We know — discussions about ROBOR are among the hottest topics this year, and many clients ask us what it is and how we see it evolving.

It’s clear — it matters, all the more because the repayments of several million customers, not just at BT but across all banks in Romania, are affected by how ROBOR moves.

So what exactly is ROBOR?

It’s an index calculated by a clear, not overly complicated formula, under the supervision of the National Bank of Romania (BNR) and computed with the help of the Thomson Reuters financial information company (in existence since 1851, and also calculating the LIBOR and EURIBOR reference rates used worldwide).

More specifically, ROBOR is calculated daily as the arithmetic average of RON interbank interest rate quotations used by ten large banks in Romania — the rate at which one bank lends liquidity to another. The extremes (the highest and the lowest rates) are excluded from the calculation to keep the index as representative as possible. In that sense, you can think of ROBOR as the price of money in interest-rate terms — a benchmark — a reference for the cost of local-currency funding.

The ROBOR index is formed by supply and demand for liquidity on the money market, across different maturities, and is influenced by a series of factors, including inflation and inflation expectations, perceived investment risk, liquidity conditions at the time, etc.

Yes — we know, it can sound complicated. What matters is that ROBOR is set very transparently; it is a price of money and a reference for how interest rates evolve in the banking market, and it is calculated and published both on the Thomson Reuters platform and on the BNR website, through a clearly defined process monitored by local/international financial institutions and the authorities. BNR announces ROBOR on its website every day.

If ROBOR rises, it signals that end-customer interest rates (on deposits and on loans) will rise; if ROBOR falls, it signals that interest rates will fall.

Up, down, up, down….

Over time, there have been periods when ROBOR fell and periods when ROBOR rose.

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

Sources: BNR, INS

For example, in the last 10 years, the highest 3-month ROBOR was in March 2009, when it reached 18.3%. The low was in March 2016 at 0.8%. These examples show that ROBOR is a live rate that moves constantly. An interactive chart is available at: https://www.curs-valutar-bnr.ro/robor.

In practice, ROBOR fluctuates with economic conditions, inflation and the money available in the banking market. Banks have no interest in influencing ROBOR precisely because it reflects a cost for both loans and deposits. So if ROBOR rises, a bank’s income increases, but so do its costs, because it will then fund itself more expensively in financial markets or through deposits attracted from its customers.

Why are loan interest rates linked to ROBOR?

It’s simple — it was the Romanian state’s decision, which in 2010 set the conditions for granting loans through Emergency Ordinance 50 (OUG 50). Following a European Directive, the state decided that loans can be granted either with a fixed interest rate or with a rate tied to a reference index. ROBOR was chosen as that reference because it’s an internationally used practice and because it is set transparently. Through this ordinance, the state chose to protect consumers from possible increases in loan interest rates resulting from unilateral bank decisions.

So today (as required by law), loan agreements in RON with variable interest specify a rate made up of ROBOR plus a fixed bank margin. In other words, for a bank, ROBOR is the cost of the raw material, while the margin is the income that covers costs (rent, consumables, ATMs, software, salaries, etc.) and, potentially, profit.

As you can see in the chart above, you cannot establish a directly proportional relationship between banks’ return on equity and the level of ROBOR in 2008-2018.

That’s because the banking sector’s results depend on a number of factors that influence both income and expenses, including lending dynamics, the level of non-performing loans, investments in digitalization, etc.

Does anyone know where ROBOR is heading?

BT and banks in general work with top economists and analysts, but no one can predict exactly what level an average reference rate (ROBOR or EURIBOR) will be at a given time, because it depends on many factors that are hard to predict, measure or influence. Government interventions in the economy or economic and fiscal policy decisions can radically influence ROBOR, alongside inflation or external developments.

We’ve tried to explain it briefly and as directly as possible, but it’s clearly a broad topic — if you have any questions, leave us a message on our contact page.