Romania – a bright spot among CEE banking markets
"Romania is a bright spot among CEE banking markets and it has huge growth opportunity" said Marcin Mazurek, director of Inteliace Research, during a presentation of Inteliace's latest report
The financial crisis
Romania`s banking sector was hit hard in the aftermath of the global financial crisis of 2007/2008. Significant structural imbalances in the economy and the high reliance on external financing prior to the crisis resulted in a severe recession in 2009-2010. Obviously, the economic downturn was accompanied by problems mounting in the banking sector, and a painful, multi-year stagnation in the banking sector has been the consequence.
Romania belongs to the group of CEE countries which opted for almost complete privatization of the banking sector. Acquiring strong international industry players as shareholders helped local banks to address a long range of problems including weak corporate governance, lack of technologies and above all, the severe shortage of capital. Nevertheless, there have been also some unintended consequences of the involvement of foreign banks. In particular, easier access to financing abroad resulted in rapid growth of non-investments related debt, such as for example consumer or mortgage loans. Moreover, a big portion of the debt (60% of the outstanding value as of 2009) have been loans denominated in foreign currencies which increased the vulnerability of the banking sector to the depreciation of the local currency.
It took almost a decade to fully restructure the banking sector in Romania. Bad loan portfolios have been disposed of, lending rules have been amended, local currency loans and fixed interest rates have been preferred. The loan-to-deposit ratio for the entire banking sector fell down from over 120% in 2008 to just 75% in 2018. Banks managed to build solid buffers against a future downturn and the 20% coverage of RWA with own funds was achieved by 2018. However, the obvious price to pay for this restructuring was a multi-year stagnation within the lending business. The level of non-performing loans dropped more than three-fold to below 6% in 2018.
As a consequence of years of stagnation, today`s Romania has the lowest banking benchmarks in the entire European Union. The asset-to-GDP ratio stands at 50% while mortgage loans make for just 8% of GDP. Those are unprecedently low ratios not only in Europe but also in other parts of the World.
Rising of the local star – Banca Transilvania
While most competitors focused on preserving capital or pursued harvesting policy by driving profitability up rather than thinking about long-term growth, one of the banks in Romania has taken a different path. Banca Transilvania, led by Mr. Ömer Tetik bet heavily on innovation and new products. It also went on an acquisition spree taking advantage of low valuations of competitors and troubled foreign owners willing to quit the Romanian banking market. BT took over Volksbank Romania, subsequently agreed to buy Bancpost from EFG Eurobank, and also expanded in nearby Moldova by securing a large stake in one of the major local banks – Victoriabank.
Just ten years ago, Banca Transilvania was usually not mentioned among top banks as it ranked no. 7 by assets and held ca. 5% market share. Today, BT is a clear market leader with EUR 15 billion+ in assets (combined BT & Bancpost) and holds the first position in the sector. BT is the unique example of a local bank that has managed to beat all foreign competitors including BCR Erste, BRD Société Générale, UniCredit, Raiffeisen or ING.
Romania's economy is expected to sustain growth within the next few years. The country remains in the forefront within the CEE region in terms of growth prospects, and it is one of the least indebted economies in Europe with central government debt at ca. 35% as of 2017. The Romanian economy has become significantly more immune against external shocks over the last ten years as it managed to increase exports and reduced financing with foreign debt. The main source of risks is nowadays the expansionary fiscal policy of the government. However, accelerating business activity is expected to gradually balance the budget, provided no more fiscal easing will be applied.
The future growth in the Romanian banking sector will come primarily from lending in both retail and corporate segments. Retail lending will be driven by mortgage loans while the corporate business will benefit from rising investment needs of corporate clients. Following favorable trends in key segments, in the central scenario, total banking assets are expected to advance at ca. 8% p.a. through 2020. Romania is positioned for future growth much better than many of its regional (CEE) peers. New technologies, payment solutions, lending, wealth and asset management, will provide new growth opportunities.
For more information on recent developments in the Romanian banking sector, please refer to the publication "Banking Market in Romania, 2018" available at: http://www.inteliace.com/