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Romania Commercial Banking Report Q1 2009
Business Monitor International, March 2009, Pages: 47
The Romania Commercial Banking Report provides independent forecasts and competitive intelligence on Romania's commercial banking industry.
According to a data release from the National Institute of Statistics (NIS), the Romanian economy grew by an impressive 9.1% year-on-year (y-o-y) in Q3 08, just below the 9.3% seen in Q2 and substantially higher than the 5.7% for the same period the year before. In January, when this report was compiled, a detailed breakdown of GDP into its expenditure components was unavailable; however we anticipate a continuation of the trends observed in Q2. Specifically, we expect final consumption expenditure which expanded by 12.2% y-o-y in Q2 to be the key driver of growth, with this likely to have slowed only marginally in the third quarter. We expect to see a sharper slowdown in consumption in the fourth quarter of 2008 as tightening credit conditions and the erosion of real wealth as asset prices deflate to increasingly take their toll. We expect growth in 2008 to remain robust and hold to our projection that the economy will grow by 7.8%. A further contributing factor is the government’s social spending, which has raised public sector wages and state pensions in the run-up to the November 30 parliamentary election. In addition to this, strong private sector wage growth, with real wages increasing by 17.3% y-o-y in September from 16.0% the previous month, has also driven an increase in disposable income and in turn fuelled consumer spending.
The National Bank of Romania (NBR) held its key monetary policy rate at 10.25% on October 30, the last scheduled meeting of the monetary policy board in 2008. The NBR’s decision to hold rates follows a robust tightening cycle through 2008, which has seen the bank raise rates by a total 275bps since the start of the year. This is despite significant cuts by major European banks and the US’ Federal Reserve System since July. However, we believe that the NBR’s fundamental bias will shift to loosening in 2009 as disinflation accelerates and concerns over domestic demand destruction and banking sector liquidity elevate. We forecast the NBR to cut rates by 300bps to 7.25% in 2009. This report is being written at a time when the global financial crisis, which arose as a result of the evaporation of inter-bank liquidity, has moved into a new phase. Stock market participants appear, reasonably, to have taken the view that the policy responses taken by governments, central banks and multi-lateral institutions will be sufficient to prevent a total collapse of the global financial system. Instead, stock market participants are focusing on the impact of a near-global recession on the earnings of non-financial companies.
The number and size of stand-by facilities agreed by the IMF since early October supports our view that, of the emerging markets whose commercial banking sectors were surveyed, the countries of Central and Eastern Europe are those whose economies are most at risk of suffering adverse affects as a result of the global financial crisis. This is partly because the macroeconomic imbalances are relatively severe and partly because the Central and Eastern European countries are more directly affected by the brutal recession that is unfolding in wealthier member states of the EU.
As yet, it has not been possible to collate hard numbers, for most of the countries whose commercial banking sectors were surveyed, that clearly quantify the impact of the global financial crisis on the banks. As we explain in the section that discusses changes that we are making to the report, we again include a lengthy essay which attempts to identify the key issues. In essence, in the emerging markets – and, indeed, the developed countries – of the Asia-Pacific, commercial banks appear well placed to deal with the crisis. The same is, broadly, true of commercial banks in the various countries of the Middle East and North Africa. Latin America, Chile, Brazil, Mexico and Colombia appear better placed than Argentina, Venezuela, Bolivia and Ecuador. South Africa’s situation appears to have much in common with that of Brazil. In contrast, Nigeria faces some of the same challenges as those that confront Venezuela. The positions of most countries in Central and Eastern Europe, however, are alarming. From Q209, we will include data that pertains to late 2008 and extend forecasts out to 2013. We will also incorporate much greater discussion of the various protagonists in each country’s commercial banking sector and a number of new features. We believe that the figures we compiled in mid-2008 provide insights as to how the various commercial banking sectors will fare in the current, extremely uncertain, climate. We have, therefore, left them essentially unchanged.
The figures on the tables above provide a snapshot of the banking sector in Romania prior to the onset of the global financial crisis. To place the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently being surveyed. Across this sample, the median growth in assets in local currency terms was 21.3% (in Colombia), the median loan growth was 21.6% (in India) and the median growth in deposits was 17.9% (in Brazil).
On their own, the ratios of loans to deposits, assets and GDP mean little. However, they can provide useful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is 92.3% (in Greece), the median loan/asset ratio is 56.0% (in Poland) and the median loan/GDP ratio was 63.9% in India.
As in previous reports, we include a SWOT analysis for Romania. The key positive is the continuing and relatively high rate of economic growth. The weaknesses are the small size of the total economy and the small population.
Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns. It does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns. This reflects the assessments of overall country risk, together with the regulatory and competitive environment.
Romania’s overall CBBER is 61.0. Within the limits of potential returns, the banking structure and the country structure score 63.8 and 52.5, respectively. Within the risks to the realisation of potential returns, the banking elements and the country elements score respective rates of 75.0 and 58.6.
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