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Major risks to banks have passed, Romania's central bank says

Concerns about Romanian laws that hurt the banking sector have passed, Mugur Isarescu, the governor of the country's central bank, said as he announced that base rates were staying unchanged, HotNews.ro reported.

"Last year there were major risks in the field of banking legislation," he said. "These have significantly diminished and you will see that the avoidance of these certain pitfalls, especially in banking legislation, will be mentioned by rating agencies."

Isarescu was referring to Romania's so-called mortgage walk-out law that took effect in 2016, for the first time allowing mortgage borrowers to escape their obligations by returning the mortgaged property to the bank. The bill was seen as a systemic risk which could have triggered a credit crunch.

This did not materialize, however, as only a small proportion of loans secured against property were exited using the law in question, according to central bank data.

The central bank maintained the base interest rate at 1.75%, a level unchanged since a 25-basis-point cut in May 2015.

Meanwhile, according to Banca Transilvania SA, Romania's largest domestic lender, local banks are set to enjoy a benign and profitable period in the short term, but fiscal risks loom.

The government has several projects designed to increase spending in the pipeline, including material increases to public sector wages and tax cuts, which could cause macroeconomic imbalances, it said.