Tax on bank assets, initially called ‘greed tax’ and enforced in 2019 will be dropped next year
This tax, adamantly challenged by bankers, was modified in Romania three months after the initial version was issued in December 2018, and, according to the new Ordinance 19/2019, which modified Emergency Ordinance 114/2018, the large banks with more than 1% market share must pay an annual asset tax of 0.4%, three times lower than the initial 1.2% per annum. The smaller banks pay an adjusted 0.2%. Banks on the Romanian market paid 378.8 million lei as asset tax in the first half of 2019, lower than estimated, according to the tax authority ANAF data.
Banking system assets went up to a new high of RON458.8 billion, as lending increased by more than 7%, according to Romania’s central bank data. The new liberal government took responsibility before the Parliament to drop the bank tax in 2020.
New management elected for Romania’s central bank
The year 2019 came with a vote for the new board of Romania’s central bank – four executive and five non-executive members, who passed the vote by the Parliament. Mugur Isarescu, 70, who has been running the bank for 30 years and is the longest-standing dignitary in Romania after 1990 and also the longest- standing central bank governor in the world, got the sixth term at the helm. The new board also comprises Florin Georgescu, first deputy governor and vice-president of the board, Leonardo Badea (new addition to the board), deputy governor, Eugen Nicolaescu, deputy governor, and members Csaba Balint (new addition), Cristian Popa (new addition), Gheorghe Gherghina, Dan-Radu Rusanu (new addition) and Virgiliu-Jorj Stoenescu. The new board started work at a time of economic slowdown, worsening current account deficit, fiscal slippages and high inflation. International economy is getting weaker and risks are higher due to the trade war and Brexit.
Two top ten banks changed bosses in 2019, with Mihaela Bitu becoming ING Bank CEO and Bogdan Neacsu promoted to president and chief executive officer of CEC Bank.
Consolidation of local banking system continued, a new player – Bank of China, arrived
After the first attempt to sell Banca Romaneasca failed, as Romania’s central bank did not approve its takeover by Hungary’s OTP Group, the second attempt was successful, with EximBank getting it from owner National Bank of Greece. Romania’s central bank board approved the deal in December 2019 and the final decision rests with finance minister Florin Citu.
The surprise-sale of Leumi to UK’s Argo announced at the beginning of 2018 did not materialize, so Leumi ended with First Bank (former Piraeus) in 2019.
The end of 2019 saw a new actor enter the banking market, as Bank of China, the fourth largest bank of the world, opened a branch in Bucharest and launched it on December 16.
Restructuring of the banking sector continued. After more than a decade, over 40% of the number of bank offices has disappeared and more than a quarter of the employees left the system. The number of banks in Romania dropped to 34 in 2019. The number of branches fell by 397 in one year, while the number of employees by 2,346, compared with the first nine months of 2018.
Romania’s central bank kept the key rate at 2.5% in 2019
In 2018, the central bank had resumed the monetary policy tightening cycle after more than a decade, raising the key rate three times in the first half from the all-time low of 1.75% to 2.5% to contain inflation.
In 2019, it purged the surplus of liquidity through auctions to attract one-week deposits from the interbank market. In July, August, September, October and November, it even did this purging every week. The lowest amount attracted as deposits was RON121 million on August 26 and the highest over RON17 billion on July 15.
A first for the Romanian banking market: Alpha Bank launches covered bonds
In May 2019, Alpha Bank issued its first covered bonds backed by prime residential mortgages and listed on the Luxemburg and Bucharest stock markets. The first EUR200 million issue is part of a EUR1 billion direct issuance global covered bond program. Alpha Bank was also the first lender to introduce mortgage loans in Romania in 2001.
Romania’s central bank caps consumer indebtedness as of 2019 using the pre-2007 model when the country was not part of the EU
The new rules capping consumer and mortgage debt consumers may take on came into force in 2019, after being approved by the central bank board in the fall of 2018. The cap is much lower, using the same capping model in force before 2007, when Romania was not yet an EU member. The debt cap is 40% of net income for leu loans and 20% for foreign currency loans, either consumer or mortgage loans. Each bank may make an exception for up to 15% of the total loans, under certain circumstances. Leu-denominated loans to consumers have been the main growth driver of lending in the last few years, going up at a double-digit rate.
Banking system headed to even higher profit in 2019 after 2018 record of almost RON7 billion
Banks in Romania posted about RON5 billion net profit in the first nine months and assets rose to a new high of almost RON473 billion, as lending increased by more than 7%, according to central bank data.
The lenders’ profit in the first nine months of 2019 is lower than in the same time last year, when it stood at RON5.74 billion.
Return on assets and return on equity stood at 1.45% and 13.18% at the end of September, down compared with 2018, when they were close to the 2007-2008 levels.
Non-performing loan pressure continued to decline, NPL ratio dropped to less than 5%
Banks continued to clean up their portfolios and the average non-performing loan ratio fell to 4.74% after the first half, only to drop further by October to 4.45%, the lowest level since 2009.
The NPL ratio has shrunk to about one third in the last four years, but remains higher than the European average. It stood at 4.96% of total loans at the end of 2018.
Banks started granting leu-denominated retail loans with a variable interest tied to a new reference – the quarterly consumer loan reference index IRCC.
In May, lenders started granting leu-denominated retail loans tied to a new reference, the quarterly consumer loan reference index IRCC, which replaced the ROBOR in the leu-denominated retail loan contracts. The new index was introduced after accusations from politicians about interbank interest rate ROBOR-fixing deal among banks.
The leu retail loans taken until this spring remained tied to ROBOR.
Leu reached new all-time low against the euro, 4.7808 points to one euro
After having lost about 2% against the euro in the first half and reaching 4.7648 points to one euro in January, the leu gained ground a little in the summer, with the exchange rate staying at RON4.72-RON4.73/EUR. Depreciation pressures returned in the fall, in September, with the exchange rate going to RON4.73-RON4.75/EUR, and to RON4.76 – RON4.77/EUR in November.
The leu ended the first eleven months weaker against the three main currencies – euro, dollar, and Swiss franc, losing 2.45% against the euro in January-November 2019, for instance and ending November at 4.7781 points to one euro. It lost only 0.09% against the euro in 2018, ending the year at 4.6639 points to one euro.
(English version by Loredana Fratila-Cristescu)