Romania’s banks post 10-year high profits in Jan-Sep 2018 on lower NPLs

The 35 banks operating in Romania have registered in the first nine monthsof this year the highest profits in the last decade, as improved credit demand combined with low NPL rates have boosted earnings, central bank data show.

The return on assets (ROA) key-index jumped by 29 percent in September compared with September 2017, to 1.76, the highest level since September 2008, according to central bank series consulted by Business Review.

ROA is calculated by dividing annualized net profit by average total assets, and this means that the Romanian banks have registered a total profit of RON 5.8 billion (EUR 1.2 billion) in January-September 2018, in annual terms, according to Banca Transilvania.

A recent BR Analysis showed that 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.

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.

The total bank assets in Romania increased by 9.5 percent year-on-year in September, up to RON 445.2 billion (EUR 95.7 billion), equal to around 46.9 percent of the estimated GDP in 2018.

The improved results of Romanian banks are due to a sharp decline of non-performing loans (NPL) ratio, from 8 percent in September 2017 to 5.6 percent in September 2018, according to central bank’s data.

But banks still struggle to find clients for their loans, as loan-to-deposit ratio key-index has continued to decrease – from 80.3 percent in September 2017 to 76.4 percent in September this year, despite higher consumer and mortgage loans’ demand from individuals.

Romania’s banking system has currently 35 banks, after a period of consolidation.