The banking system in Romania could be very badly affected by the sovereign debt crisis in the Eurozone, and by the financing crisis that European banks are going through, according to an analysis by financial ratings firm "Moody's".

The crisis will affect the Romanian banking system by weakening the demand for exports and the slowdown in foreign direct investments, through the high level of foreign currency loans in the system, which account for over 60% of the total balance of the loans and through a potential weakening of the commitment of parent banks to their local subsidiaries, analysts of the ratings firm consider.

"These mechanisms will probably lower the availability of financing, will reduce the quality of assets, increase losses and put pressure on equity, factors which, as a result, will put increasingly strong pressure on banks' credit ratings", according to the study by "Moody's".

The ratings firm estimates that the deterioration of operating conditions will cause the quality of assets to decrease, or at least to be put under significant pressure.

The number of non-performing loans will also continue to increase if the leu weakens, since most of those who borrowed in foreign currencies have their income in RON.

The risks that parent banks from Western Europe would reduce their operations in Romania is increasingly greater, a situation which would affect the capital of the Romanian banking and would halt the growth of lending, according to "Moody's". The situation would be worsened by the high reliance of Romanian banks on financing from the parent groups, in particular for loans denominated in foreign currencies.

"On the local market, banks would be forced to realign their business models, which would reduce their profits, amid lower economic growth, and increasingly harsher competition on the lending market and on t