BANKING SYSTEM

    By courtesy of the National Bank of Romania

Since 1990 the Romanian banking system has undergone a major restructuring in accordance with the European Union banking directives and based on the Western European banking model. This process resulted in the organisation of a two-tier banking system, which consists of the National Bank of Romania, on the one hand, and credit institutions, on the other hand.

One of the key elements of the Romanian banking system restructuring process was the transformation of the role played by the National Bank of Romania into a more traditional role of a central bank.

Other important elements were the opening of the banking system to private and foreign banks and starting the privatisation of Romanian state-owned banks.

The large state-owned banks could become private commercial banks with both Romanian and foreign capital. The legislative framework for the privatisation of state-owned banks started to be built up in 1997.

According to Law No. 58/1998 on banking activity, as subsequently amended and supplemented, commercial banks can freely compete for business in the market, taking deposits, granting loans, and offering a variety of other banking services.

    National Bank of Romania

The National Bank of Romania has been restructured starting 1991 in order to become a modern central bank.

At present the National Bank of Romania objectives and powers are regulated by Law No. 312 / 28.06.2004, the National Bank of Romania Act, as subsequently amended and supplemented.

In accordance with Law No. 312 / 28.06.2004, the National Bank of Romania is an independent public institution, with legal personality, entitled to establish branches and agencies.

The primary objective of the National Bank of Romania shall be to ensure and maintain price stability.

The main prerogatives of the National Bank of Romania are the following:

. to define and implement monetary policy and the exchange rate policy;

. to conduct the authorisation, regulation and prudential supervision of credit institutions and to promote and oversee the smooth operation of the payment systems with a view to ensuring financial stability;

. to issue banknotes and coins as legal tender on the territory of Romania;

. to set the foreign exchange regime;

. to manage the official foreign reserves of Romania.

The central bank is mainly engaged in the following activities:

. issue and putting into circulation of banknotes and coins; replacement of banknotes and coins;

. lending to credit institutions;

. clearing, depositary, settlement and payment services;

. regulation, licensing and prudential supervision of credit institutions;

. protection against systemic risk;

. operations on the account of the State;

. management of the foreign reserves.

The National Bank of Romania is headed by a Board. The Board consists of the Governor of the National Bank of Romania as Chairman, the Senior Deputy Governor as Vice-Chairman, two Deputy Governors and five other members who are not NBR's employees.

The members of the Board are appointed and replaced by Parliament following the proposal of the specialised commissions of the two Chambers of the Parliament.

The executive management of the NBR is performed by the Governor, the Senior Deputy Governor and the two Deputy Governors.

On a permanent basis, the National Bank of Romania co-operates with the International Monetary Fund and specialised consultants provided by the World Bank, as well as with other organisations in developing policies and procedures governing the Bank's operations.

NATIONAL BANK OF ROMANIA

Address: 25, Lipscani St.,

030031, Bucharest

Phone: + 40- 21- 313.04.10

Fax: + 40- 21- 314.97.52

E-mail: bnr@bnro.ro;

INTERNET Address: http://www.bnro.ro

    Credit institutions

In Romania, banking activity is performed by credit institutions authorised according to the law.

Credit institutions are allowed to be established and to operate as banks, credit co-operatives, electronic money institutions and savings banks for housing.

The law on banking activity is applicable to banks and electronic money institutions, Romanian legal entities, as well as to branches operating in Romania of foreign credit institutions.

Main activities authorised to be performed by banks:

. receipt of deposits and other repayable funds;

. granting of credits, including consumer credit, mortgage credit, financing of commercial transactions, factoring, discounting, forfeiting;

. financial leasing;

. money transmission services;

. issuing and administering means of payment, such as credit cards, traveller's cheques and other such means, including issuance of electronic money;

. issuance of guarantees and assuming commitments;

. trading for own account or for the account of customers in: money market instruments; foreign currency; securities and other financial instruments; futures and options;

. participation, intermediation and advising in financial matters;

. other activities.

    Romanian banks

Banks, Romanian legal entities, may only operate on the basis of the authorisation issued by the National Bank of Romania.

