Retail lending, which accounted for 12.1% of the GDP at the end of 2006, will see a faster growth rate than the overall non-governmental lending within the next three years. Its growth driver will be the mortgage lending, which barely reaches 2.5% in GDP, according to projections made by Raiffeisen Centrobank
The Austrian analysts are relying on several factors including a faster increase in the individuals' incomes than that of the GDP, on Romanians' preference to own a home rather than rent it, and on the rising prices of real estate properties, which can be resold for profit.
Erste Bank analysts believe that the rising bancarised population will assist in developing the Romanian banking market.
At present, retail lending is playing a significant role considering there remains a low level of income within the population. As a result, basic products and services, such as savings, payments, current accounts and debit cards are in highest demand.
Additionally, Erste notes that indebtedness of the private sector "is barely showing on the radar" compared with the developed economies. It also notes that the investment fund market is poorly developed.
Raiffeisen analysts estimate the volume of non-governmental lending will increase by around 25% on average per year during 2007-2010, from the current level of 28.8% of GDP.
The analysts also believe corporate lending will expand, as firms must invest to support improved development and further competitiveness. Raiffeisen draws attention to three risk factors banks should heed.
Firstly, there is the possibility of interest rate margins continuing to narrow amid aggressive competition on the market. However, this may be offset by the lower level of compulsory minimum reserves, which will translate into much smaller costs related to raised reserves.
The second risk would be an increase in provision costs, which are currently hidden by the fast growth rate of banks' balance sheets.
Thirdly and finally, the volatility of the RON exchange rate could lead to a low quality of banking assets.
Erste analysts point out that the market still has a strong preference for foreign currency lending, with analysts also commenting on the rising demand for medium and long-term financing, such as investment loans on the corporate segment and mortgages on the retail segment. At present, Erste considers the Romanian market to have less risk factors than Ukraine or Serbia and plans to "earmark considerable resources" to develop the BCR, its domestic subsidiary.
Erste also has some high expectations concerning the mortgage lending segment, seeing it as the main growth driver of the banking retail on the more developed Central European markets.
In 2007, Raiffeisen foresees a solid outlook for the lending market, as the NBR has decided to drop minimum advance payments and also limits related to customer indebtedness levels.
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