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Romania Banking Report - Q3, 2014

  • September 2014
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 51 pages

This report covers the market developments and statistics data released up to mid-September 2014 - including short-term series as of Q2, 2014 and partly July 2014.Region-level aggregated data from BIS is available as of Q1 [released on September 15 by BIS].



Banks are eventually cleaning their balance sheets, five years after the recession revealed that one fifth of their stock of loans was in fact non-performing. The lending has not recovered, at least not at robust rates. Central bank has cut twice, during the period covered in this report, the monetary policy interest rate by a total of 50bps to 3%. And it lowered by 2pps the required reserves ratio for local currency liabilities to 10%, visibly in an attempt to see the lending engine running again.



But the government holds the brake pedal down - it cut by one quarter the full year public investments from EU funds, under the second budget revision on September 30 [ironically the same day c.bank cut the rate fior the second time]. It was actually not a choice, but the result of public administration's weak absorption capacity. To address this issue, the government offered local elected officials a temporary loophole in the legislation, inviting them to join the ruling coalition and better spend public funds. This might be harmful to the rule of law, particularly in case ruling coalition's candidate wins the November presidential elections - but PM Ponta helps this would improve public administration functioning, the absorption of EU funds and the economy in general. Which might debatably be good on short run - but extremely costly on medium run.



Western BIS-reporting banks have withdrawn during Q1, 2014 more than USD 2bn [EUR 1.5bn] from their exposure to Romanian banking system - which remained at USD 25.5bn [EUR 18.5bn] at the end of March, calculations based on data from the Bank of International Settlement revealed. Outflows amounted to 7.5% of initial exposure as of end-2013 and marks visible acceleration of deleveraging. Since end-2008, the average rate of outflows was 9.3% p.a. against 27.3% p.a. in Q1, 2014.



Key points:



oGDP growth decelerates to 1.2% y/y in Q2, full-year outlook shifts from above 3% toward 2%

oRomania to smoothly complete stand-by deal with IMF - PM Ponta

oCentral bank cuts required reserve ratio for forex liabilities by 2pps to 16% in end-June, cuts policy interest rate by 25bps to 3.25% in early August and once again in late September

oBIS-reporting banks withdraw, in Q1, funds amounting to 7.5% of their exposure to Romania; 12% in past year, 40% since end-2008

oLawmakers close to endorse controversial bill on forex loans conversion; which might not happen

oBanks report -0.44% annualised ROA in Q2, remains profitable in H1; the system is likely to deepen in loss by the end of the year.

oBank loans down 3.8% y/y at end-Aug 2014 as banks write off bad loans; NPL ratio of banks drops 2.8pps in three months to 17.7% at end-Jul

Table Of Contents

Romania Banking Report - Q3, 2014
Executive summary5

Macro Outlook6

Romania's GDP growth decelerates to 1.2% y/y in Q2, outlook for full-year shifts from above 3% toward 2%.6

Net investments in Romania down 9.1% y/y in Q2 2014.8

EBRD confirms 2.6% GDP growth forecast for Romania in 2014.8

B. Relationship with IFIs9

Romania to smoothly complete stand-by deal with IMF - PM Ponta.9

C. Monetary Policy10

Romanian c-bank cuts required reserve ratio for forex liabilities by 2pps to 16% in end-June...10

... cuts policy interest rate by 25bps to 3.25% in early August...11

... and once again in late September.11

Banking14

BIS-reporting banks withdraw, in Q1, funds amounting to 7.5% of their exposure to Romania; 12% in past year, 40% since end-2008.14

Central bank turns to loss in 2013 as yields on forex reserves shrink.17

A.Top Stories17

Lawmakers close to endorse controversial bill on forex loans conversion; which might never happen.17

Four Romanian banks exposed to CHF loans risk - c-bank.18

Open-end investment funds gain ground as deposit interest rates fall.18

Banks report -0.44% annualised ROA in Q2, remains profitable in H1.19

B. Loans and Deposits21

Bank loans down 3.8% y/y at end-Aug 2014 as banks write off bad loans.21

Growth of bank deposits in Romania stays robust at 5.7% y/y at end-Aug 2014, term deposits lag behind.22

C. Bank Loan Quality26

Recovery rate for Romanian bad loans improves to 55% in Q1-Q2 after peak levels in H2, 2013.26

