Romania’s banking sector went through a wave of privatizations in the late ‘90s. This opened the market to large international financial players that in the past two decades have remained committed to the country despite the crisis that ravaged a large share of the global economy starting 2008.
By Ovidiu Posirca
The size of the banking sector compared to Romania’s GDP was the lowest among all EU member states in 2017. The share of bank assets in GDP fell under 50 percent in Romania, while Bulgaria’s financial intermediation is almost double, according to Florin Neagu, director at the National Bank of Romania. By comparison, in 1999, Romania’s lending amount against GDP was similar to that of Bulgaria.
In 1999, Romania had 41 credit institutions, out of which 37 had private capital and seven were subsidiaries of foreign banks. Almost two decades later, in 2017, there were 35 credit institutions on the market, out of which 22 had mostly foreign capital. There were seven subsidiaries of foreign lenders. Statistics from the central bank show that financial intermediation represented 24.6 percent of GDP in 1996.
By 2000 it had fallen to 9.3 percent. In early 2018, BNR governor Mugur Isarescu announced that the country’s financial intermediation continued to fall to 27 percent of GDP, the lowest share across the European Union. Nonetheless, around 90 percent of all funding granted in Romania comes from banks.
The biggest privatization in the banking sector to date remains the sale of BCR to Austrian Erste Group for EUR 3.7 billion. Since the transaction was completed in 2005, BCR had remained the biggest lender in Romania by assets. However, in late 2018, Banca Transilvania became the biggest bank by assets after taking over Bancpost. The organization, based in Cluj-Napoca, managed to become number two in the system in 2016 when it overtook French BRD in asset value. Several years later, the banking sector faced one of its biggest challenges stemming from the global financial crisis. Although lenders didn’t need any financial support from the state, they incurred serious losses that totaled RON 3.6 billion between 2010 and 2012. In 2014, losses reached a record of RON 4.7 billion.
The banking system returned to the black in 2015. During the crisis, the rate of non-performing loans rose steadily and hit a record of 21.9 percent in 2014, according to BNR standards. It fell to 11.3 percent in June 2016, according to European Banking Authority criteria. By June 2018, the rate further fell to 5.71 percent.
In this period, lenders restructured their operations, shedding branches and staff, and selling billions worth of bad loans.
Talking about banks’ crisis management during the financial crisis, Sergiu Oprescu, head of the Romanian Association of Banks, says the measures undertaken by lenders were adequate and helped the system successfully face post-crisis challenges. “In the past 10 years, the contribution of shareholders to the capital of banking subsidiaries operating in Romania stood at around EUR 4 billion in the banking system,” Oprescu told HotNews.ro, adding that the outlook of the local banking sector is good. The solvency rate of the system reached 20 percent in June 2018, one of the highest rates for at least 10 years, said the ARB head.
From the first ATM to banking by facial recognition
Lenders have constantly invested in technology to improve banking infrastructure and the security of customers’ finances, and development has been significant over the past 20 years. In 1995, the first ATM was installed on the local market, the same year when the first bank card was issued locally. The first mortgage was granted in 2002. Now, the largest banks have ongoing digitization strategies and have started to automate most of the mundane and repetitive operations.
Lenders are looking to sell consumer loans online and have upgraded their platforms to provide a seamless experience on mobile.