Financial stability is a public good which refers not only to banks, but also to the economy as a whole. Financial stability is influenced by the quality of the public policy mix. Since the previous Report (May 2017), financial stability has remained robust, yet we notice that certain vulnerabilities are still manifest or have been building up, especially with regard to upward pressures on the risk premium for emerging economies, tensions surrounding domestic macroeconomic equilibria stemming from slippages and uncertainty in the budgetary and fiscal policy and higher household indebtedness, the risks being compounded by the correlation between these factors. 1  Looking at macroeconomic fundamentals, several favourable indicators are noteworthy:       Romania’s major advantage is the low public debt stock (37.4 percent of GDP), together with the drop in the refinancing risk, due mainly to the extension in the maturity of public debt (Figures 1 and 2). Public debt spans mostly the medium or long term (94 percent of total, on the domestic and external markets alike – with domestic debt accounting for 48 percent of total or 17 percent of GDP) (Figure 3). Another advantage for Romania consists in the sizeable international reserves (Figure 4). Yet, international reserves play a preventive role and they cannot make up for the structural worsening of some indicators. The Romanian economy posted a high growth rate in the first nine months of 2017 (7 percent in the first three quarters of 2017 versus the same year-earlier period) (Figure 5).
Impact of implementing the IFRS 9 by banks in Romania (June 2017)  Figure 16. Profitability of the banking sector: ROA, 2016 1.5  percent  1.0 EU median  0.5  0.0  percentage points  percent  50  0  40  -1  30  -2  20  -3  10  -4  0  -5  -10  -6  -20  -7  -30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Total  -0.5  1  change in total capital ratio GR IT CY PT DE ES FR NL AT PL IE MT SK SI LT RO CZ HU BG  -1.0  Source: ECB, consolidated banking data  change in impairment loss (expected loss; rhs) Source: NBR and credit institutions that are Romanian legal entities 13  Figure 18. Map of risks Map of risks to financial stability in Romania Deterioration in investor sentiment in emerging economies Tensions surrounding macroeconomic equilibria Higher household indebtedness through both banks and NBFIs Weak payment discipline in the economy, vulnerabilities in firms' balance sheets Faster increase in property prices severe systemic risk high systemic risk moderate systemic risk low systemic risk Note: The colour shows risk intensity. Arrows indicate the outlook for risk in the period ahead. 14  Figure 19. 5-year government bond yields 3.5  Figure 20.