Romanian Banking Market Overview
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www.rolandberger.com
www.rolandberger.ro
CODRUŢ PASCU
Managing Partner
ROLAND BERGER STRATEGY CONSULTANTS S.R.L.
IOANA LEAUA
Consultant
ROLAND BERGER STRATEGY CONSULTANTS S.R.L.
The year 2008 has been a mixed one for the Romanian banking system. After a promising first semester, the global crisis hit Romania in the second half of the year, bringing more serios and faster-fulfilling effects than many had expected and catching some players by surprise.
Accustomed to the high margins characteristic of emerging markets, banks began to feel the pressure of financing costs, as mother groups, squeezed by the crisis, became unable to supply the necessary funding. The focus of the players turned to deposits, and lending, particularly in foreign currency, experienced a hard landing. 2009 is not expected to bring about a swift recovery and credit institutions are beginning to incorporate gloomier forecasts into budgets and growth plans. The profitability of the banking system as a whole will decrease as a result of higher financing costs and increased provision expenses.
Recent developments in the Romanian banking market
It is a time of change for the Romanian banking system. Uncertainties are causing banks to rewrite budgets, adjust ambitious growth forecasts and freeze expansion plans.
The central bank is no longer absorbing excess cash from the system, but is instead financing banks, as the inter-bank market does not provide players with the necessary liquidity.
The regulatory environment is swiftly changing, too. To prevent banks from transferring the significantly higher costs of inter-bank funding to the customer, the national bank has issued new regulations to protect customers and stimulate lending in local currency. The inter-bank interest rate used as reference for loans will no longer exceed by more then 25% the rate for the overnight credit facility from the central bank.
Required minimum reserves for national currency – denominated liabilities were lowered by 2 percentage points, to 18%, so as to stimulate lending in RON as opposed to foreign currency. Reserve rates for foreign currency liabilities remained at 40%.
In addition, the National Bank is reinforcing its supervisory authority through a new norm requiring branches of foreign banks in Romania to submit monthly financial reports to the NBR. After Romania’s EU accession, the branches of European banks had to observe the prudential provisions set by the financial market regulators in their country of origin.
Banking assets as of September 2008 – valued at EUR 83.9 bn – posted an increase of almost 28% compared to the same period of 2007. The main driver has been the upsurge in non governmental lending, growth fueled mainly by the retail sector in the first half of the year. After the first three quarters of 2008, bank assets per capita reached EUR 3,902.
Benchmark versus CEE 4 and EURO zone
Romania still exhibits a lower degree of financial intermediation compared to other countries in CEE and EU, indicating significant potential for future growth. At the end of Q3 2008, Romania’s banking assets per capita (EUR 3,902) still lagged behind the EURO-zone level of EUR 98,071 and that of CEE countries such as Czech Republic or Hungary, with bank assets per capita of EUR 16,115 and EUR 14,174 respectively.
Furthermore, the banking penetration ratio, of 67%, is much below the level of EU countries and it is still lower than that of CEE states such as Czech Republic, Hungary and even Bulgaria where banking penetration exceeds 100% of GDP.
Retail lending in Romania is catching up with the levels of other European countries. The retail loans to GDP ratio at September 2008 stood at 20%. In Hungary, retail loans to GDP ratio was 36% in 2008Q3; in Poland this indicator reached 26% and in Slovakia 18%. The EURO zone average was 64%.
