Romania was the only Southeast European country to achieve positive loan growth in 2015, when loans were up by 2.5% y/y. This is expected to accelerate to 4.6% in 2018 thanks to the country's strong economic growth, despite the new law on debt discharge that will weigh on mortgage loan growth in 2016-2018, according to the Deloitte CE Banking Outlook.

While loan growth in Central European countries is expected to moderate from 6.8% y/y in 2015 to 5%-6% y/y in 2016-2018, Southeast European countries are expected to recover from a drop of -3.5% y/y in 2015 to positive growth this year and accelerate to 3.3% y/y in 2018, the report reads. The need for further deleveraging in SEE has greatly diminished in recent years, with a decline in non-financial loans/deposits from around 120% in 2012 to around 90% in 2015.

Romanian banks should also see risk costs offset margin pressure but return on equity (ROE) is expected to fall back to 9.2% in 2018 from 11.8% in 2015, a result that was inflated by a one-off revaluation gain (around 4pp) on Banca Transilvania’s bargain purchase of Volksbank Romania.

Once the highest in the region, Romania’s non-performing loan (NPL) ratio has declined sharply from 21.9% in 2013 to 13.5% in 2015 and further to 11.3% in 1H16. While balance sheet cleaning will continue, an asset quality review (AQR) in Romania is expected to slow the decline to 10% in 2018.