A short discussion... about ROBOR

We know - discussions about ROBOR are in the top of the topics of interest this year, many clients ask us details about it and how we see its evolution.

It's clear - it's something important, all the more important because the rates of several million customers, not only BT, but customers of all banks in Romania, are influenced by the evolution of ROBOR.

But what exactly is the ROBOR?

It is an index that is calculated by a formula not very complicated, clearly established, under the monitoring of the National Bank of Romania (NBR) and calculated with the help of the financial information company Thomson Reuters (a company that exists since 1851 and which also calculates the reference interest rates LIBOR and EURIBOR, used worldwide).

More specifically, the ROBOR is calculated daily as an arithmetic average of the interest rate quotations for lei, used by ten large banks in Romania, being the interest rate at which a bank lends liquidity to other banks. The calculation excludes the extremes (the highest and lowest interest rates) in order to be as relevant as possible to this index. Thus we can say about ROBOR that it is a price of money within interest – a kind of reference – that is, a benchmark of the cost of money for a local currency.

The ROBOR index is formed according to the demand and supply of liquidity on the money market, for different periods of time, being influenced by a number of factors, among which we mention inflation and inflationary expectations, the perception of investment risk, liquidity conditions at that time, etc.

Yes – we know, it may sound complicated. But it is important to know that ROBOR is determined very transparently, represents a price of money and a benchmark of the evolution of interest rates in the banking market, being calculated and published both on the Thomson Reuters platform and on the NBR website, in a way clearly established and followed by local / international financial institutions, by the authorities. The ROBOR is announced by the National Bank of Romania daily on the site. 

If ROBOR increases, it is a signal that the interest rates for end customers (for deposits and loans) will also increase, and if ROBOR decreases it is a signal that interest rates will decrease.

Up, down, up, down....

Over time, there were periods when ROBOR decreased and periods when ROBOR increased.

In the chart below you can see an evolution in the last 10 years of ROBOR, inflation and bank return (Return on Equity or ROE):

Sources: BNR, INS

For example, in the last 10 years, the highest ROBOR at 3 months was in March 2009, when a rate of 18.3% was recorded. The low was in March 2016 at a rate of 0.8%. These examples show us that ROBOR is a live interest rate that is constantly moving. An interactive graphic can be found at: https://www.curs-valutar-bnr.ro/robor.

Basically, ROBOR fluctuates depending on the economic conditions, the inflation rate and the money available on the banking market. Banks have no interest in influencing ROBOR precisely because it reflects a cost for both loans and deposits. Thus, if ROBOR increases, the incomes of a bank increase, but the costs for banks also increase, because then the banks will finance themselves more expensively in the financial markets or through deposits attracted from its customers.

Why are the interest rates on loans related to ROBOR?

It's simple – it was the decision of the Romanian State, which in 2010 legislated through Emergency Ordinance 50 (GEO 50) the conditions under which credits can be granted. Thus, the State (following a European Directive) has decided that loans can be granted either with the fixed interest rate or with the interest rate correlated to a reference index. This reference index (ROBOR) was chosen because it is a practice used at international level, in addition its establishment is made transparent. Through this Ordinance, the State has decided to protect the population from possible increases in interest rates on loans that come after unilateral decisions of banks.

Thus, now (based on the obligation in the law) the credit agreements, in ron, with variable interest, mention an interest rate composed of ROBOR + a fixed margin of the bank. In this way, for a bank, ROBOR is the cost of raw materials, and the margin is the gain from which the costs (rents, consumables, ATMs, software, salaries, etc.) and possibly the profit are covered.

Moreover, as can be seen in the chart above, it is not possible to establish a directly proportional relationship between the profitability of banks' capital and the level of ROBOR in the period 2008-2018.

Because the outcome of the banking sector depends on a number of factors that influence both incomes and expenses, among which we mention the dynamics of lending, the level of the non-performing loans ratio, investments in digitalization, etc.

Does anyone know in which direction ROBOR will go?

BT and banks in general work with the best economists and analysts, but no one can accurately predict what level an average interest rate (ROBOR or EURIBOR) will have at any given time, because it depends on a lot of factors that are difficult to predict / measure or influence. Including the state's interventions in the economy or the economic and fiscal policy decisions, it radically influences the evolution of ROBOR, along with inflation or external developments.

We tried to explain briefly and as directly as possible, but it is clear that the subject is extensive – if you have any kind of questions, leave us a message on our contact page.