivalent legislation, in respect of offices or other
commercial premises, as well as exposures related to property leasing
transactions concerning offices or other commercial premises;
d) 50% of the medium/low-risk off-balance-sheet items referred to in the
Annex to the NBR-NSC Regulation no.14/19/14.12.2006 on credit risk treatment
using the standardised approach, for credit institutions and investment firms;
e) asset items constituting claims on institutions with a maturity of more than
three years, provided that these are represented by debt instruments that were
issued by an institution and that those debt instruments are, in the opinion of
National Bank of Romania, effectively negotiable on a market made up of
professional operators and are subject to daily quotation on that market, or their
issue was authorised by the Member State of origin of the issuing institution.
These items can not constitute those institutions’ own funds;
f) covered bonds as referred to in Art.55 lett.c) of NBR-NSC Regulation
no.14/19/14.12.2006 on credit risk treatment using the standardised approach,
for credit institutions and investment firms.

Art.15 - (1) For the purposes of Art.14 para.(4), residential property shall mean
a residence to be occupied or let by the borrower.
(2) For the purposes of Art.14 para.(4), the value of the property shall be
calculated in a manner agreed by the National Bank of Romania, on the basis of
strict valuation standards laid down by law, regulation or administrative
provisions. Valuation shall be carried out at least once a year.

Art.16 - (1) For the purposes of Art.14 para.(5) lett.b), the securities used as
collateral shall be valued at market price, have a value that exceeds the
exposures guaranteed and be either traded on a stock exchange or effectively
negotiable and regularly traded on a market operated under the auspices of
recognised professional operators and allowing, in the opinion of National Bank
of Romania, the settlement of an objective price such that the excess value of the
securities may be verified at any time. The excess value required shall be 100%.
(2) The excess value required, mentioned at para.(1) shall be 150% in the case
of shares and 50% in the case of debt securities issued by institutions,
Member State regional governments or local authorities other than those referred
to in Art.14 para.(1) lett.g), and in the case of debt securities issued by
multilateral development banks other than those assigned a 0% risk weight under
NBR-NSC Regulation no.14/19/14.12.2006 on credit risk treatment using the
standardised approach, for credit institutions and investment firms.
 (3) Where there is a mismatch between the maturity of the exposure and the
maturity of the credit protection, the collateral shall not be recognised.
(4) Securities used as collateral may not constitute credit institutions' own
funds.

Art.17 – (1) Where an exposure to a client is guaranteed by a third party, or by

collateral in the form of securities issued by a third party under the conditions
laid down in Art.14 para.(5) lett.b), credit institutions may, on a case by case
basis:
a) treat the exposure as having been incurred to the guarantor rather than to the
client; or
b) treat the exposure as having been incurred to the third party rather than to
the client, if the exposure defined in Art.14 para.(5) lett.b) is guaranteed by
collateral according to the conditions provided for this case.
(2) Where the provisions of para.1, lett.a) are applied the following will be
taken into account:
a) if the guarantee is denominated in a currency different from that in which the
exposure is denominated, the amount of the exposure deemed to be covered will
be calculated in accordance with the provisions on the treatment of currency
mismatch for unfunded credit protection provided for in the NBR-NSC
Regulation no.19/24/14.12.2006 on credit risk mitigation techniques used by
credit institutions and investment firms;
b) a mismatch between the maturity of the exposure and the maturity of the
protection will be treated in accordance with the provisions on the treatment of
maturity mismatch provided for in the NBR-NSC Regulation
no.19/24/14.12.2006 on credit risk mitigation techniques used by credit
institutions and investment firms;
 c) partial coverage may be recognised in accordance with the treatment set out
in the NBR-NSC Regulation no.19/24/14.12.2006 on credit risk mitigation
techniques used by credit institutions and investment firms.

CHAPTER III
Non – arm’s length transactions

Art.18 – (1) Credit institution will not run other non – arm’s length
transactions than those specified in the incentives and remuneration measures
packages for the employees of the credit institution’s group members, on
condition that those packages stipulates non – arm’s length transactions which, if
are made with a member of the group of individuals with significant influence,
as an employee:
a) are widely available for the entity/entities employees within the credit
institution group, where that group of individuals with significant influence has
or exercises such an influence; and
b) don’t favor any member of the group of individuals with significant
influence compared with the employees of the entities within which the above
mentioned group has or exercises such an influence.
(2) The non – arm’s length transactions specified in the incentives and
remuneration measures packages for the employees of the credit institution’s
group members can be made only after their verification and prior approval of
National Bank of Romania.
(3) National Bank of Romania may consider that an operation has some
characteristics which lead to its inclusion in non – arm’s length transactions
category, differently than a credit institution.
 (4) Exposures1 (other than those related to persons who, at the moment of own
funds calculation benefits from the incentives and remuneration measures
packages for the employees of the credit institution’s group) with features that
reflect the performance of a non – arm’s length transaction will be deducted from
original own funds of the credit institution.
(5) The observance of conditions mentioned at para. (1) – (4) will be monitored
on individual and consolidated basis by the National Bank of Romania.

CHAPTER IV
Final and transitory provisions

Art. 19 - The non-observance of this regulation determines the incidence of

sanctions and/or measures provided by art. 226, art.227, art.229 and art.284 of
the Government Emergency Ordinance no.99./2006 on credit institutions and
capital adequacy.

Art. 20 Without prejudice to the provisions of NBR-NSC Regulation

no.13/18/14.12.2006 concerning the determination of minimum capital
requirements for credit institutions and investment firms, the present regulation
comes into force beginning with January 1st, 2007.

The present regulation transposes the provisions of art.4 para.(12) lett.b), art.4
para.(13) lett.b) and art.106 – art.118 of Directive 2006/48/EC of the European

1
Are mainly had in view those exposures registered under the rights offered by the incentives and remuneration
measures packages for the employees of the member entities of the credit institution’s group, against those
persons who are not anymore employees at the moment of own funds calculation
Parliament and of the Council of 14 June 2006 relating to the taking up and
pursuit of the business of credit institutions, published in the Official Journal of
the European Union no.L 177/30.06.2006.

National Bank of Romania President of National Securities Commissions

the Board of Directors President

MUGUR CONSTANTIN ISĂRESCU GABRIELA ANGHELACHE