Banks climb to peak before looking downhill in Romania

All banks agree that 2009 will be challenging in Romania for all players, but no more so than in other countries where they operate. In fact, the profits generated by Romanian subsidiaries last year were in many cases higher than in other Eastern European countries. What all countries in the region had in common were the rising cost of risk, the volatility of local currencies and increasing provisions, which had an impact on profit. 2009 will bring a lower growth pace, although most players expect to post some profit even this year, despite the challenging market. This year banks will focus on health rather than growth, freeze territorial expansion and keep a closer eye on cutting costs.

The largest local lender assets wise, Austrian-owned BCR, saw a two-fold increase in its net profit last year on the previous, to EUR 541 million. Moreover, BCR has become the most efficient bank in the portfolio of its owner Erste, the Austrian bank has said.

BCR's results last year included the positive impact of the sale of its insurance business, which helped it reach the highest level in the history of the BCR Group. Excluding the revenues from the sale of BCR's minority shares in Romanian insurer Asiban and in the Italian bank Banca Italo-Romena as well as the insurance business BCR Asigurari, BCR's net post-profit grew by 39 percent on 2007, to EUR 348.4 million. Even after excluding the one-off gains, the lender's profit was both in volume and in increase percentages better than in other countries where its mother bank operates. However, Romania also brought the group a write-down in goodwill of EUR 480 million for BCR. The reduction of the book value of the subsidiaries' goodwill happened in Serbia and Ukraine also, but the amounts were significantly lower. “Without the write-down of intangibles in Romania, Serbia and Ukraine, net profit would have been up by 14.1 percent to EUR 1.3 billion,” according to Erste officials.

The second largest profit so far on the local market went to French-owned BRD Societe Generale. The bank posted a EUR 367 million profit last year, up 33 percent on the 2007 level. Last year's profit also included a EUR 61 million cashing from the Asiban sale.

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Societe Generale, which had to deal with the Jerome Kerviel fraud and its exposure to the defunct Lehman Brothers last year, saw a net total income of EUR 2 billion.

“The crisis only affected Romania in the fourth quarter of last year, and it had only marginal consequences. We anticipated an economic slowdown in the first quarter of this year and we have taken measures to cut general costs,” said Patrick Gelin, president of BRD-Societe Generale. 2008 was the end of a favorable economic cycle and the beginning of a difficult period, with uncertainty over macroeconomic evolution, an increase in the cost of financing and concerns over the profitability of operations, Gelin said.

Raiffeisen Bank's profit increase last year was 75 percent on 2007, to reach EUR 165 million. It was another record profit posted by a bank active locally. With plans to use the profit mainly for capitalization, the Austrian lender said in 2009 it would focus more on current maintenance activities at network level rather than on expansion.

Raiffeisen International, the mother bank of the local lender, grew its profit in 2008 by 17 percent to reach EUR 982 million, according to its preliminary results. The Austrian lender, which has access to a EUR 1.75 billion line from the Austrian Government, joins its rival Erste in taking the Austrian state's helping hand. Erste signed up for a EUR 2.7 billion capitalization.

Greek Piraeus Bank made a EUR 43 million profit in Romania last year, almost double on the previous year. But the mother group's post-tax profit fell to EUR 315 million, from EUR 503 million the previous year, even lower that the EUR 337 million profit in 2006. The group's profit was impacted by the planned EUR 173 million provisions, to which an additional EUR 215 million of provisions was added in the last quarter of 2008.

Another Greek lender, Alpha Bank, posted EUR 45.8 million of its total 512 million profit in Romania last year. The bank's profit was 20.8 percent up from 2007, mainly affected by its provisioning of EUR 33.2 million.

Foreign banks were not the only ones to post record profits last year. The two remaining local lenders Banca Transilvania and CEC Bank's profits were boosted by the sale of their participations in insurer Asiban. The EUR 108 million profit posted by Banca Transilvania was up 17 percent on the previous. The bank reported an increase in risk provisions, with some EUR 22.5 million in provisions added in the fourth quarter of last year.

Local state-owned CEC Bank, the former Romanian Savings Bank, made almost EUR 100 million in profit last year, much of which was due to the sale of its shares in Asiban. The profit, which was five times higher than the figure posted in 2007, was boosted by the bank's cashing in some EUR 87.5 million from the sale. CEC Bank's profit excluding the Asiban sale was some EUR 44.5 million, up 40 percent on the previous year.

2008 was the year which saw banks racing to increase their loan portfolios, both consumer loans and mortgages, fueled by a softening of regulation by the Romanian Central Bank. Loans in exotic currencies were on some of the banks' top sellers' lists, as well as those in the usual foreign currencies, until the new BNR ruling last fall slowed down the increase in offered loans.

For several years, banks have been fueling the growth of the Romanian economy, with increasing consumption and investments mainly backed by bank loans, during a period of boom in Romania. With both of them dropping due to the international crisis, banks may now see themselves fighting for a piece of a smaller pie.

Corina Saceanu