In case the measure is enforced, banks will have to record provisions as revenue, which will boost their profit, but will hurt them when a loan goes bad and they will have to record the loss all of sudden.

According to the media, the Romanian Finance Ministry is discussing a new measure in which provisions will no longer be tax-deductible unless there is a loan or financial-asset loss. The new measure is expected to be introduced sometime in the next few weeks.

In case the measure is enforced, banks will have to record provisions as revenue, which will boost their profit, but will hurt them when a loan goes bad and they will have to record the loss all of sudden.

At stake are banking provisions of over EUR 4bn banks set aside over the years without actually posting losses. At the moment, a bank may start setting aside fully tax-deductible provisions if it thinks a loan will go sour or a financial asset is worth less than its purchase price.  

Romanian Finance Minister, Eugen Tedorovci stated that since 2015 when the banking system returned to profit, this profit has mostly come from reversing provisions and not from an increase in business. This means banks had provisions set aside for loans or the decline in the collateral value and when the debtors paid off their loans or the collateral value increased, they recorded the difference as profit.