Intellinews Romania Financial Sector Report - February 2012

Additional Information

Romania’s banking system was visibly hurt by the recession, but even more by the exuberant lending in 2007-2008 that still surfaces as non-performing loans and provision cost. The banking system remained in the red for the second consecutive year in 2011, in spite of encouraging signs prompted by the short-term assets quality monitoring. There is a visible stabilisation in the credit quality ratios. However, the banks' efforts to clean their balance sheets will still take some time and the failure of several real estate projects could alter the trend quite easily during 2012.

The Non-Performing Loan (NPL) ratio calculated by the central bank, which compares the loss-making loans against the exposure adjusted for collaterals, was only 14.05% at the end of 2011, down from 14.18% a quarter earlier and up from 11.85% a year earlier.

The stocks of loan loss provisions kept in Romanian banks' balance sheets increased by RON 659mn (EUR 153mn) on the quarter at the end of Q4, 2011, accounting for the lowest provision costs since the second quarter of 2008, according to the central bank data.

The stocks of provisions actually decreased in December for a first time since December 2006. The provisions to exposure ratio edged up slightly to 14% at the end of December from 13.8% a quarter earlier, after decreasing by 1pps during the third quarter. Calculated at the EOP exchange rate, the provision costs decreased to EUR 153mn in Q4 from EUR 685mn in Q3 and from EUR 603mn in Q2. This is consistent with the aggregate profits realised by the banks in the quarters. According to calculations based on official ROA, we estimated a EUR 103mn net aggregate profit for the banking system in Q4, based on assets of EUR 82bn at the end of the quarter. The losses for the whole year were EUR 79mn, down from EUR 123mn one year earlier.