Credit growth in Romania to remain highest in region, Deloitte report says

Credit growth in Romania to remain highest in region, Deloitte report says
By Iulian Ernst in Bucharest October 28, 2016

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.

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