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Romania Country Report - November, 2015

  • November 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 33 pages

The report covers info as of November 26.



The unexpected resignation of Prime Minister Victor Ponta has open the door to a so-called government of technocrats led by Dacian Ciolos - former EU Commissioner for Agriculture. The new government has a one-year term. It announced ambitious plans and if it is successful in only a small part of them the overall performance of the public administration would improve significantly.



The real sector has performed well in Q3, when the GDP seems to have increased by 3.6%. The EC has validated broad expectations for robust 4.1% advance next year, driven by the fiscal stimulus. The new government kept in place all the provisions of the Fiscal Code inherited from the cabinet of Prime Minister Ponta. Central bank said that a 3%-of-GDP deficit would be acceptable for one year.



The banking system posted record profit in Q3. But a new law, endorsed by Parliament but not still enforced by President Klaus Iohannis puts at risk its profitability. Under the bill, if mortgage borrowers are unable to make repayments, they can give their collateralised properties to banks and have their debt written off. The vast majority of the EUR6.5bn of mortgage loans denominated in foreign currencies (8% of the banking system's assets and 4% of the country's GDP) were extended in 2006-2008, when property prices were higher than they are now. Some 30% of these contracts are already under litigation.



Key Points

oRomanian PM Ponta's resigns; Parliament endorses technocrat government; PM resignation is rating-neutral - S&P

oGovernment sets ambitious ruling strategy, but lacks political support

oGDP grows 3.6% y/y in Q3 - flash estimate; EC, government expect GDP growth to advance from 3.5% this year to 4.1% y/y in 2016

oIndustrial output accelerates to 4.3% y/y in Q3; Primary energy gross consumption 4.2% up y/y in Q3; Electricity consumption 6.3% up y/y in Jan-Sep

oConstruction companies back at work ahead of 2016 local elections - works index up 9.9% y/y in Jan-Sep

oLabour market: wages up real 9.7%, employment up 3.1% y/y in Q3

oRetail sales up 10.6% y/y on lower VAT rate for food, higher households' budgets

oGeneral government posts 1.28% of GDP surplus for Jan-Oct; new government ready to endorse 2016 budget planning with 2.95%-of-GDP ESA deficit target

oRomania can afford 3%-of-GDP budget deficit, but just for one year - c-bank

o

oBankers warn of higher fees in response to mortgage loans bill; Under the bill, if mortgage borrowers are unable to make repayments, they can give their collateralised properties to banks and have their debt written off.

oBanking system posts record profit in Q3

oC/A deficit narrows by 44% y/y to EUR653mn (0.4% of GDP) in Jan-Sept

Table Of Contents

Romania Country Report - November, 2015
EXECUTIVE SUMMARY5

POLITICS6

Romanian PM Ponta's resigns6

Parliament endorses technocrat government6

Government sets ambitious ruling strategy, but lacks political support7

RELATIONSHIP WITH IFIs8

PM resignation is rating-neutral - SandP8

Fitch follows closely Romania's fiscal policy8

REAL SECTOR9

1. Corporate, structural reforms9

2. GDP, forecasts10

GDP grows 3.6% y/y in Q3 - flash estimate10

EC revises upward projection on Romania's growth to 4.1% for 201610

3. Industry, Constructions, Retail12

Industrial output 4.3% up y/y in Q312

Primary energy gross consumption 4.2% up y/y in Q313

Electricity consumption 6.3% up y/y in Jan-Sep14

Construction companies back at work ahead of 2016 local elections14

Retail sales up 10.6% y/y on lower VAT rate for food15

4. Prices, Inflation16

Headline inflation remains in negative territory - minus 1.6% y/y in October16

Industrial production prices down 2.8% y/y in September17

5. Labour Market18

Net wages up real 9.7% y/y in Q318

FISCAL SECTOR19

1. Budget Execution19

General government posts 1.28% of GDP surplus for Jan-Oct19

2. Fiscal Policy20

Government endorses preliminary 2016 budget planning, aims for 2.95% of GDP deficit20

Romania can afford 3%-of-GDP budget deficit, but just for one year - c-bank21

3. Public Debt21

Public debt to GDP ratio down 0.3pp to 37.9% at end-Sep21

FINANCIAL SECTOR22

Bankers warn of higher fees in response to mortgage loans bill22

Banking system posts record profit in Q323

C-bank suspects aggressive debt restructuring aimed at cutting provisions in Q324

C-bank maintains policy interest rate, invokes "supplementary challenges"24

Foreign banks cut exposure to Romania by $5.6bn, 3.2% of GDP, in last year ending June25

1.Bank Loan Quality26

Banks' NPL ratio down to 12.6% at end-Aug26

Overdue loans in banks' balances down 17% y/y to EUR5bn at end-October26

2. LOANS, DEPOSITS27

Corporate credit maintains negative trend at end-Oct27

New bank loans in Romania 33% up y/y in Q3, still below pre-crisis levels27

Deposit base of Romanian banks up 7.2% y/y as of end-Oct28

3. CORPORATE29

EBRD reduces participation to Romania's Banca Transilvania by 2.9pp to 11.5%29

Fitch upgrades viability rating of Romania's BCR29

EXTERNAL SECTOR30

1.Balance of Payments30

C/A deficit narrows by 44% y/y to EUR653mn in Jan-Sept30

2. Foreign Trade31

Trade gap 55% up y/y in Q3 on 7.5% higher imports31

Export growth loses momentum to 2.5% y/y in Q3 after disappointing 0.2% y/y in September31

2.External Debt32

Gross external debt down 5.1% y/y to EUR89.3bn32

4. Forex Reserves33

Forex reserves up EUR2.5bn in October on Eurobond issue33

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