Includes how major projects are financed and gives examples where relevant. Explains activities of the multilateral development banks in and other aid-funded projects where procurement is open to U.S. bidders
Methods of Payment
The least risky for the American exporter and most widely accepted method of payment is by an irrevocable letter of credit. This method, however, is not necessarily the most competitive for winning sales in Romania. An L/C represents a credit obligation for the Romanian buyer, who may not be willing (or able) to borrow at a cost-effective rate. Cash-against-documents or open-account terms entail more risk for the exporter but may be preferable for the buyer. Each exporter has to weigh the element of risk in a transaction against the relationship with the buyer and degree of competition.
Commercial banks offering international trade services can describe the risks and merits of each payment method, but American exporters are well advised to establish payment policies for international sales based on their business strategy. In addition to the due diligence tools discussed earlier, there are other forms of U.S. Government support for managing risks. The U.S. Export-Import Bank (Ex-Im Bank) offers a program of export credit insurance to enable U.S. exporters to extend credit terms with protection against the risk of non-payment.
On April 17th, 2020, Fitch Ratings revised Romania’s Outlook to Negative from Stable, while affirming the Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘BBB-‘. The revision of the Fitch Outlook reflects the substantial worsening in Romania´s public finances expected in the short-term as the outbreak and spread of the COVID-19 pandemic aggravates an already weak fiscal position. The combination of a sharp economic contraction and a rise in spending will cause a material widening of the public deficit and a sharp rise in debt in 2020. Although Fitch expects the economy to recover in 2021, uncertainty regarding the scope and length of the pandemic, combined with poor fiscal management in recent years, creates significant challenges in consolidating public finances over the medium term.
On April 24th, 2020, Moody’s Investors Service (“Moody’s”) changed the outlook on the Government of Romania’s ratings to negative from stable and affirmed the Baa3 foreign and domestic long-term issuer and senior unsecured ratings. Moody’s two key drivers for the change of the outlook to negative are:
1. A structural deterioration in public finances compounded by an increase in long-term liabilities that relate to the 2019 pension reform;
2. A worsening of Romania’s external position with an increase in short-term foreign-currency debt that heightens the country’s susceptibility to event risk.
On June 5, 2020, S&P Global Ratings affirmed the ‘BBB-/A-3’ long- and short-term foreign and local currency sovereign credit ratings on Romania. The outlook is negative because S&P sees risks to Romania’s fiscal and external balances over the next 18 months if policymakers cannot stabilize and consolidate Romania’s budgetary stance after COVID-19-induced recession and 2020 general elections.
The number of Romanian and foreign banking institutions has increased from five in 1990 to more than 35 at present, and all are authorized to engage in a full range of traditional banking functions.
Romanian National Bank: www.bnr.ro
Romania’s membership in the EU and greater integration into world financial markets exposed its economy to the international financial crisis starting in 2008. The dominant role of foreign banks in the market has brought benefits but has also made Romania captive to the decisions of these banks’ home offices (especially in the Euro Zone) and their shareholders. However, Romania has proven a profitable market for these banks, and none have expressed plans to exit the market.
Major credit cards are accepted by large hotels, car rental companies and stores in the main cities in Romania. However, credit cards are unlikely to prove useful in small towns or away from tourist areas. A card with a chip and/or PIN may be required to make credit card purchases. Many American banks allow cardholders to set up a PIN prior to travel, in case one is needed. Regardless, you should notify your bank of your international travel, and the potential legitimate use of your card abroad, prior to leaving the United States.
Foreign Exchange Controls
Romania has no foreign exchange restrictions. The local currency, the Romanian New LEU, (abbreviated RON) is fully convertible for business (current account) purposes, with a fully liberalized capital account, and a central bank applying a managed float to reduce currency fluctuations. Foreign investors may freely repatriate profits and dividends in hard currency. The exchange rate as of April 3rd, 2020 was USD 1 = 4.4674 RON.
U.S. Banks & Local Correspondent Banks
All commercial banks now operating in Romania have international correspondent relationships, and all are members of the domestic inter-bank payment-settlement system.
Since 1996, Citibank has been the most well-known U.S. bank in Romania, owned by Citibank Europe. This is a credit institution authorized and supervised by Central Bank of Ireland. It carries out its activities in Romania by a branch, Citibank Europe plc, Dublin – Romania Branch. Although Citibank Romania does not engage in retail banking, it has corporate banking branches in major cities such as Bucharest and Timisoara.
In November 2018, a new American bank entered the Romanian market, including the retail banking sector. Greece-based Piraeus Bank was acquired by J.C. Flowers, a private U.S. equity leader, and it became First Bank Romania. In April 2019, First Bank Romania announced the signing of an agreement with Israel-based Bank Leumi for purchasing all the bank’s holdings in its subsidiary Bank Leumi Romania. The purchase is yet to be approved by the National Bank of Romania and the Romanian Competition Council. After receiving the final approval from the National Bank and the Trade Register, First Bank expects the merger to become effective on April 30, 2020.
The Romanian financial landscape includes several international bank subsidiaries and several major Romanian banks. Most of these have parent corporations in other countries such as the U.S. (Citibank, J.C. Flowers & Co, NCH Capital), Austria (Erste Bank, Raiffeisen Bank, and Porsche Bank), France (BRD – Societe Generale and Credit Agricole Bank), Italy (Unicredit Bank and Intesa Sanpaolo Bank), Greece (Alpha Bank), Cyprus (Vista Bank), Hungary (OTP Bank), Holland (ING Bank) and Turkey (Garanti Bank).