Romania’s banking sector: Facts & Figures
Updated December 2020 – For earlier editions of Facts & Figures click here
In 2019, Romania’s economy had robust growth, i.e. 4.1%, supported by domestic absorption. The European Commission’s prognosis indicates a real GDP contraction of 6% in 2020, followed by a recovery of only 4% in 2021.
The consumer prices’ inflation rate rose to 3.86% in 2019. Romania has the highest level of twin deficits across the European Union. Last year, the general budget execution closed with a deficit of over 4.6% of the GDP. During 2019, the balance of payments’ current account posted a deficit of €10.4 billion, according to the National Bank of Romania’s data. The unemployment rate continued its downward trend and was close to an historical low at the end of 2019, namely 3%.
At the end of 2019, the Romanian banking sector included 34 credit institutions: two banks with full or majority Romanian state capital, four credit institutions with majority domestic, private capital, 21 banks with majority foreign capital and seven branches of foreign banks. About 73.7% of the Romanian banking sector assets were held by institutions with foreign capital in 2019, a downward trend compared to the 91.3% registered at the end of 2016. In 2019, contemplating the expansion of digitalization and the optimization of operational expenses, the banks’ branch network shrank by 6.4% to 4,758 banking outlets while the number of employees stood at 53,106.
The Romanian banking sector entered the healthcare crisis prepared, its solvency and liquidity ratios standing at levels higher than the European averages. The quick liquidity stood at 43.8% at the end of 2019. The rate of total own funds was 20% while the rate of tier-one capital was 18%, these levels being both slightly higher than the respective European averages. The NBR data shows that the NPL provision coverage rate went up to 60.6% at the end of 2019, which is a rate significantly higher than the European average (44.6%), while the NPL rate has had the tendency to be in line with the European average.
In the banking sector, ROA and ROE stood at 1.21% and 11.28%, respectively, after the first six months of 2019. If we make a quick analysis of profitability, we see that, in 2019, the domestic banking sector ranked 11th and 7th respectively among the European Union Member States as regards ROA (1.4%) and ROE (12.3%).
The banking sector’s assets, which were €110 billion in 2019 and which show the size of the funding granted to the economy, increased 30 times in the last two decades.
The non-performing loans rate shrank by about five times in the last five years to 4.09% (December 2019).
The annual growth of non-government credit was 6.6% for the year 2019 to 267.5 billion lei (€56 billion). The loans-to-deposit ratio dropped to 70.99%. Domestic saving went up by 11.5% during 2019, increasing to €77 billion.
Unfortunately, during this period, specific for the banking industry, legal risk continued to be high. The uncertain and unpredictable legal framework has continued to be, for the 4th year in a row, the most important factor with a potentially negative systemic impact affecting the financial industry. Credit is one of the few instruments through which Romania can close the gap with the European Union.
Furthermore, after 14 years in the EU, as part of the European family, Romania’s nominal Gross Domestic Product advanced by 256% to about €221 billion. In Romania, GDP/capita expressed as the purchasing power standard (PPS) reached 69% of the EU average in 2019 compared to 44% in 2007.
In the future, the banking industry in Romania intends to contribute to the sustainable development of Romania as well as to the Romanian society in general. Accountability in resource allocation will be of utmost importance for the development of Romania’s banking sector and its economy during the post-healthcare crisis and the economic recession. The role of the measures is to preserve the banks’ capacity as the national critical infrastructure, i.e. to continue being well capitalized and with liquidity ratios in line with the national and international regulations, with a view to not harming financial stability.
Contributor: Gabriela Folcut firstname.lastname@example.org