Romania’s banking system realised aggregated net profits worth RON5.3bn (€1.16bn calculated at the end-of-year exchange rate) in 2017. This was the highest in the three years of robust profitability achieved since 2015 after losses in 2010-2014 (with the exception of the break-even reached temporarily in 2011) and close to the €1.17bn profit in 2008 before the crisis, according to bne IntelliNews calculations based on central bank data.

Romania’s banking system has robust potential to continue the modest expansion seen in 2015-2017 (on the healthy grounds of declining non-performing loans), but the rising interest rate is a serious challenge. 

Consumer lending is likely to lose momentum this year while retail mortgage lending is also at risk as the government-guarantee programme comes under criticism for generating over-indebtedness (for normal interest rates, as oppose to the very low interest rates in the past years). Corporate lending, supposed to support sustainable economic growth, has been the slowest of the market's segments during the credit recovery seen in 2015-2017.

The banking system’s record profit in 2017 expressed in euros increased by 27% y/y and occurred even though financial intermediation expanded less than country’s economy. The system’s average net assets increased at a moderate rate of 4.4% to €87.9bn in 2017, (5.4% up y/y at €91.7bn at the end of the year) compared to an estimated 12% growth of GDP expressed in euros to €186bn. The year’s average assets accounted for 47.3% of GDP in 2017, down from 50.7% in 2016.

Profitability ratios, however, improved to their best values in the post-crisis period, namely to 1.32% return on assets (ROA) in 2017 from 1.08% in 2016 and the outstanding value of 12.7% return on equity (ROE) in 2017 versus 10.4% in 2016. For comparison, ROE hit 17% and ROA was 1.6% in 2008.

Capital adequacy decreased slightly to 18.9% at the end of 2017 from 19.7% at the end of 2016, but it remains at a very high value: more than twice the minimum required 8% and well above the 10% ratio recommended by the central bank.

This indicates robust potential for credit expansion under adequate capitalisation. The loan to deposit ratio of 75%, down from 79% at the end of 2016, also indicates significant resources for further credit expansion.

	4Q 08	4Q 09	4Q 10	4Q 11	4Q 12	4Q 13	4Q 14	4Q 15	4Q 16	4Q 17
Assets (RON bn, eop)	314.4	330.2	341.9	353.9	365.6	362.3	364.1	377.2	393.6	427.4
Assets (EUR bn, eop, calculated)	78.9	78.1	79.8	81.9	82.6	80.8	81.2	83.4	87	91.7
Assets (RON bn, avg. ytd, estimat.)	282.7	326.5	328.1	339.9	366.8	357.2	354.9	363.6	378.5	402.3
Capital adequacy	13.8%	14.7%	15.0%	14.9%	14.9%	15.5%	17.6%	19.2%	19.7%	18.9%
ROA (annualised net profits per ytd avg. assets)	1.6%	0.3%	-0.2%	-0.2%	-0.6%	0.0%	-1.3%	1.2%	1.1%	1.3%
ROE (annualised net profit per ytd avg. equity)	17.0%	2.9%	-1.7%	-2.6%	-5.9%	0.1%	-12.5%	11.8%	10.4%	12.7%
Operating incomes/op. expenditures	1.80	1.57	1.54	1.48	1.7	1.77	1.8	1.71	1.89	1.82
Loans (gross) to deposit ratio	n.a.	113%	113%	117%	117%	105%	91%	85%	79%	75%
Non-performing Loans Ratio (EBA)							20.70%	13.50%	9.60%	6.40%
Impaired claims / Total loan portfolio				9.2%	12.0%	11.6%	9.4%	7.0%	4.9%	3.0%
Impaired claims / Total assets				5.5%	7.1%	6.5%	5.1%	3.9%	2.7%	1.6%
Impaired claims / Total liabilities				6.2%	7.9%	7.3%	5.7%	4.3%	3.0%	1.8%
Net Profit[1] (ytd, RON mn)	4,411	816	-519	-782	-2,347	36	-4,684	4,509	4,087	5,311
Net Profit[2] (quarterly, RON mn)	760	130	-55	2	-2,238	-1,437	-3,092	2,255	421	1,257
Net Profit (annuall, EUR mn)	1,175	194	-114	-177	-530	11	-1,053	1,008	911	1,157
Net Profit[3] (quarterly, EUR mn)	191	31	-13	0	-505	-320	-690	498	93	270
RON to EUR1 [eop]	3.985	4.228	4.285	4.32	4.429	4.485	4.482	4.525	4.525	4.66
Source: BNR, IntelliNews
[1] Calculated as [Average Assets]x[annualised ROA, adjusted to reflect ytd period]
[2] Calculated as the differential of net profit
[3] Converted quarterly at the eop exchange rate