The banking sector was far from its financial intermediation role last year, as the net banking assets share of the gross domestic product fell below 60% for the first time since 2007.
This means the local financial industry has reverted to pre European Union accession levels when it was really behind developed countries.
The share of bank assets in the GDP fell by almost 10 percentage points in the five years of crisis from 67.2% in 2009 to 57.6% in December 2013.
Total net banking assets fell by about 1% in 2013 due to the decline in the private lending stock by 7.4 billion lei. Companies were the worst affected by this because they can still not rely on support from banks after overcoming the crisis.
The state of bank financial intermediation shows a failure of the integration process of the local sector with the euro zone financial sector. Even though euro-zone resident banks account for more than 80% of Romania’s banking sector, the country is now farther from the intermediation level in the euro zone than before.
Whereas the loan-to-GDP ratio had gone up from almost 17% in 2004 to 40% in 2011 (after two years of recession) the trend has been reversed in the past couple of years, with this indirect financial intermediation indicator dropping to less than 35% in 2013 from 38.5% in 2012.
“Nevertheless, financial intermediation continues to be undersized compared with that of the euro zone. Indirect financial intermediation in Romania was about three times lower than the euro zone level in 2008-2013. Direct financial intermediation on the domestic capital market (market capitalization to GDP) stood at 11.6% in 2013, compared with 58.1% of GDP in the euro zone,” reads Romania’s central bank 2013 annual report.
The worst of all is that nothing and no one can make the foreign-held banks reverse the asset decline trend, particularly since they have significant portfolio cleanup to do to get rid of non-performing loans.
The central bank is even encouraging banks to remove bad debt from their balance sheets by fully provisioning them, thus creating the premises for a worsening of the financial intermediation level at least in 2014, since few banks are capable of reaching new loan volumes that offset the effects of the portfolio cleanup.
May saw a 3% decline in real terms of the stock of loans granted by banks to RON217 billion.
Romania’s central bank expected lending to return to positive territory in the summer but the target seems hard to reach, considering the new recommendations of its supervisory department.
The share of private lending in the GDP is therefore back to 2007 levels and stands all the chances of dropping further.
(English version by Loredana Fratila-Cristescu)