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Romania’s banking sector: Facts & Figures

Romania’s economy grew by 4.8% in 2016, generated mainly by domestic demand. We estimate that the cyclical expansion of Romania’s economy in the last two years will continue with a growth of over 4.5% in 2017 and 3.5 – 3.7% in 2018.

GDP per capita in current prices reached 28% of the EU average in 2016 compared to 26.4% in 2008, while the standard purchasing power GDP per capita increased to 57% of the EU average in 2015 against 49% in 2008.

In 2016, the annual inflation rate continued its downward trend. According to Eurostat, prices measured by the HICP fell by 1.1% in 2016.

Unemployment remained unchanged at around 5.5% in 2016.

Romania’s fiscal standing is sustainable, with the budget deficit at 3% of GDP, up from 1.5% in 2015. With 37.6% of GDP, the level of public debt is one of the lowest in the EU in 2016, and is estimated to stabilise at below 40% in the medium term. The current account deficit was 1.4% of GDP in 2016. According to recent forecasts for 2016, the current account deficit is expected to stay between 1% and 2% of GDP.

The outlook for 2017 is linked to the soundness of the banking sector across Europe and investors’ trust in the development of emerging states, in the context of uncertainties related to growth at global level; here, we expect a review of the macroprudential framework.

The asset quality review (AQR) test of 2018, interest rate developments, the double-digit percentage increase in new loans, better customer relationship management, preparations to implement IFRS 9 in 2018 are, next to the challenges related to external developments, such as Brexit, the main concerns of the banking sector for 2017.

At the end of 2016, the Romanian banking sector included 37 credit institutions: two banks with full or majority Romanian capital; four credit institutions with majority domestic, private capital; 23 banks with majority foreign capital and eight branches of foreign banks. About 91.3% of bank assets are held by institutions with foreign capital. The banks with Austrian capital have a market share of 33.3%, followed by the banks with French capital (13.5% market share) and those with Greek capital (10.6%). Banks employed around 55,396 persons by the end of 2016, while the number of bank outlets shrank to 5,501.

The ratio of the banking sector’s total assets to GDP shrank over the last five years by 14.1 percentage points to 54.8% at the end of 2016. Financial intermediation, calculated as the ratio of non-government credit to GDP stood at 29% at the end of 2016, compared to 40% in 2010

The situation can be partially explained by the legislative initiatives with retroactive application which had the tendency to affect the financial sector stability and which affected investors’ predictability and perception.

The Romanian banking sector maintained its structural stability during 2016, the level of solvency and liquidity ratios standing at an adequate level with the immediate liquidity ratio over 38%, and the solvency ratio across the banking sector at 18.33% at the end of December 2016. Maintaining the solvency ratio at more than double the minimum threshold, set in line with CRD IV/CRR of 8%, was achieved mainly by additional capital contributions from shareholders.

2016 was, for the banking market, the first year of coming back to real operational profitability which had been lost for a couple of years. ROA reached 1.10% and ROE stood at 10.67%.

The banking sector had a good performance throughout 2016, considering, that the process of asset portfolio quality optimisation, continued. The NPL rate more than halved compared to its maximum registered in 2014.

The NPL rate in conformity with EBA shrank to 9.46% at the end of December 2016. For 2017, it is very likely that we will continue to witness the reduction to a single digit of the NPL rate around midyear. This will be owing to actions by the banking sector to clean its balance sheets and by it giving momentum to the secondary market for selling the collateral pledged in diverse enforcement stages. The loan to deposit ratio reached 80%. Domestic savings went up by 60% between 2008 and 2016, i.e. up to €61 billion.

The banking sector’s assets, which stand at €86.7 billion and which show the size of the funding granted to the economy, went up a factor of 30 in the last two decades, period during which – as an example of their impact upon society – almost 500,000 individuals have benefitted from loans with property as collateral. This money was needed to purchase housing or for other investments.

Key projects of the banking community include accelerating the introduction of digital financial and banking services via the Platform for the Digital Agenda and enhancing financial literacy via the Platform for Financial Education.