Shrinkage in Romanian bank deposits, nominal, observed during the first half of the year, due to a shift towards foreign exchange savings.
Romania is experiencing a significant shift towards foreign currency deposits and loans in its banking sector, according to recent data.
At the end of June 2025, the annual growth rate for local currency loans stood at 10.0% y/y, while the stock of bank loans expressed in local currency increased by RON 3.2 billion. However, the total stock of deposits in Romanian banks decreased to RON 629.2 billion, with residents preferring foreign currency deposits over local currency deposits.
The shift from local currency deposits to foreign currency deposits in Romanian banks is influenced by several interconnected factors.
Firstly, domestic currency appreciation and euroization trends play a role. Deposit euroization, where deposits are held in foreign currency, mainly euro, tends to decline with domestic currency appreciation. While there was a minor decline in deposit euroization through 2024 and into 2025, this decline is gradual and minor, indicating stable or slowly shifting preferences towards foreign currency deposits in certain sectors.
Secondly, the exchange rate and monetary policy context are significant factors. The National Bank of Romania kept the monetary policy rate stable at 6.5% in August 2025. Stable or unchanged interest rates in local currency compared to foreign currency rates can affect the attractiveness of deposit currencies. If foreign currency rates or expected appreciation are favorable relative to local currency, depositors tend to shift toward foreign currency deposits to preserve value or gain higher returns.
Thirdly, fiscal and economic uncertainty also contribute to depositors preferring foreign currency. Persistent fiscal deficits and uncertainty around Romania's euro adoption timeline can lead depositors to hedge against local currency depreciation risks. The government is projected to maintain a budget deficit above the EU's Excessive Deficit Procedure limit until at least 2027, delaying full euro adoption and contributing to exchange rate risk perceptions.
Fourthly, foreign exchange reserves and market interventions create market signals that might influence depositors’ currency preferences. In July 2025, foreign exchange reserves depleted due to debt servicing and market support, possibly increasing uncertainty and supporting demand for foreign currency deposits as a safe harbor.
Lastly, money supply dynamics also play a role. The increase in Romania's M1 money supply in June 2025 reflects higher liquidity. If local currency liquidity rises but confidence in the leu remains subdued or inflation expectations grow, depositors may shift to foreign currency deposits to protect purchasing power.
The surge in forex lending was partly due to currency depreciation. The stock of forex loans increased by 18.5% y/y in June 2025, with the majority of foreign currency loans (approximately 77%) extended to companies and non-monetary financial institutions. The annual growth rate for forex loans was higher than that of local currency loans in June 2025.
Despite the shift towards foreign currency loans, the majority of bank loans to the private sector (approximately 70%) are still denominated in local currency. The annual growth rate of loans extended in local currency decelerated from 11.5% y/y at the end of last year to 10.0% y/y in June 2025.
In summary, factors contributing to a shift towards foreign currency deposits and loans in Romanian banks during early 2025 include lingering economic and fiscal uncertainties delaying euro adoption, stable local interest rates, persistent though slightly declining deposit euroization influenced by exchange rate movements, and foreign exchange market conditions including central bank interventions and reserve fluctuations. These factors shape depositor behavior prioritizing currency risk management and return considerations.
The increasing preference for foreign currency deposits in Romanian banks is influenced by various factors, including deposit euroization trends, monetary policy context, fiscal and economic uncertainty, foreign exchange reserves and market interventions, and money supply dynamics.
The National Bank of Romania's stable interest rates can affect the attractiveness of deposit currencies, with foreign currency rates or expected appreciation making depositors more likely to shift toward foreign currency deposits to preserve value or gain higher returns. Additionally, persistent fiscal deficits and uncertainty around Romania's euro adoption timeline can lead depositors to hedge against local currency depreciation risks, favoring foreign currency deposits.
