Romanian banks achieved €390mn aggregated net profits and a return on assets (ROA) ratio of 1.67% in Q2, slightly improving the records set in Q1 and marking the second-best post-crisis performance, according to bne IntelliNews calculations based on central bank data. The record H1 profits come on top of three years (2015-2017) of aggregated profits posted by Romanian banks. 

Banks’ assets increased by 9.0% y/y (6.5% in euros) to RON434.6bn: €93.2bn, less than 52% of GDP and still lagging behind the 56% ratio before the credit crunch at the end of September 2018. The volume of non-government loans increased at a slower pace (6.8% nominal, local currency) while the stock of deposits soared by a double-digit ratio, therefore the loan-to-deposit ratio remained around the low value of 75% at the end of June down from 80% one year earlier. Capital adequacy peaked again above 20% indicating robust resources for lending.

Causes of the high profitability are multiple. The banks cleaning up their portfolios (thus releasing related provisions that thus count as revenues) is a cause typically invoked by banks posting high profits in recent years, but this is valid under very restrictive conditions (sale of non-performing loan, NPL, bundles at narrow discounts, improvement of creditors’ creditworthiness). The rise in interest rates is a more general and likely driver of their robust performances. The lower NPL ratio also resulted in a higher share and volume of revenue-generating loans, although the volume of non-government loans is rising at modest pace (nominal 6.8% y/y at end-June). Another major driver of profitability, which is likely to support banks' good performances in the future, is the consolidation, which generally resulted in higher productivity and lower employment. At the end of September 2008 the number of credit institutions was 42 (including nine foreign branches) and the number dropped to 35 (including seven foreign branches) at the end of June 2018.

The NPL ratio calculated based on European Bank Association (EBA) methodology dropped to 5.7% at the end of June, down from 6.2% at the end of March and 8.3% at the end of June 2017. When first calculated under EBA standards, the NPL ratio was 21.5% at the end of September 2014. Nearly one quarter of the loans in the portfolios of the two largest banks at that time, Banca Comerciala Romana (BCR) and Banca Romana de Dezvoltare (BRD-SocGen) were bad loans, but the share dropped to under 7% in both cases by June 2018. Around the middle of 2014, the central bank enforced measures aimed at forcing the banks to clean their balance sheets.

Romania: Banking System	4Q 08	4Q 09	4Q 10	4Q 11	4Q 12	4Q 13	4Q 14	4Q 15	4Q 16	4Q 17	1Q 18	2Q 18
Assets (RON bn, eop)	314.4	330.2	341.9	353.9	365.6	362.3	364.1	377.2	393.6	427.8	431.7	434.6
Assets (EUR bn, eop, calculated)	78.9	78.1	79.8	81.9	82.6	80.8	81.2	83.4	87	91.8	92.7	93.2
Assets (RON bn, avg. ytd, estimat.)	282.7	326.5	328.1	339.9	366.8	357.2	354.9	363.6	378.5	402.4	429.8	431.5
Capital adequacy	13.8%	14.7%	15.0%	14.9%	14.9%	15.5%	17.6%	19.2%	19.7%	20.0%	19.8%	20.1%
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%	1.30%	1.64%	1.66%
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%	12.50%	15.40%	15.70%
Operating incomes/op. expenditures	1.8	1.57	1.54	1.48	1.7	1.77	1.8	1.71	1.89	1.82	1.79	1.79
Loans (gross) to deposit ratio	n.a.	113%	113%	117%	117%	105%	91%	85%	79%	75%	75%	75%
Non-performing Loans Ratio (EBA)	n.a.						20.7%	13.5%	9.6%	6.4%	6.2%	5.7%
Impaired claims / Total loan portfolio				9.2%	12.0%	11.6%	9.4%	7.0%	4.9%	3.0%	2.4%	2.4%
Impaired claims / Total assets				5.5%	7.1%	6.5%	5.1%	3.9%	2.7%	1.6%	1.3%	1.3%
Impaired claims / Total liabilities				6.2%	7.9%	7.3%	5.7%	4.3%	3.0%	1.8%	1.5%	1.5%
Net Profit[1] (ytd, RON mn)	4,411	816	-519	-782	-2,347	36	-4,684	4,509	4,087	5,231	1,762	3,581
Net Profit[2] (quarterly, RON mn)	760	130	-55	2	-2,238	-1,437	-3,092	2,255	421	1,177	1,762	1,819
Net Profit (annuall, EUR mn)	1,175	194	-114	-177	-530	11	-1,053	1,008	911	1,140
Net Profit[3] (quarterly, EUR mn)	191	31	-13	0	-505	-320	-690	498	93	253	378	390
RON to EUR1 [eop]	3.985	4.228	4.285	4.32	4.429	4.485	4.482	4.525	4.525	4.66	4.658	4.661
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