In 2020, Valer Blidar, the majority owner of Banca Comerciala Feroviara sold its 63% stake to Olimpiu Balas, a Romanian IT entrepreneur; in 2020, EXIMBANK of Romania acquired 99.28% stake of Banca Romaneasca from National Bank of Greece; and in 2019, the Israeli Bank Leumi le-Israel sold Bank Leumi Romania to US investment fund J.C. Flowers.
“The Romanian banking sector has been in a relatively strong position compared to the EU average at the onset of the COVID-19 crisis in terms of capital adequacy, liquidity and the coverage of non-performing exposures by provision. The true effects of the crisis will be visible starting with financial reports for 2020 and will certainly leave a mark on profitability and the NPL rate. The consolidation trend in Romania is expected to increase in the context generated by the pandemic and due to the fact that over 70% of local banking assets are foreign-owned, showing a high level of connectivity with the European banking system,” said Radu Dumitrescu, Partner Financial Advisory Coordinator, Deloitte Romania.
Deloitte analysts expect the COVID-19 crisis will accelerate consolidation of the banking sector in CEE through mergers and acquisitions, as smaller, less efficient and robust players might not be able to weather the shock alone amid profitability and capital challenges.
The busiest banking M&A markets of the CEE region in terms of number of transactions were the Baltics (6 transactions), Serbia (4 transactions), Czech Republic (3 transactions) and Romania (3 transactions) between 2019 and September 2020.
The most active buyers in the 16 analyzed countries of the region were the Hungarian OTP Bank (3 transactions) and the KBC Group, (2 acquisitions) between 2019 and September 2020.
The most active sellers in the region were Société Générale (4 transactions), Danske Bank (2 transactions, 1 ongoing transaction) and Piraeus Bank (2 transactions) between 2019 and September 2020.
COVID-19 found the CEE banking sector in a solid condition. Average capital adequacy was 20% in 2019, NPL metrics already relatively low at 7.2%, with average return on equity at 12.7%. But these figures are expected to markedly worsen due to the ongoing turbulence.
Deloitte estimates the NPL rate on retail loans will grow by approximately 3% in the next 12-24 months, while non-performing corporate loans will grow at a similar pace, mainly influenced by sectors such as hospitality, transport/logistics, real estate and constructions.
The outlook of banks’ asset quality in the forthcoming period is highly dependent on the combination of economic recovery and continued government support. Since the outbreak of the pandemic, the state support policies have been playing a crucial role in stabilizing banks’ asset quality. However, even a premature withdrawal of government supports could lead to sharply increasing default rates in the upcoming period. The regulators encourage the early identification and provisioning of NPLs, which are likely to contribute to close monitoring and successful subsequent disposals.
Such pandemic related regulatory measures (loan moratoriums, selective easements to banks) to safeguard the economy might to a certain extent temporarily mask the real economic damage incurred, however future negative effects on portfolio quality and earnings of the banks are expected to be massive.