Banks are established as joint-stock companies, and the terms under which the authorisation may be granted shall refer to: qualification and professional expertise of bank managers; the minimum level of the initial capital; the feasibility study which shall include at least the types of operations envisaged and the structural organisation of the bank; the bank's significant shareholders and its founders; the shareholding structure; bank's premises; the financial auditor.

According to NBR Norms No. 11/December 2003, the minimum level of the initial capital is: ROL 370 billion for banks, Romanian legal entities; ROL 250 billion, for savings banks for housing; ROL 120 billion for electronic money institutions.

All banks shall open current accounts with the National Bank of Romania and are required to maintain minimum reserves. At present, the reserve ratios are the following: 16 percent for ROL deposits and 30 percent for foreign currency deposits.

    EXIMBANK (Banca de Export Import a României SA)

EXIMBANK (Banca de Export Import a României SA) was established in order to support Romanian exports.

EXIMBANK has been set up in 1992 as a joint stock company carrying out banking and export credit insurance activities.

Over seventy percent of Eximbank share capital is owned by the State, represented by Authority for Privatisation and Management of State Ownership - APAPS (now AVAS). It is operating under the provisions of the Romanian Commercial Code,  Law No. 31/1990 - Commercial Company Act as republished, Law No. 58/1998 on banking activity, Law No. 32/2000 - Insurance Act and of Law No. 96/2000 regarding the structure and running of Eximbank and specific foreign trade instruments. EXIMBANK is currently managed by the Executive Board, according to the principles agreed upon by the Board of Directors. EXIMBANK may act on behalf of the Romanian State and at the same time on its own behalf.

EXIMBANK provides export credit insurance policies, credits, bank guarantees, analyses for State guarantees and other incentives among which commercial and credit information on the business partners should be underlined. For short-term commercial risks EXIMBANK acts on its own account for political risks and for medium- and long-term commercial risks.

EXIMBANK underwrites policies on the account of the State. Bank guarantees are provided for exports (performance bond, advanced payment) and also for imports. EXIMBANK analyses the applications for public guarantees to be issued by the Ministry of Public Finance within the projects financed from foreign loans. For its customers, Romanian exporters and their partners, EXIMBANK also performs the usual functions of a commercial bank.

EXIMBANK is a member of the Romanian Banks Association and of the National Union of Insurers and Reinsurers. EXIMBANK has relationships with more than 150 banks and Export Credit Agencies worldwide.

Aiming at a more active involvement in the international business, EXIMBANK is continuously developing its offer with instruments that are in compliance with the OECD regulations.

EXIMBANK
(Banca de Export Import a Romaniei SA)

Address:15, Splaiul Independentei,

District 5, Bucharest

Phone: + 40- 21- 336.61.62; 336.41.85; 336.41.77

Fax: + 40- 21- 336.63.80; 336.61.85

E-mail: pr@eximbank.ro; client@eximbank.ro

INTERNET Address: http://www.eximbank.ro

    Foreign Banks

Foreign banks, legal persons may establish subsidiaries, branches and representative offices in Romania.

    Subsidiaries of foreign banks

The establishment, the operation and the liquidation of the Romanian subsidiaries of foreign banks, legal persons are performed according to the Romanian legislation, once they are licensed by the National Bank of Romania. The subsidiaries of the foreign banks, established in Romania, are Romanian legal persons subject to the National Bank of Romania licensing and are subject to the Romanian commercial and banking legislation.

    Branches of foreign banks

As a rule, a branch is an entity without legal personality on which the legal status of the parent company is imposed. In Romania, the foreign bank branches are subject to the National Bank of Romania licence just like the subsidiaries, and are bound to comply with Romanian commercial and banking law.

    Representative Offices

Special provisions regulate authorization and operation of representative offices of foreign banking companies in Romania. The representative offices are established by the parent company's decision and are not subject to the National Bank of Romania authorisation. Within 15 days since the establishment, the representative office must notify the National Bank of Romania about all information with regard to their compliance with the Romanian legal requirements.

A number of well-known foreign banks including Société Générale, Raiffeisenbank, ABN Amro, HVB, Citibank, ING Bank N.V. have been operating in Romania for the last several years.

