“Banks’ profitability is likely to remain weak in 2014, as the operating environment will remain difficult and the economic recovery fragile, but should pick up slightly, relative to 2013, as non-performing loans start to plateau, Fitch Ratings said in a report Wednesday.
Fitch expects the inflow of NPLs to slow in 2014, but a broader recovery does not seem likely due to the agency’s expectations of an only moderate pick-up in economic activity and the sector’s general focus on solving legacy NPLs rather than on new lending.
Reported NPL ratios may also increase by end-2013 after the review of loan classification and provisioning initiated by the Romanian central bank, the rating agency said.
It said that regulatory capital adequacy in Romania may decline by the end of 2013 due to additional provisioning requirements, but should be more stable thereafter
Additionally, the sector’s funding profile is gradually improving, with the loan-to-deposit ratio falling by around 10 % year-on-year to 108% in the third quarter of 2013.
“The sector is comfortably liquid in local currency, while the foreign-currency funding gap is still material, albeit gradually closing,” the report showed.
Fitch rates Romania ‘BBB-’, with stable outlook.