The winners will be those lending institutions willing to assess business opportunities on the market and take on risks together with clients, on the basis of performance gauging systems adapted to the new reality, believes Serban Toader, a senior partner at KPMG Romania and Moldova.
“It’s true investment opportunities on the market are limited by the delayed economic revival, but banks also need to overcome risk aversion and be open to new business opportunities,” said KPMG head in an interview with ZF.
The economic crisis has deeply hurt the profitability of Romania’s banking system, which piled up losses for three years in a row, in 2010, 2011 and 2012. Banks’ financial figures were dented by the soaring provision expenses related to bad loans.
In 2013, when Romania’s economy advanced by 3.5%, the first profitability rebound signals emerged, but the revival was frail. The banking system ended the first half of 2014 in the black, but the ability to keep the financial result in positive territory in the second half as well is uncertain considering Romania’s economy entered technical recession and the likeness for banks to set up additional provisions amid portfolio cleanup moves.
Lending posted a prolonged decline during crisis years. While leu-denominated loans gave some signs of picking up, foreign currency ones continued to fall, so that in annual terms total lending remained in negative territory this year as well.
2014 brought significant changes on the local banking market. It was a year when deals of a significant value were sealed and the number of players on the market dwindled, recounts Toader.
“It is true that we saw major portfolio sale deals and market consolidation moves as late as this year, so that these are expected to continue in the near future”.
KPMG head says the results of moves made by banks in the wake of BNR’s recommendations and prudential measures are already visible, with the level of bad loans going down. At this moment, what matters more is the solvability rate, which reached a record level of 17%, showing Romanian banks are well capitalized and ready to resume lending.
Considering the high capitalization of the banking system and the new regulation and prudential supervision mechanisms, lending may be resumed on more solid, healthier foundations, believes Serban Toader.
However, we must not forget the Romanian banking system is highly dependent on European evolutions as a high number of local banks belong to euro zone financial groups. Also, amid the target to join the Single Supervisory Mechanism as soon as possible, the Romanian central bank is preparing a local asset quality review process that will put further pressure on banking indicators. Hence, the upcoming period will not be a quiet one, believes Toader.
“Beyond all these pressures, the objective is that we should have a solid and healthy banking system in the wake of all these efforts, capable to sustain the real economy,” says KPMG head.
The market is reinventing itself offering clients new opportunities, such as crowdfunding or payment by mobile phones. And banks need to reinvent themselves as well, investing in innovative technology and high-quality human resources, according to Toader.
(English version by Catalina Apostoiu)