Romanian Financial Sector Report

Emerging Markets Direct, October 2010, Pages: 13

The Romanian Financial Sector Report offers an extensive summary of the Romanian financial market, segmented into banking, insurance, leasing and monetary sectors. It includes a complete coverage of the latest developments, trends and corporate news, accompanied by thorough statistics and comments. This sector report is ideal to keep you abreast on recent company and industry news. Written by local professionals, it is a unique market and business intelligence analysis, tailored to save time by providing in-depth information, while helping you to make confident and informed business decisions.

The country’s financial system has suffered major adjustments to its public sector while the private sector is facing increasing challenges posed by a subdued economic growth.

In the public sector, the Q3 budget execution reflects the fiscal austerity package enforced as of July: revenues increased by 11% y/y while the expenditures were compressed by 3% y/y. Nonetheless, the quality of the fiscal consolidation and therefore the sustainability of the results are questionable. The Fiscal Council set to supervise the government’s policies was very critical in regard to the first multiannual fiscal planning drafted by the government. Speaking strictly about the deficit financing, the government’s capacity to drain the necessary resources without the help of IMF is questionable. The Treasury keeps rolling over the domestic debt at a decreasing maturity while the plans for launching medium term notes (EUR 7bn over the coming three years) are still uncertain.

In the banking market, the quality of the loans has further deteriorated and the prospects are bleak for a multitude of reasons. Decreasing employment, the stagnation of real wage firings in the public sector are already a threat to bank’s gains. But the ordinance 50/2010 on the retail lending market is an equally important threat – even if the jury is still out as long as the Parliament has not endorsed the la and the IMF has warned on the negative effect on applying the legislation to existing loans. Separately, the lending activity seems to remain very weak and the currency substitution continues (loans are denominated increasingly in euros). The issue was already subject to public debates as the bulk of forex loans impede central bank’s monetary policy.

The leasing and insurance markets are continuing to shrink, two years from the beginning of the financial crisis. The leasing market is more vulnerable as it shrunk by 30% y/y in H1. The insurance market is shrinking 4.6% y/y to RON4.34bn (slightly above EUR 1bn, 3.9% down y/y), in H1. The public pension system faces reforms prompted by the widening deficits. A new public pension law is under discussions in Parliament after President Traian Basescu returned it for reconsideration. Under the new laws, the system is gaining sustainability and pensions will be calculated only on the basis of past contributions. The private pension systems faces limitations from the government, which is ceiling the contributions for Pillar III and has frozen the schedule of rising percentage contribution to Pillar II. Nonetheless, the government remains committed to maintaining the private pension funds as they are, rather than nationalising them as might happen in countries facing similar public pension deficits.

Executive Summary
Macroeconomic Outlook
Credit Market
Insurance, Pensions
Public Finance

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