Comprehensive list of banking institutions in Romania

    Licensing of credit institutions

The procedures for licensing of both foreign and domestic credit institutions imply the same criteria of the National Bank of Romania.

These criteria include:

. minimal capital requirements, consistent with those in the international banking community,

. financial reliability of the parent undertaking;

. evidence of a strong and professional management team;

. presentation of a comprehensive three-year business plan;

. identification and disclosure of the status of its shareholders.

    Privatisation Framework of the Banking Sector

Romania's commercial banks began their operations with relatively specialised portfolios, reflecting their pre-1989 concentration in particular sectors of the economy. However, the initial specialisation diminished as the banks competed with one another and new banks entered the market. A number of new banks with private Romanian or mixed capital have been licensed to begin operations.

The privatisation process of the major state-owned commercial banks started in 1998. Law No. 83/1997 on the privatisation of banks in which the state is a shareholder established the legal framework for the transfer of state-owned banks to the private sector.

The privatisation of the banking companies may be achieved in one of the following ways:

. increasing the share capital, through contribution of private capital in cash, on the basis of public offer or private investment;

Selling the stock administrated by the Authority for Privatisation and Management of State Ownership - APAPS (now AVAS), only on cash, with full payment, towards:

. Romanian individuals;

. foreign individuals;

. Romanian legal persons with private majority capital;

. financial investment companies;

. foreign legal persons with private majority capital;

a combination of the two ways described above.

The APAPS (now AVAS) is the administrator of the state-owned equity in the banking companies' capital. The selling of the stock, administered by the APAPS, is done in the forms set forth by Government Emergency Ordinance No. 88/1997 on the privatisation of commercial companies, as amended and completed by Law No. 99/1999 regarding certain measures for the acceleration of the economic reform and by Law No. 52/1994 of securities and stock exchanges. A privatisation commission is set up in the case of the commercial companies in which the State is a shareholder. The privatisation commission shall supervise the privatisation operations and ensure the observance of transparency, consistency and objectivity of principles. The privatisation of such companies will be done based on the valuation reports and feasibility studies drawn up by a specialized company in accordance with international standards.

The Romanian or foreign individuals or legal persons acting directly or indirectly, cannot acquire the ownership of more than 20 percent of total share capital of a banking company earmarked for privatisation, except for well-known international financial banking institutions. The Romanian or foreign individuals or legal persons which aims at acquiring the ownership of more than 10 percent of share capital of a banking company must obtain the prior approval of the National Bank of Romania.

    Restructuring Process in the Romanian Banking System

After 1990, the Romanian banking system has developed at a swift pace. The number of banks, Romanian legal entities, rose significantly, from 7 to 33 banks at the end of July 2005. At the same time, 6 branches of leading foreign banks are currently operating in Romania.

The Romanian banking sector also faced problems specific to the transition economy. This state of affairs called for stepping-up bank reform through fast-track privatisation of some banks (Banca Româna pentru Dezvoltare and Banc Post in the first quarter of 1999, and Banca Agricola in April 2001) as well as through the implementation of a rapid bank purging programme by the central bank in 1999-2002. Therefore, tough measures were taken, including the merger of the largest state-owned bank Bancorex through absorption with another large bank Banca Comerciala Româna, and the initiation of bankruptcy proceedings for other smaller privately-owned banks.

Restructuring and privatisation of the banking sector represented, in the above mentioned period, one of the basic objectives of the structural reform programme supported by the International Monetary Fund and the World Bank. Therefore, in the first quarter of 1999 the privatisation of Banca Româna pentru Dezvoltare (BRD) and Banc Post was finalised.

The process of the restructure of Bancorex was effectively finalised following the merger through absorption with Banca Comerciala Româna in October 1999. The legal provisions have permitted Banca Comerciala Româna to take only the viable part of the assets of Bancorex. The balance sheet and off-balance sheet non-performing assets were transferred to the Bank Assets Recovery Agency (an agency set up to deal with bad debts of state-owned banks which were restructured or liquidated). In addition, BCR has assumed the other liabilities of Bancorex, and the Government has issued treasury notes on behalf of BCR to offset such liabilities.

In the case of Banca Agricola, in April 2001, the process of privatisation of the bank was concluded by selling 99 percent of shares to a consortium formed by Raiffeisen Zentralbank and the Romanian-American Investment Fund.

