Romanian banking system posts record 6.3% annualised ROE in Q1 2014

By bne IntelliNews June 10, 2014

The aggregate net profit of the Romanian banking system increased by 20% y/y to RON 597mn (EUR 134mn) in the first quarter of 2014, the central bank said. It was the second largest quarterly profit since the third quarter of 2009*. The return on equity [ROE] hit 6.3% in annualised terms, or 0.17% for the quarter alone – also the second largest level since the end of 2009**.

LOWER PROVISIONING COST. The improved profitability was paralleled and possibly driven by the lower provisioning [loan loss] cost. The provisioning cost narrowed roughly four times to EUR 93mn [77% down y/y] under the national RAS methodology and to EUR 112mn [71% down y/y] under the IFRS methodology. In absolute terms, they were lower by some EUR 300mn in Jan-March this year compared to Jan-March of 2013.

IMPACT OF LOWERING PROVISIONS TO IFRS REQUIREMENTS. Notably, the Romanian banks started this January adjusting downwards their provisions from the levels required by the central bank to the levels required under the IFRS regulations. The differential amounts to over EUR 2bn – money that would be accounted as profits but not taxed. The convergence to the IFRS provisions is scheduled to take five years.

BACKWARD ADJUSTMENT ON 2013 PROFIT. Romania’s central bank also adjusted backward the 2013 aggregate profit of the banking system by some EUR 100mn to only RON 49mn*** [EUR 11mn] from the previously announced RON 497mn [EUR 111mn]. The backward correction is most likely related to the on-going review of the banks' NPL portfolios.

* banks posted higher aggregated net profit of RON 668mn in Q2’13.

** banks started registering losses in Q2’10 - more than one year after the beginning of the recession because they categorised loans as bad loans only after one-year payment incidents.

*** according to ZF daily quoting central bank officials; our calculations show RON 36mn but the differential is within the error margin

Banking system ratios 2008 2009 2010 2011 2012 2013 1Q’14
Assets (EUR bn, eop,) 78.9 78.1 79.8 81.9 82.6 80.8 79.1
Capital adequacy 13.8% 14.7% 15.0% 14.9 14.9 15.5 15.0
ROA [1] 1.56% 0.25% -0.16% -0.23% -0.64% 0.01% 0.67%
ROE [2] 17.04% 2.89% -1.73% -2.56% -5.92% 0.13% 6.30%
Credit Risk Ratio[3] (%, eop) 6.5% 15.3% 20.8% 23.3% 29.9% 32.1% 32.6%
Non-performing Loans Ratio n.a. 7.9% 11.9% 14.1% 18.2% 21.9% 22.3%
Loan to deposit ratio [4] 131% 119% 118% 119% 114% 101% 102%
RAS provisions (EUR mn) 1,904 3,540 5,498 7,117 8,848 9,863 10,021
IFRS provisions (EUR mn) n.a. n.a. n.a. n.a. 6,644 7,639 7,801
RAS Provision cost (EUR mn) [5] 1,006 1,745 2,005 1,663 1,907 1,888 93
IFRS Provision cost (EUR mn) [5] n.a. n.a. n.a. n.a. n.a. 1,088 112
Aggr. Profit (EUR mn) [5] 1,107 193 -121 -181 -530 10.9 134
Source: BNR, IntelliNews              

[1] (eop, annualised net profits per ytd/avg. assets) [2] (eop, annualised net profit per ytd/avg. equity) [3] Gross exposure of loans to non-bank clients and interest classified as doubtful and loss / Total classified loans to non-bank clients and related interest, excluding off-balance sheet items [4] loans/deposits to/of private sector alone [5] of period (year, quarter) converted at eop XR – also for the stock of provisions; for years may be different from the sum of quarterly values, which are converted at each quarter’s end-XR.

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