NPL ratio of banks drops 2.8pps in three months to 17.7% at end-Jul.26

Four Romanian banks exposed to CHF loans risk - c-bank.27

Overdue payments to banks drop 16% in Jun-Aug 2014.27

D. Corporate News29

Volksbank strengthens capital of Romanian subsidiary, cuts credit lines.29

Banks to sell major bad loan bundles by end-2014 - sources.29

Bad loans push Romanian lender BCR into big H1 loss of EUR 62mn.30

BRD-SocGen doubles net profit as provisioning cost falls in H1 2014.30

Raiffeisen Romania's H1 before-tax profit up 6.5% y/y, profitability above region's average.31

UniCredit Tiriac Bank reports EUR 23.9mn H1 consolidated net profit.31

UniCredit Tiriac Bank takes over corporate department of RBS Romania.32

Volksbank Romania sells major bad loans bundle.33

Hungary's OTP close to take over Romanian branch of Portugal's Millennium.33

Four investors interested in Romanian bank Carpatica.34

INTERNAL STABILITY Public Finance, Inflation35

Budget deficit halves y/y to 0.52% of GDP in H1 - on weak investments and low use of EU funds.35

Romania's H1 budget revenues 0.7%/GDP below plan.36

Budget deficit narrows 80% y/y to 0.24%/GDP in Jan-Aug 2014.37

Government cuts EU-funded projects under second 2014 budget revision38

Absorption of EU funds weakens after promising beginning of year.39

Romania's ESA gross public debt up 7.3% y/y at end-June 2014 but stays at 39.3%/GDP.39

Romania's headline inflation eases to 0.84% y/y in August.40

EXTERNAL STABILITY BoP, External Debt42

Jan-July C/A balance turns to deficit but 12-mo gap eases to 1.6%/GDP.42

Gross external debt down 2% ytd to EUR 95.5bn at end-July 2014.42

Statistical Appendix44

A1. Main indicators of the Romanian banking system.44

A2. Deleveraging report - BIS data as of end-Mar 201445

Appendix: Previous issue's Content50



Table 1: GDP in Q1 and Q2, countribution of sectors and dynamics per sector7

Table 2: Deleveraging and BIS-banks' exposure to CESEE countries15

Table 3: Selected performance indicators for Romanian banking system20

Table 4: Stock of bank* loans to private sector (end August 2014)24

Table 5: Stock of bank* deposits from private sector (end August 2014)24

Table 6: Overdue payments on bank loans [EUR mn, % of total loans]28

Table 7: Credit quality indicators [RON mn, unless indicated]28

Table 8: Budget execution 2012-2013 and Q1 201436

Table 9: Budget execution, H1 2014 vs. year ago and vs. target37

Table 10: Public Debt [eop, EU methodology not including borrowing from own reserves funds]41

Table 11: Public Debt [eop, national methodology including borrowing from own reserves funds]41

Table 12: Current Account, ytd [EUR mn, BPM6]42

Table 13: Gross External Debt [EUR mn, BPM6]43

Table 14: Assets quality, risk and profit ratios of the Romania's banking system; eop unless otherwise indicated; quarterly data44



Figure 1: Seasonally adjusted GDP [plus y/y for non-adj. GDP]6

Figure 2: Romania's currency nominal and real exchange rate against EUR [latest month in the charts is August].13

Figure 3: Quarterly inflows/outflows generated by deleveraging vs. local banking system16

Figure 4: Profit vs. Provisioning, quarterly [EUR mn]; no data yet for Q2, due to change in methodology19

Figure 5: Net profit of banking system, quarterly [EUR mn]19

Figure 6: Stock of credit, by debtor [EUR mn]21

Figure 7: Dynamics of the corporate loans by currency - forex, local currency [EUR mn, RON mn]22

Figure 8: Non government's deposits [EUR bn]22

Figure 9: Non government sector's net balance with banks22

Figure 10: Net balance with banks, by sector22

Figure 11: Deposits in Romanian banks, term vs. sight23

Figure 12: Stock of bank deposits by currency23

Figure 13: The change in the stock of bank loans [EUR mn, not adjusted to effects of the exchange rate variations]24

Figure 14: The change in the stock of bank loans [RON mn, not adjusted to effects of the exchange rate variations]25

Figure 15: Loss given default [LGD] ratio, quarterly26

Figure 16: NPL ratio [new, old methodology]27

Figure 17: Overdue payments on bank loans [EUR mn]28


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