Contents Executive summary 4 Macro Outlook 5 GDP up by 2.9% y/y in Jan-Sep 2014. 5 Industrial output marginally up in November, exports also lose momentum. 5 B. Relationship with IFIs 7 PM Ponta says Romania might opt for flexible credit line with IMF, after completing SBA in 2015. 7 C. Monetary Policy 7 Central bank cuts policy interest rate by 25bp to 2.5% in January – rate is already 1.25pp down y/y 7 Romania’s currency weakens against euro during H2. 8 Banking 9 CHF strengthening no risk to Romanian banking system stability – c-bank. 9 Large share of forex loans affects Romania’s banking system. 9 Government endorses personal bankruptcy draft bill. 10 Largest bank BCR warns against forex loan conversion bill. 10 Moody’s welcomes Romania’s plans to adjust covered bonds regulations. 11 BIS-reporting banks increase exposure to Romanian banking system in Q2. 11 A. Top Stories 15 Romanian banking system’s losses seen hitting 0.66% of assets in 2014. 15 B. Loans & Deposits 16 Bank lending slightly gains ground. 16 Deposit base of banks keeps rising, by 6.2% y/y in euros as of end-Nov. 17 C. Bank Loan Quality 21 Cleaning of banks' balance sheets loses momentum in Oct-Nov. 21 D. Corporate News 23 Romania’s BCR, Bank of Cyprus to sell combined portfolios of €1bn, mostly bad loans – report. 23 Romania’s largest bank BCR reportedly sells €443mn bad loans bundle. 23 Volksbank Romania seeks compromise with CHF loan holders – sources. 23 Banca Transilvania signs deal to take over troubled Volksbank Romania. 24 Fitch places Romanian Bank Transilvania under rating watch on planned takeover. 24 Carpatica shareholders refuse merger with Nextebank. 25 Fitch affirms rating of Romania’s BCR, BRD and Garanti banks. 25 Banca Transilvania receives €150mn financing from EIB. 26 EBRD issues five-year bonds denominated in Romanian currency. 26 Bucharest municipality to issue €500mn local currency bond. 26 INTERNAL STABILITY Public Finance, Inflation 27 Headline inflation eases inm December to 0.83% y/y on lower fuel prices. 27 Yield of 10-year bond down by 41bp since December, to 3.28%. 28 Budget deficit hits 1.98% of GDP in 2014, tio further narrow in 2015. 28 Romania issues €1.5bn of 10-yr Eurobonds. 29 EXTERNAL STABILITY BoP, External Debt 31 C/A gap narrows by 62% y/y to some 0.2% of GDP in Jan-Nov. 31 Appendix: Previous issue’s Content 33
Table 1: GDP in Jan-Sep, countribution of sectors and dynamics per sector 6 Table 2: Deleveraging and BIS-banks’ exposure to CESEE countries 13 Table 3: Selected performance indicators for Romanian banking system 16 Table 4: Bank loans [RON mn] 16 Table 5: Bank deposits [RON mn] 18 Table 6: Stock of bank* loans to private sector – detailed (end November 2014) 19 Table 7: Stock of bank* deposits from private sector – detailed (end November 2014) 19 Table 8: Bank loans by quality 21 Table 9: Overdue payments on bank loans [EUR mn, % of total loans] 22 Table 10: Credit quality indicators [RON mn, unless indicated] 22 Table 11: Budget execution 29 Table 12: Public Debt [eop, EU methodology not including borrowing from own reserves funds] 30 Table 13: Public Debt [eop, national methodology including borrowing from own reserves funds] 30 Table 14: Current Account, ytd [EUR mn, BPM6] 32 Table 15: Gross External Debt [EUR mn, BPM6] 32
Figure 1: Seasonally adjusted GDP [plus y/y for non-adj. GDP] 5 Figure 2: Main drivers of GDP y/y growth – by elements [pps] 6 Figure 3: Main interest rates [%] 7 Figure 4: Romania’s currency nominal and real exchange rate against €[latest month in the charts is August]. 8 Figure 5: Quarterly inflows/outflows generated by deleveraging vs. local banking system 14 Figure 6: Net profit of banking system, quarterly [EUR mn] 15 Figure 7: Stock of credit, by debtor [EUR mn] 17 Figure 8: Dynamics of the corporate loans by currency – forex, local currency [EUR mn, RON mn] 17 Figure 9: Non government’s deposits [EUR bn] 18 Figure 10: Deposits in Romanian banks, term vs. sight 18 Figure 11: Non government sector’s net balance with banks 19 Figure 12: Net balance with banks, by sector 19 Figure 13: The change in the stock of bank loans [EUR mn, not adjusted to effects of the exchange rate variations] 20 Figure 14: The change in the stock of bank loans [RON mn, not adjusted to effects of the exchange rate variations] 20 Figure 15: Bad loans, off-balance sheet loans [RON mn] 21 Figure 16: NPL ratio [new, old methodology] 22 Figure 17: Overdue payments on bank loans [EUR mn] 22 Figure 18: CPI vs. HICP [y/y] 28 Figure 19: Gross External Debt [EUR mn] 33
This report covers the market developments and statistics data released up to mid-January 201 – including short-term series as of Q3, 2014 and partly Oct-Nov 2014. Region-level aggregated data from BIS is available as of Q2.
Romania’s banks took significant steps toward cleaning their balance sheets since April 2014 and the NPL has consequently dropped by 5.1pp to 15.3% at the end of September. This was also visible in banking system’s profitability -- €409mn losses in Q3, compared to €79.7bn at the end of the quarter. Banks have apparently stopped the process in October-November, as indicated by the NPL ratio and the structure of loans by quality. At the end of November, central bank warned banks claiming that they have delayed in following the balance sheet process. Some banks might be banned the right to take deposits, central bank warned at that time – but nothing happened meanwhile in this regard. The central bank said banking system would end 2014 with €510mn losses (from €363mn in Jan-Sep) but the slower bad loans resolution might result in smaller losses however.
On the upside, the banks seem to have strengthened lending during H2, 2014 – even if the process remains weak. Central bank’s monetary policy rate cuts brought the interest rate down but consumer and investor confidence remain low to moderate. The overall volume of bank loans has declined, and is expected to continue declining for some time, as banks are writing off large volumes of bad loans from their balance sheets.
Romania’s Banca Transilvania has signed a firm agreement to purchase 100% of Volksbank Romania from its shareholders – Österreichische Volksbanken AG, Groupe BPCE, DZ BANK AG and WGZ BANK AG. Banca Transilvania will pay some €600mn of the total amount of €1.6bn invested by Volksbank Romania’s shareholders as capital, credit lines and deposits, unofficial sources said.
• C-bank cuts policy interest rate by 25bp to 2.5% in January – rate is already 1.25pp down y/y
• CHF strengthening no risk to Romanian banking system stability – c-bank
• Government endorses personal bankruptcy draft bill; lawmakers still debate it
• BIS-reporting banks increase exposure to Romanian banking system in Q2
• Cleaning of banks' balance sheets loses momentum in Oct-Nov after sharp advance in Apr-Sep
• Romanian banking system’s losses seen hitting 0.66% of assets in 2014
• Bank lending slightly gains ground
• Romania’s largest bank BCR reportedly sells €443mn bad loans bundle