Romanian Banking Overview
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Iulie 2010 |
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ROLAND BERGER STRATEGY CONSULTANTS S.R.L. |
Adresa
Strada Dr. Burghelea, Nr. 5
024031 Bucureşti, Sector 2
Telefon
+40-21-306.05.00
Fax
+40-21-306.05.10
Website
www.rolandberger.com
www.rolandberger.ro
2009 turned out indeed to be a difficult year for the Romanian banking system, and despite a wave of optimism at the beginning of 2010, recent developments point towards serious challenges to be faced this year. Romanian banks were forced to suffer abrupt transformations, as the lending boom turned into a fierce struggle to handle non-performing loans and default risk, while efforts to preserve market share had to be carefully balanced with cost and operational optimization measures, in an attempt to counteract the negative impact of high provisions dramatically affecting profits.
The beginning of 2010 had initially brought about positive news concerning the financial markets and the economic outlook in general. According to NBR data, the domestic banking system ended the first quarter of 2010 with profits of around EUR 100 mn, compared to a loss of approximately EUR 50 mn during the first quarter of 2009. Later developments, however, brought along significant changes marking both the international mood, as well as the Romanian context. While the crisis affected credit quality throughout CEE, Romanian banks have been hit particularily hard by the upsurge in NPLs in 2009, which were the highest in the region and continued to worsen in 2010. Under these circumstances, the Romanian banking system is most probably going to face another challenging year.
Recent developments in the Romanian banking market
It is a turning point for the Romanian banking system. The crisis brought a wave of loan deterioration on the back of rising unemployment and decreasing disposable incomes. Although loan deterioration has slowed down in terms of new defaults, ovedue amounts are still growing, adding pressure on banks' profitability due to increasing provisioning against bad debt. In this context, the focus has shifted from boosting the lending activity to trying to optimize debt collection and portfolio management activities. Moreover, pressure on costs is pushing banks to continue to reanalyze their network size, cost structure, credit portfolios and short-term business strategies.
In June 2009, required minimum reserves for national currency-denominated liabilities with residual maturities of up to two years were lowered by 3 percentage points, to 15%, so as to stimulate lending in RON. Reserve rates for foreign currency liabilities with residual maturities of up to two years were lowered several times, to the level of 25% as of the end November 2009, in an attempt to ensure liquidity. Previously, in March 2009, NBR had also decided to cut the minimum reserve ratio on foreign-denominated liabilities with residual maturities of over two years to 0% from 40%.
Banking assets as of March 2010 – valued at EUR 87.3 bn – posted a slight increase of around 2.7% compared to the same period of 2009. In terms of per capita levels, bank assets reached EUR 4,065 at the end of the first quarter of 2010. Although the 2010 Q1 level is higher than the one registered at the end of 2009, this is mainly due to the direct effect of exchange rate appreciation during the first quarter of the year.
Benchmark versus CEE 4 and EURO zone
Romania continues to display a lower degree of financial intermediation compared to other countries in CEE and EU. Hence, although Romania exhibits the highest growth rates over the last years, it still bears significant potential for future growth. At the end of 2010 Q1, a significant gap in terms of bank assets per capita (Romania: EUR 4,065) was still noticeable, relative to the EURO-zone level of EUR 92,092 and even to that of CEE countries such as Czech Republic or Hungary, with banking assets per capita of EUR 16,110 and EUR 13,139 respectively.
Furthermore, the banking penetration ratio, of 73%, is considerably below the level of EU countries and is still lower than that of CEE states such as Czech Republic or Hungary, where banking penetration exceeds 100% of GDP.
Over the last couple of years, retail lending in Romania has been catching up fast with the levels of other CEE countries. However, this fast increase has slowed down in 2009 and at the beginning of 2010, with retail loans to GDP ratio in March 2010 standing at 20.1% relatively stable compared to March 2009. Over the same period however, in Hungary, retail loans reached 32% of GDP, up from 27% last year, while in Poland and Czech Republic they were close to 34% and 28% respectively. Thus, retail lending in the region has been less affected by the downturn compared to Romania, where the GDP decline triggered a comparable decrease in retail lending also. The CEE 4 average stood at around 31%, still well below the EURO zone average of over 55%.