Banca Comerciala Unirea was subject to special supervision by the NBR throughout 2001 due to the liquidity strains it had experienced in the prior years. In addition, failing to comply with the minimum share capital requirements and own fund requirements by the end of May (Norms No. 9/2000), entailed revocation of the licence according to the Decision of the NBR Board issued on 3 July 2001. This prudential requirement was met by the subsequent rise in share capital by the new foreign investors and therefore the Supreme Court of Justice admitted the complaint of Banca Comerciala Unirea against the NBR and ruled in favour of resuming the business; the NBR maintained some restrictions due to uncertainties surrounding the shareholders. In 2002, following the alteration of the majority shareholder, Banca Comerciala Unirea became Nova Bank.

In the aftermath of the collapse in 2000, Banca Turco-Româna (Turkish Romanian bank) failed to recover and despite the Turkish autorities' promises to find a new investor, the bank failed to honour its obligations. After using up all possibilities to recover or sell the bank, the NBR revoked the licence and instituted bankruptcy proceedings against the bank (in April 2002).

In the case of Banca Româna de Scont, due the blatant violation of the banking regulations on fund management and deposits taken, the NBR set up special supervision and subsequently a special settlement regime in July 2001 and in December 2001 respectively, then appointed a special administrator, revoked the licence of the president of the bank (in January 2002) and ultimately withdrew the bank's licence in February 2002.

In the case of Banca de Investitii si Dezvoltare, despite frequent controls by the NBR that limited attempted fraud, the bank's large exposure to Banca Româna de Scont resulted in losses and sapped the bank's credibility; thus, in March 2002, the general meeting of shareholders decided to liquidate the bank.

Referring to the privatisation of Banca Comerciala Româna, the privatisation strategy was approved in 2001 by the empowered institutions (Authority for Privatisation and Management State Participations, the Ministry of Development and Forecasting, Ministry of Public Finance, and the National Bank of Romania). At the beginning of 2003, after two unsuccessful attempts to attract a strategic investor for BCR, the Government decided to initiate the privatisation of this bank by selling a package of shares of the EBRD and the IFC, the investment division of the World Bank. In November 2003, the negotiations were finalised and 25 percent of the BCR shares were sold to the EBRD and the IFC. The Romanian State remains the leading partner in the management of BCR and will be able to redeem part of the shares sold to the EBRD and the IFC so as to hold the majority stake that is to be sold to a strategic investor. In 2005 the privatization process has been proceeding, with several foreign banks having submitted letters of intention for acquiring BCR and CEC.

The Romanian banking system is continuously developing, with an increasing number of specialized financial institutions coming into operation lately, such as Raiffeisen Banca pentru Locuinte, HVB Banca pentru Locuinte (saving and loan banks for housing) and Porche Bank Romania (for motorcar purchases).

Under these circumstances, at the end of July 2005, the banks with fully or majority privately-owned capital held about 94.1 percent of the aggregate volume of bank assets and 95.5 percent of the share capital, respectively. It should be pointed out that foreign owned banks held 64 percent of total assets and 72.6 percent of the share capital.

The NBR implemented the programme for the consolidation of the banking system, in correlation with the government's activity and drafted along the co-ordinates agreed upon with international financial institutions aiming chiefly at strengthening of every stage of prudential supervision of banks. This programme includes enhanced stringency in licensing new banks and managers, amendment of regulations, improvement of bank monitoring based on the Uniform Bank Rating System - CAMEL and streamlining of some instruments to provide indirect support to supervision (i.e. Credit Risk Bureau, Payment Incident Bureau, and the Bank Deposit Guarantee Fund).

The measures imposed by the National Bank of Romania in the field of the regulation and prudential supervision of banks have had a significant impact on their evolution. A major impact in this regard was the enforcement of the provisions of Norms no. 7/1998 referring to the removal to the off-balance sheet of the loans and interests related to executory contracts (which came into force in 1999) and the Regulations No. 2/2000 and No. 5/2002, regarding the classification of loans and investments, as well as the constitution, regularisation and use of the specific credit risk provisions (in force starting with the month of October 2000). Also, the transfer to the Bank Assets Recovery Agency of a volume of non-performing loans from the Bancorex and Banca Agricola portfolio as well as the banks' own efforts in order to recover the outstanding and doubtful claims have had an important contribution.

