Romanian Banking Overview

Martie 2008

CODRUŢ PASCU - Managing Partner ROLAND BERGER STRATEGY CONSULTANTS

The banking sector has been marked in 2007 by three important trends: the relaxation of monetary policy, the heavy fluctuation of the local currency against the euro after three years of constant appreciation, and the aggressive expansion of retail networks of banks. Client confidence in financial institutions is high, and the system’s dynamics is attracting new European players, which benefit from an easier market entry since Romania’s EU accession. In 2007, the ratio of banking assets to GDP increased to 58%, from 31% in 2003. Competition is expected to intensify even further, putting pressure on margins and determining banks to diversify their product portfolios, ultimately benefiting the end consumer.

 

Recent developments in the Romanian banking market

Banking assets as of September 2007 – valued at EUR 65.8 bn – registered an increase of almost 50% compared to the same period in 2006¹. The main driver has been the impressive upsurge in non-governmental lending, fueled mainly by the retail sector. Total banking assets per capita reached EUR 2,406 in 2006 and increased further to EUR 2,937 by the end of the third quarter of 2007. Real growth may be underestimated as NBR statistics do not include loans booked by financial institutions on their parent group’s balance sheet, a practice that has emerged due to regulatory constraints on foreign exchange lending but is expected to be less used in the future.

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 September 2007, Romania’s banking assets per capita (EUR 2,937) were at 3% of the EURO-zone level and at approximately 31% of the average CEE4 (Poland, Hungary, Czech Republic and Slovakia) bank assets/capita. Compared to the Czech Republic, bank assets per capita in Romania were four times lower at the end of the third quarter of 2007. Furthermore, the banking penetration ratio, although up to approximately 58% of GDP in 2007 Q3, lags far behind EU countries and is still lower than in CEE states such as Croatia, Czech Republic and Hungary where the banking penetration exceeds 100% of GDP.

After three years of dynamic development, retail lending is catching up with the levels of other European countries. As such, the retail loans to GDP ratio at the end of September 2007 stood at 31% of the EURO zone average and 79% of the CEE4 (CZ, HU, PL, SK) value.

Deposits

According to data provided by the National Bank of Romania, non-government, non-bank deposits posted a solid 36.4% increase during the first nine months of 2007 compared to the same period of 2006. The total deposits (for the non-bank, non-government sector) at the end of September 2007 amounted to EUR 30.8 bn, out of which 57% were retail deposits – as opposed to under 49% at December 2006.

From a currency point of view, 67.6% of non-government, non-bank savings at the end of September 2007 were in RON, a proportion similar to the one at the end of 2006. This was a direct effect of the appreciation of the RON in the last two years which strengthened confidence in the local currency, both in the corporate and the retail segment. The share of retail savings in RON remained constant between the first nine months of 2006 and the similar period of 2007 (approximately 64%), while the share of corporate deposits in RON increased slightly to 71.8% from 68.1%, over the same time span.

Of all non-government, non-bank deposits, retail deposits increased at a faster pace – 57% from September 2006 to September 2007 – than during the last months of 2006 and the beginning of 2007, as deposit interest rates became more appealing to the population.

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