Romanian Banking Market Overview

Septembrie 2008

CODRUŢ PASCU - Managing Partner ROLAND BERGER STRATEGY CONSULTANTS

The Romanian banking market continued its accelerated development in 2007, attracting new foreign players and introducing new customers to the banking environment, resulting in growing penetration of the sector. At the end of 2007, the share of banking assets to GDP reached 64%, from 31% in 2003. Competition, already on a high note, is expected to intensify even further, putting pressure on margins and determining banks to diversify their product portofolios, ultimately benefiting the end consumer.

 

Recent developments in the Romanian banking market

Banking assets as of March 2008 – valued at EUR 74.5 bn –posted an increase of almost 36% compared to the same period of 2007. The main driver has been the upsurge in non governmental lending, fueled mainly by the retail sector. The balance at the end of 2007 stood at EUR 72.1 bn (39% increase as compared to 2006), resulting in a value of banking assets per capita of EUR 3,347. This value reached EUR 3,460 until the end of the first quarter of 2008. 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.

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 2007, Romania’s banking assets per capita (EUR 74.53,347) still lagged behind the EURO-zone level of EUR 92,549 and that of CEE countries such as Czech Republic or Hungary, with bank assets per capita of EUR 13,556 and EUR 9,639 respectively. Furthermore, the banking penetration ratio, although up to approximately 66% of GDP in 2008Q1, from 64% at the end of 2007, is much below the level of EU countries and it is still lower than for CEE states such as Croatia, Czech Republic and Hungary 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 December 2007 stood at 16%, compared to the EURO zone average of 54%. In Hungary, retail loans to GDP ratio was 29% in 2007, in Poland 23% and in Slovakia 17%.

After a period of regulatory relaxation, the National Bank of Romania might introduce new requirements in order to moderate this surge of credits, fearing a worsening of the quality of banks’ exposure and higher inflationary pressures. At the beginning of July 2008, NBR proposed that the indebtness level of households for loans be calculated based on incomes not exceeding by more than 20% those reported to the Romanian Tax Authority in the previous year. Moreover, NBR requests that banks should conduct a stress-test for each potential client , aiming to analyze the loan reimbursement capacity based on data for a period of minimum 18 months. The project is under discussion with the commercial banks.

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