In this context, the net value (after provisions have been deducted) of doubtful and past-due claims followed a downward trend. Their share declined in total equity from 253.6 percent (31 December 1998) to 2.7 percent (31 July 2005) and in total assets from 14.5 percent (31 December 1998) to 0.2 percent (31 July 2005). The share of non-performing loans classified under "doubtful" and "loss" in total loans also contracted from 58.5 percent (31 December 1998) to 3.4 percent (31 July 2005).

The capital adequacy ratio (18.4 percent at the end of June 2005 compared to 10.3 percent at the beginning of 1999), reflects the banks' prudent attitude in assuming risks.

    The Romanian Banking Association (RBA)

The Romanian Banking Association was established in 1991 as a professional non-profit organisation, with the following main objectives:

. Representing the professional interests of its members.

. Organising the inter-bank dialogue.

. Promoting cooperation with other similar national or international organisations.

. Organising the professional training and research activity in the field.

. The Romanian Banking Association is correspondent of Banking Federation of the European Community and member of International Chamber of Commerce.

The Romanian Banking Association (RBA)

Address:34, Sf. Vineri St., block A6

District 3, 030205

BUCHAREST

Phone: +40- 21- 321.20.78

Fax: +40-21- 321.20.95

E-mail: arb@arexim.ro, arb@arb.ro

Internet Address: http://www.arb.ro

    The Authority for State Assets Recovery (AVAS)

The Authority for State Assets Recovery (AVAS) is a specialized body of the Romanian administration, reporting before the Government of Romania. AVAS was created by reorganizing the Banking Assets Resolution Agency (AVAB) through its merging with the Authority for Privatization and Management of State Ownership (APAPS). The Authority for State Assets Recovery (AVAS) was set up by Government Decision No. 837/2004.

Prerogatives

According to Emergency Ordinance no. 23/2004, AVAS has the following prerogatives:

The AVAS privatization and postprivatization activity is conducted according to commercial principles. The diminishing of the state ownership is achieved through shares sales, registered share capital increase with private capital contribution, the transfer or sale of social assets or any combination of the three.

Authority for State Assets Recovery
( AVAS)

Address: 50, Cpt. Av. Alex. Serbanescu St.,

District 2, code 715151, BUCHAREST

Phone: +40- 21- 303.61.22

Fax: +40- 21- 303.65.21, 303.65.47

E-mail: presa@avas.gov.ro / infopublic@avas.gov.ro

Internet Address: http://www.apaps.ro; http://www.orcb.ro; http://www.avas.ro

    Banking Products

New trends in the Romanian economy and political life have led to a more realistic approach of Romanian banks to their customers and a better understanding of their role in the market economy.

The Romanian banks' services are more and more approaching international standards. The range of services offered by Romanian banking system is steadily increasing.

Presently the banks may:

. open accounts in ROL and in foreign currency;

. receive demand, time and notice deposits in ROL and in foreign currency;

. grant short, medium- and long-term loans or credit lines in ROL and in foreign currency;

. collect receipts and make payments, in ROL and in foreign currency, for commercial and non-commercial transactions;

. receive and sell travellers cheques or payment documents in foreign currency;

. perform foreign exchange transactions on foreign money markets;

. discount commercial papers;

. buy and sell securities and bonds;

. issue and operate VISA, EUROCARD/MASTERCARD and AMERICAN EXPRESS credit cards;

. carry out any domestic and foreign banking operations;

. offer electronic banking services;

. grant technical assistance for its customers.

    Legal Framework

The herein Law provides that the change of the banknotes and coins in use shall be made for an unlimited period of time. The former change term was of maximum 3 years, until 31st December 2009.

By 30th June 2005, the joint stock companies and the limited joint stock companies shall establish the denomination of the nominal value of the shares, so that the new value should be a multiple of 100, and the appropriate increase and decrease of the share capital, by keeping the number of shares and the rate of participating to the share capital.

