“Following several years of restructuring, Romanian banks are now well prepared to expand lending again,” RBI notes in a report released Wednesday.
The central bank targets to join the European Single Supervisory Mechanism by signing a “close cooperation” agreement by the end of 2016, which may add to profitability pressure, although the overall process is complex and may see a delay, the report notes.
Another point to watch is the sector‘s competitive structure, in particular following the recent acquisition of Volksbank Romania by Banca Transilvania, and ongoing restructuring and business fine-tuning at BCR, owned by Erste Bank. These two cases may well reduce the market share of foreign-owned banks in favor of those domestically owned.
The report forecasts that lending in Central and Eastern Europe will pick up in the next four years, while an increase in non-performing loan ratios and a slowdown in lending will dent the profits of financial institutions operating in Russia.
“We continue to consider Poland, the Czech Republic and Slovakia as high-growth markets. From a fundamental perspective, the turnaround markets of Hungary and Romania may be added to this group of countries,” the authors of the report noted.
In Eastern Europe and the Balkans, lending is seen growing by more than 8% a year in 2015-2019.
Lending in former communist states is dominated by western banks, namely Raiffeisen, UniCredit, Societe Generale and Erste Group Bank.
RBI estimates Romania will see the biggest increase in lending in the region by 2019, of 12.4% a year, less than a third compared to the 40% a year growth achieved in 2000-2010.
In Central Europe, the biggest growth in lending is expected in Poland, with an average of 8.8% a year, followed by Slovakia, Czech Republic and Hungary, which had the biggest decline in lending in the past five years.
The report notes the profits of western banks in Central and Eastern Europe remain partly constrained by competition.
“I therefore see 2015 as a transition year that is likely to result in banks closing down business segments or even exit entire markets,” said Karl Sevelda, CEO of RBI.
Regarding the ratio of non-performing loans (NPL), 2014 was finally a turnaround year in the CE and SEE banking sectors and brought dropping ratios after years of increases.
In Romania, for example, the NPL ratio decreased from 21.9% in 2013 to 13.9% at year-end 2014 after the central bank implemented a range of measures to speed up the balance sheet clean-up.
At the end of 2014, assets in the Romanian banking sector amounted to EUR90.48 billion, down 0.7% on the year, accounting for 60.6% of GDP.
Total lending stood at EUR47.55 billion at the end of 2014, or 31.8% of GDP, down 3.1% on the year, while the NPL ratio in the Romanian banking system stood at 13.9%.
BCR is market leader in Romania by assets (16.2%), followed by BRD (12.4%), Banca Transilvania (9.8%), Raiffeisen and UniCredit (7.9%). Other banks operating in Romania make up 45.9% of the market.