Credit risk is top concern of local bank managers, says PwC

Credit risk is the most slippery of banana skins for Romanian bankers, according to the latest Banking Banana Skins survey conducted by the Center for the Study of Financial Innovation (CSFI) in association with PricewaterhouseCoopers, while on a global level, bankers fear political interference the most.

The outlook for banking on the local market seems difficult to predict, found the research. Fears were expressed about the weakness of the economy and its impact on banks through rising loan defaults and declining profitability. Another concern is that risk aversion from banks will delay the economic recovery.

Some respondents believe that in an emergency the banking system would be provided with the necessary safety net by the government; while others fear that this would create moral hazard by undermining banking responsibility. The need for better risk management is seen as pressing, while additional regulation, to better prepare the banking system for new challenges, is recommended.

“The Romanian banking sector avoided the initial phase of the financial crisis in late 2008. Credit risk is however now becoming a significant concern for Romanian banks, as the ongoing economic recession leads to a growing number of insolvencies and bankruptcies among local businesses. Banks expect a further deterioration of the quality of credit, and the provisions for bad loans will predictably keep rising and, furthermore, turn into real losses for lenders,” said Dan Iancu, partner for consultancy services at PricewaterhouseCoopers Romania.

The annual poll of banking risk assessed the 30 most serious risks to banks during this period of financial crisis. The poll is based on responses from 450 senior figures from the financial world in 49 countries, which include practicing bankers as well as close observers of the financial scene and regulators. In Romania, 13 senior level bank managers participated in the survey.

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