The modification of the share capital will be performed with the approval of the Extraordinary General Assembly of the Shareholders. These provisions are applicable to all economic entities.

Recording the increase or decrease of the share capital with the Trade Register shall be performed without paying the legal taxes and tariffs, by observing to the provisions of Company Law No. 31/1990, republished.

If the above-mentioned companies do not comply with the provision of the herein Law, the National Office of the Trade Register (NOTR) will register ex officio, on 1st July 2005, the decrease of the nominal value of the shares issued by the said companies, so that the above-mentioned provisions to be observed.

The decrease of the share capital shall be registered by the said companies according to the common norms issued by the Ministry of Public Finance and the National Securities and Exchange Commission.

    Recent Developments in the Romanian Banking System

The key events that left their mark on the Romanian banking system in 2005 were the following:

(i) the privatisation strategy of Banca Comerciala Româna (BCR) was modified in May and on 21 December the privatisation contract was signed, thereby Erste Bank gaining control over the majority stake of 61.8825 percent (36.8825 percent held by the Authority for State Assets Recovery and 25 percent plus two shares held by EBRD and IFC)[1];

(ii) the Romanian branch of the National Bank of Greece ceased to operate in June 2005, following the transfer of its assets and liabilities, as well as the sale of its fixed assets to Banca Româneasca;

(iii) HVB Banca pentru Locuinte, a financial institution specialised in housing loans, started to operate on 13 July 2005;

(iv) the privatisation strategy of the Savings Bank (CEC) was approved in July;

(v) RoBank changed its name to OTP BANK ROMANIA on 18 July 2005, following the acquisition of the bank by OTP, a leading Hungary-based bank, in 2004;

(vi) in December 2005, the Lebanon-based Bloom Bank acquired 96.77 percent in the share capital of MISR Romanian Bank; (vii) about 67 percent of total banks moved to raise share capital.

At present, thirty-nine banks have been operating in Romania, of which thirty-one are majority or fully privately-owned banks, two are state-owned banks and six are branches of foreign banks.

Credit Institutions

number

 

Dec.
2005

Mar.
2006

Banks with fully or majority state-owned capital

2

2

Banks with majority private capital (including foreign bank branches), of which:

37

37

    - Banks with majority foreign capital,
       of which:

30

31

          - Foreign bank branches

6

6

TOTAL

39

39

 

 

 

In year-on-year comparison, bank capitalisation increased by 49.9 percent, up by a real 38 percent, equalling more than EUR 2 billion. Following the about nine-fold increase in the share capital of one of the two banks with majority state-owned capital, the share of publicly-owned capital in the banking system rose by 7.3 percentage points to 12 percent. The share of private capital declined to 88 percent of total bank capital, compared with 95.2 percent at end-2004, due mainly to the decrease in the share of banks with majority domestic private capital from 25.9 percent at end-2004 to 19.1 percent at end-2005; the share of banks with foreign capital dropped by only 0.4 percentage points to as much as 68.9 percent.

At the end of 2006 Q1, bank capitalisation rose slightly compared with end-2005 (4.3 percent in nominal terms), especially in case of majority foreign-owned banks, whose share in total bank assets reached 70.5 percent.

Share Capital/Core Capital

 

 

 

 

 

Weight

Percentage change*

 

Dec.
2005

Mar.
2006

Mar.2006/
Dec.2005

Banks with fully or majority state-owned capital

12.0

11.8

0.9

Banks with majority private capital (including foreign bank branches), of which:

88.0

88.2

3.0

    - Banks with majority foreign
      capital, of which:

68.9

70.5

5.1

          - Foreign bank branches

7.0

7.2

5.3

 

 

 

 

TOTAL

100.0

100.0

2.8

* deflated by CPI

 

 

 

Banks’ net aggregate assets rose 42.7 percent from year-end 2004, or 31.4 percent in real terms, to reach RON 128.2 billion at end-December 2005. The market share of banks with majority private capital edged up 0.9 percentage points, of which the increase in the share of banks with majority domestic private capital accounted for 0.8 percentage points, while the market share of banks with state-owned capital declined; the share of banks with majority foreign capital grew merely 0.1 percentage points to 62.2 percent of total net assets. Concentration of bank assets of the top five banks went down to 58.8 percent from 59.2 percent.

