Competition is likely to increase substantially on the banking market, while there is clearly still the potential for high growth in lending across the sectors in Romania, Fitch rating agency's experts say in a review of the Romanian banking system. Foreign banks have entered what they perceive to be an immature market with the objective of benefiting from this growth and are likely to be fairly aggressive to obtain market share.
The analysts believe lending margins are unlikely to continue in the medium to long-term at the levels seen in 2003. "However, many banks currently have large branch networks. As the business levels at these branches grow, particularly through lending, cost efficiencies should be found and this will help support profitability, even if not at the very high levels currently seen," Fitch's analysis shows.
Of the banks Fitch rates, BRD and UniCredit have long-term ratings derived on the potential support from their respective owners, Societe Generale (rated AA minus) and UniCredito (rated AA minus). Rating outlooks are positive for the two banks and stable for BCR and Banca Tiriac.
Banca Comerciala Romana (BCR)'s high income is based on a wide net interest margin (*NIM"), significantly aided by the large volume of cheap retail deposits it holds, its main source of funding, Fitch's review shows. However, NIM has come under pressure, albeit it remains high in international comparison.
As for BRD, its profitability improved in 2003 thanks to growth in the loan portfolio of 45%, with ROE amounting to 14.3%, Fitch experts say. This is a good result given BRD's more than adequate capitalisation. The bank has generally replaced low yielding assets (interbank deposits and government securities) with loans, over half of which is to the retail sector, with total assets growing at just over 10%. NIM improved in 2003, benefiting from the large retail deposit base, which constitutes the majority of BRD's funding.
Banca Comerciala Ion Tiriac (Banca Tiriac) showed the highest profitability of the banks rated by Fitch in terms of ROA at 2.5%. This has been achieved by a higher proportion of assets represented by high yielding loans, which stood at 58% of total assets at end 2003. Retail lending now accounts for around 50% of the total loan portfolio, a level higher than is common in Romania.
UniCredit Romania continues to undergo significant restructuring under the direction of its parent and the costs relating to this act as a dampener on profitability. Expansion is targeted in both the retail and corporate sectors, but at present, the business focus is firmly on the corporate sector.
Lending to corporates is subject to greater competition that the relatively new retail lending and this puts pressure on NIM, despite the high level of assets represented by loans (63% at end 2003).
razvan.voican@zf.ro
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