1. Greed tax and three laws approved by the Parliament – interest rate capping, the capping of the amount that can be recouped from debt sold and the fact that the loan contracts may no longer retroactively be reinforceable titles – are again causing a lot of confusion in the finance-banking sector.
The ‘greed tax’ on bank assets announced by the Finance Ministry in an ordinance draft that should apply in 2019 depending on the ROBOR trend and the set of three laws approved by the Chamber of Deputies caused significant concern in the financial industry, which warns there will be high risks for the stability of the banking sector, and bad consequences for the lending and the economy.
2. Romania’s central bank resumed the monetary policy tightening cycle in 2018 after a decade, raising the key rate three times in the first half from the all-time low of 1.75% to 2.5% to keep inflation under control.
3. Consolidation of the banking system picked up speed, and foreign private equity funds are trying to become an actor in the process, with four deals having got the greenlight from the authorities. The year 2018 came with the completion of the talks and regulatory and supervisory authorities’ approval for four deals: Bancpost – acquired by Banca Transilvania, Piraeus Bank – now in the hands of US private equity firm J.C. Flowers, the surprise sale of Leumi to UK’s private equity firm Argo and the second attempt to sell Marfin, acquired by Greek shipbuilding family Vardinogiannis via Barniveld Enterprises.
The restructuring of the banking system continued, so banks had 4,474 offices and branches at the end of September. They continued to hire, adding 297 employees compared with the same time last year, for a total of 55,254, according to Romania’s central bank data.
4. The first attempt to sell Banca Romaneasca failed. Romania’s central bank did not greenlight the acquisition by OTP from the National Bank of Greece. A second sale attempt has state-run Eximbank in the final talks to buy Banca Romaneasca. OTP signed the agreement to buy the bank in the summer of 2017 and got the approval of the Competition Council but failed the evaluation of Romania’s central bank.
5. Romania’s central bank decided to cap the indebtedness level allowed to consumers, as it has previously done before 2007, when Romania was not an EU member. The step will enforce in 2019. The cap will be 40% of the net income for leu loans and 20% for foreign currency loans (mortgage and consumer loans). Each bank may choose to not enforce this cap for 15% of the total loans granted, under certain conditions.
6. A first for the Romanian banking market – Alpha Bank may become the first bank to issue mortgage bonds – the so-called covered bonds. The Greek-held bank launched mortgage loans in Romania in 2001. Alpha Bank announced its general meeting of shareholders approved the launch of covered bonds setting the principal cap at EUR1 billion (or the equivalent in other currencies).
7. Banking system headed towards record profit of over EUR1.5 billion. Romanian banks posted 5.74 billion lei (more than EUR1.2 billion) net profit in the first nine months of this year, and assets increased to RON445.2 billion, following lending rebound and rise in interests, the central bank said. Regardless of the fourth quarter profit, 2018 will definitely end with a record annual profit for the banking system a decade after the onset of the financial crisis. Banks in Romania posted some RON5.3 billion profit in 2017.
8. Non-performing loan pressure is now lower, as the NPL ratio dropped to less than 6%. Banks continued cleanups and the average non-performing loan ratio dropped to 5.7% in the first half, only to go down further to 5.38% in October, the lowest level after 2009, when the signs of the global financial crisis started showing on the local market. The NPL ratio has dropped to one quarter in the past three years but remains higher than the European average. The NPL ratio at the end of 2017 stood at 6.4% of the total loans.
9. Interests on the baking market continue to rise and banks and bankers hiked the loan costs. Romanians started to choose fixed-interest loans, too. The interbank rate rally that started in the fall of 2017, continued in 2018, as well. The three-month ROBOR rate, which is used to calculate the cost of variable interest loans rose higher than the key rate this year. After having fluctuated at around 2% in the first quarter, it went up to 3.47% in late July and early August. Following the resumption of the repo auctions in August, ROBOR started to decline towards 3%. The new loan rate rose from 3.5% in September 2017 to 5.7% in September 2018. The new loans with fixed interest went up to 25% of the total mortgage loans and came close to 80% of consumer loans. Total lending picked up speed in October 2018, with annual growth reaching almost 7%, driven by the increase in leu loans.
10. Exchange rate reaches new all-time high of 4.6695 lei to one euro. The start of the year was rather hectic for the leu/euro rate, which went to a record high at the time of 4.6679 lei to one euro in January. Over the following months the rate was relatively stable, fluctuating at around 4.66 mostly. The leu started to appreciate in May, reaching as high as 4.62 to one euro and the depreciation trend returned in June, when the leu dropped as lo a 4.6695. The exchange rate reached 4.6560 in late November.
(English version by Loredana Fratila-Cristescu)