During 2006 Q1, net aggregate assets increased further, reaching RON 132.9 billion in March 2006, 35.8 percent higher than in the same year-ago period (up 25.3 percent in real terms). Compared with end-2005, the composition of net aggregate assets was broadly unchanged, with the share of banks with majority foreign capital running at 62 percent at end-March 2006. Concentration of bank assets of top five commercial banks declined further to 57.8 percent.

Net Assets

 

 

 

 

 

Weight

Percentage change*

 

Dec.
2005

Mar.
2006

Mar.2006/
Dec.2005

Banks with fully or majority state-owned capital

6.0

6.0

3.6

Banks with majority private capital (including foreign bank branches), of which:

94.0

94.0

2.1

    - Banks with majority foreign
      capital, of which:

62.2

62.0

1.7

          - Foreign bank branches

7.5

8.4

14.4

 

 

 

 

TOTAL

100.0

100.0

2.2

* deflated by CPI

 

 

 

Behind the increase in banks’ net aggregate assets stood the 33.7 percent increase in lending to non-banks and the real 15.7 percent rise in interbank operations; operations in government securities rose by 7.8 percent. Operations with non-bank clients further held the largest share in total assets, i.e. 47.3 percent, followed by interbank operations on 31.8 percent, down 4.3 percentage points from end-2004. Dealings in government securities continued to have a low share (1.6 percent compared with 1.9 percent at end-2004). In 2006 Q1, the explanation for the rise in banks’ net aggregate assets lies with the step-up in lending and interbank operations (whose shares in total assets equalled 49.2 percent and 38.2 percent in March 2006). The value of dealings in government securities dropped sharply, coming to hold only 1.3 percent of total assets.

According to the monetary balance sheet, non-government credit posted an average monthly growth rate of 3.2 percent, or 2.5 percent in real terms, during 2005; at end-2005, it rose 45.3 percent over end-2004 (up 33.7 percent in real terms). The composition of non-government credit by currency was relatively steady in the first three quarters of 2005, i.e. 40 percent in domestic currency and 60 percent in foreign currency. Mention should be made that in 2005 Q4 the monthly growth rate of RON-denominated credit accelerated to 6.5 percent in real terms, while that of forex loans declined by 0.8 percent)[2] following the entry into force, in September 2005, of NBR Norms No. 11 on containing exposure from foreign currency-denominated credit and the drop in interest rates on new loans extended by banks to non-government non-bank clients. As a result, the share of foreign currency-denominated credit declined slightly in October, entering a trend that continued until the end of the year, when its share in total non-government credit stood at 54 percent.

In 2006 Q1, non-government credit saw an average monthly growth rate of 2.7 percent (2.2 percent in real terms), expanding by 51.7 percent in March 2006 against the same year-ago period (39.9 percent in real terms). Following the increase to 40 percent in the reserve ratio on foreign currency-denominated liabilities, the share of foreign currency-denominated credit in total credit continued to narrow, reaching 50 percent at end-March 2006.

Household credit accounted for 35.2 percent of non-government credit in December 2005, its weight widening by 6.8 percentage points from end-2004. Household credit exceeded in terms of value both investment loans (starting April) and output loans granted to companies (starting September). The share of household loans in total bank loans continued to widen to 37 percent at end-March 2006.

While at the beginning of 2005 RON-denominated credit prevailed, foreign currency-denominated credit regained ground, so that in September the two components held relatively similar shares in total household credit; however, at end-2005, following the above-mentioned steps taken by the NBR to contain exposure from foreign currency-denominated credit, the share of such loans in total household credit narrowed 6 percentage points to 44.1 percent, a weight similar to that seen in October-November 2004. By type of credit)[3], RON-denominated credit held a larger share in consumer credit (on average, more than 65 percent in 2005, peaking at 69.9 percent in December), whereas foreign currency-denominated credit took an overwhelming share of more than 91 percent in total mortgage credit in 2005 on average, peaking at 91.9 percent in September and bottoming out at 88.9 percent in December.

