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Romania’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

In 2018, the banking sector had a positive development, brought about mainly by the favourable macroeconomic framework, which led to an acceleration of lending. In 2018, the GDP went up by 4.1% due to consumption demand. GDP growth is forecasted at 3.5% to 3.8% in 2019.

The inflation rate on consumer prices rose to 4.6% in 2018. During 2018, both the structural budget deficit and the trade deficit increased. The unemployment rate continued its downward trend and was close to historical lows at the end of 2018 at 3.3%. However, Romania’s labour market is vulnerable to high emigration which has reached a worrying level of 15% of the country’s population, or 25% of the active population.

Romania’s fiscal standing is sustainable considering that the budget deficit was 3% of GDP and that the country’s public debt was 35% of GDP. During 2018, the balance of payments’ current account had a deficit of €9.4 billion, according to the National Bank of Romania data.

At the end of 2018, 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 75% of the Romanian banking sector assets were held by institutions with foreign capital in 2018, a downward trend compared to the 91.3% registered at the end of 2016.  At the end of 2017 the banks with Austrian capital had a market share of 25%, followed by the banks with French and Dutch capital (13% market share each), Italian (10%) and those with Greek capital (9%). Banks have adjusted their employee number in the sector to 55,425 persons, while the number of bank outlets shrank to 4,500 at the end of 2017.

The national banking sector maintains its soundness, with the solvency ratio at 20.71% in December 2018, much higher than the 8% average recommended, and over the EU average, while return on assets (ROA) was 1.55%. In the last ten years, the annual average ROA was only 0.44%. As regards return on equity (ROE), the multi-annual average of ROE was only 3.2% in the period 2008-2017. The banking sector’s assets, which were €96.7 billion, and which show the size of the funding granted to the economy, increased 30 times in the last two decades.

The non-performing loan rate shrank by about three quarters in the last four years to 4.96% in December 2018.

The annual growth of non-government credit was 7.9% for the year 2018 to 251 billion leu (€54 billion). The loans-to-deposit ratio dropped to 73.64%. Domestic saving went up by 9% during 2018, increasing to €70 billion.

The year 2018 brought criticism and negative positions regarding the Romanian banking sector from high-level government and political officials.  The banking community has pointed out that although a tax on financial assets would directly affect banking institutions – they are to pay this tax with their capital – the final cost will be paid by society in general, with a strong negative impact upon consumption, output and investments and, implicitly, with effects upon the state budget in the future. In effect, via such measures, Romania’s economy becomes vulnerable to potential external shocks such as international crises. In the last ten years, shareholders have contributed with over €4 billion to banks’ capital in Romania.

The uncertain and unpredictable legal framework continues to be, for the third 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 compared to the European Union. Romania, 12 years after its integration into the EU, is the European state ranking last in the EU as regards the access to and usage of banking services, financial intermediation, the level of financial literacy and – with a few exceptions – economic welfare. Financial intermediation (the ratio of non-government credit to GDP) stands at 26% and the access to and usage of banking services at 58%. In Romania, GDP per capita expressed in the purchasing power standard reached 63% of the EU average in 2017. The banking industry in Romania intends to contribute in the future to the sustainable development of Romania as well to the Romanian society in general.

Contributor: Gabriela Folcut gabriela.folcut@arb.ro