Only half of the banks in the system posted profit last year, while the rest struggled with losses. The banking system, which comprises 41 banks, made small progress in 2011, when it increased its assets by 3.5% and cut losses from 516 million lei (EUR118 million) in 2010 to RON430 million.
The banking system ended the year in red in 2010 for the first time since 1999. The high provision spending is one of the main causes for the losses of the banking system over the last two years, as they eroded the entire operating profit of many banks forcing shareholders to come up with cash.
Greater concentration in the banking sector is likely as smaller players leave or are taken over, the Economist Corporate Network says.
Chances of a consolidation project are rather slim at the moment, now that the merger of Greek banks Alpha Bank and Eurobank fell through, which should have seen Alpha Bank merge with Bancpost in Romania. Talks between Ilie Carabulea, a local businessman who controls Banca Carpatica, and an investment fund specializing in restructuring fell thorough, as well, while Greek-held ATE cannot find a buyer for its local business.
The local banking system ended 2011 with an about EUR100 million loss by Romanian accounting standards and things improved somewhat towards the end of the year when restructured loans had their rating changed. About half of the banks posted losses by RAS; it remains to be seen what figures will look like in 2012 after the introduction of the international financial reporting standards.
On the other hand, 2012 might see an increase in the speed of the bank restructuring process considering demand for banking services remains low so that the revenue generated are not enough to pay for the operating and credit risk costs. About 1,000 employees left the system in 2011 and 130 branches were closed.
Economist Corporate Network experts say that the Romanian financial sector was hit hard by the global economic and financial crisis of 2008-2010, but began to recover in 2011. It continues to face difficulties arising from the eurozone crisis, but will develop rapidly over the medium term. “Household demand for credit rose rapidly until the global financial crisis of 2008-09, which curbed credit growth in 2009-2011. A return to robust growth is likely from 2013.”
As for the domestic currency, the analysts expect gradual appreciation in 2012-2016 as Romania’s productivity rises.
Economist Corporate Network forecasts a slowdown in inflation in 2012-2016, but do not expect inflation to fall permanently to eurozone levels within that period. Inflation reached 3.4% at the end of February.
The institution also does not expect Romanian authorities to attain the goal set for the shift to the euro, 2015. “Romania needs to raise its competitiveness before joining the euro, and we do not expect the president, Traian Basescu’s, target of entry in 2015 to be met.” (EUR1=RON4.378)
(English version by Loredana Fratila-Cristescu)