After having fallen throughout 2004, the share of consumer credit in total household credit resumed the upward path, reaching 73.4 percent in December 2005)[4], whilst the share of mortgage and real-estate credits narrowed. The same trend was manifest in the first quarter of 2006, with the weight of consumer credit in total household credit advancing to 75.5 percent (March 2006).

Corporate credit increased at a faster monthly pace in nominal terms starting September 2005, posting a monthly average of 3.5 percent at the end of the year, compared with 1.7 percent for the January-August period. This owed largely to the rebound in investment loans, which saw a monthly average growth of 5.1 percent September through December 2005 compared to 1.9 percent January through August. At end-March 2006, the annual growth rate of corporate credit was 34 percent, 0.2 percentage points faster than in December 2005.

Loan maturities continued to lengthen in 2005 as well. As of end-2005, according to the monetary balance sheet, long-term RON-denominated credit multiplied 6.7 times, taking 18.7 percent of RON-denominated non-government credit, compared with 4.8 percent in December 2004; long-term foreign currency-denominated credit rose 1.8 times, accounting for almost 32 percent of foreign currency-denominated non-government credit versus 22.8 percent a year earlier. Short- and medium-term credits witnessed slower growth and their share in non-government credit diminished accordingly. During 2006 Q1, the share of long-term credits in total non-government credit added 0.3 percentage points to 29 percent, to the detriment of medium-term credits, while the share of short-term credits stayed at 38 percent. 

In accordance with the bank rating criteria established by the NBR, at end-December 2005, not a single bank fulfilled the requirements imposed for the highest rating. Significant changes occurred under ratings 2 and 3. Thus, the share of assets of 3-rated banks widened by 8.8 percentage points year on year, whereas that of assets of 2-rated banks narrowed by 8.6 percentage points.

In 2006 Q1, for the first time in the past four years, there were banks which fulfilled the requirements for being assigned rating 1, accounting for 2.1 percent of total bank assets. Furthermore, the share of assets of 3-rated banks rose by 2.3 percentage points, to the detriment of the banks assigned rating 2.

The developments in the main prudential indicators show that the credit boom had no detrimental effects on the quality of loan portfolio, as the share of doubtful and overdue claims in total loans and assets remained unchanged over the year before while their share in own capital declined. The credit risk ratio inched down 0.3 percentage points to 2.6 percent, while the overall risk ratio edged up 0.8 percentage points, reaching 47.8 percent. As for the profitability indicators, ROA declined to 1.7 percent (from 2 percent in December 2004) and ROE fell to 13 percent (against 15.6 percent at end-2004). During 2006 Q1, the developments in profitability and prudential indicators were little changed – the share of doubtful and overdue claims in total loans and total assets widened by 0.1 percentage points each, whereas credit risk ratio, ROA and ROE remained at their end-2005 levels. By contrast, the general risk ratio went up 2.2 percentage points to 50 percent.

Key Prudential Indicators

 

 

 

 

Dec. 2005

Mar. 2006

A. Capital risk

 

 

Solvency ratio (>12%)

20.3

19.8

Leverage ratio (Shareholders' equity/Total assets)

8.8

9.1

B. Credit risk

 

 

Doubtful and overdue loans (net)/Total loans (net)

0.3

0.3

Doubtful and past-due claims (net)/Total assets (net)

0.2

0.2

Doubtful and past-due claims (net)/Equity (taken from prudential report on own funds)

1.5

1.8

Credit risk ratio*

2.6

2.6

General risk ratio

47.8

50.0

C. Liquidity risk

 

 

Liquidity indicator (Actual liquidity/Required liquidity)

2.6

2.5

D. Profitability

 

 

ROA (Net income/Total assets)

1.7

1.7

ROE (Net income/Total equity)

13.0

12.8

*Unadjusted exposure relative to loans and interest under "doubtful" and "loss"/Total loans and interest, less off-balance sheet items

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[1] The payment for the shares will be made after the Romanian party fulfils several requirements. The registration of the new shareholder in the Shareholders’ Registry will take place at the completion date (Source: BCR website).
[2] Calculations based on EUR-denominated foreign currency credit.
[3] According to data in “Financial Behaviour of Households and Companies by County”.
[4] Consumer credit accounted for 74 percent of total household credit at end-2003 and for 66 percent at end-2004.

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