BR ANALYSIS. Romanian government’s inflation-boosting policies making banks richer

Romania’s major banks have posted impressive profits in the first nine months of this year as their interest income, related to rising interest rates on loans in a moment when inflation peaked, significantly increased.

Societe Generale’s local subsidiary BRD – Groupe Societe Generale, the third bank in Romania in terms of assets, has registered a net profit of RON 1.1 billion (EUR 244 million) in the first nine months of this year, up 7.2 percent, as net interest income rose by 15.5 percent year-on-year, outpacing by far the growth rate of fee income (+3.1 percent).

The results are calculated at group level, including BRD’s businesses in leasing or other activities.

Austria’s Erste Bank Group local subsidiary, BCR group, is the second largest bank in Romania in terms of assets and posted a net profit of RON 1.02 billion (EUR 218 million) in January-September, due mainly to the increase of 15.5 percent of its net interest income up to RON 1.5 billion.

Romanian private-owned Banca Transilvania, the biggest bank on the market in terms of assets, has registered a net profit of RON 1.24 billion in the first nine months of 2018, up 49.6 percent year-on-year, as its net interest income rose by 51.5 percent to RON 2.1 billion.

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These impressive interest income growth rates are mainly due to rising interest rates in the market this year as inflation reached 5-year highs in Romania of more than 5 percent, the highest level in the EU.

Higher inflation had an impact on Romania’s three-month money market rate (ROBOR), the main indicator that sets the interest rates for RON currency borrowers, which reached this year 4-year highs of almost 3.5 percent, compared with 2.05 percent at the end of 2017 or less than 1 percent in 2016.

But local banks have also benefited from low NPL rates after years of cleaning balance sheets through NPL sales or other methods.

In June, the average NPL rate of the Romanian banking system declined to 5.7 percent, from 8.3 percent one year earlier, according to central bank data.

Cleaner balance sheets allowed local banks to grant new loans on higher demand from individuals and companies.

During the last few years, the government has adopted a strategy of wage-led growth, stimulating household consumption and GDP growth rates, but this model has generated larger fiscal and current account deficits – as well as higher inflation rates.

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