If the past years have tested our resilience in individual areas of the economy, 2020 has exceeded our “expectations” – apart from being an year marked by geopolitical unrest, it has been a year that has gathered all decision makers, both political and private, around a roadmap. We stand together one and all, piloting economies that experience for the first time the greatest quarantine in the history of modern world, together facing a microscopic enemy that had a symmetric and simultaneous impact on all economy channels: demand, offer, tax and finance.
We are experiencing a systemic crisis, with a strong impact on economies, stock markets and society. We, the Romanian finance system, have entered the crisis with an unprecedented collection of strong points that make the banking industry be part of the solution and not of the problem.
Looking at the soundness and stability indicators of the Romanian banking system, we ranked above the European averages at the end of 2019, with the quick ratio close to 44% and the capital ratio – which indicates the capitalization rate of the banking industry – reaching 22%. The stability and soundness of the banking industry have also maintained in the current pandemic context, with the mid-year solvency rate at 22.76% and the non-performing segment dropping abruptly close to the European average.
Another thing that the system did well was to support the suspension of loan payments, offering critical breathing space to its customers.
According to public data, more than 22% of the nongovernmental retail loans and more than 28% of the corporate loans are subject to that moratorium, percentages that cannot be deemed to be insignificant, nor without any impact on the system. Furthermore, in the first six months of the pandemic, statistical data show that banks have awarded loans worth RON 38.5 billion, which accounts for 14% of the non-governmental loan balance.
Remembering Winston Churchill’s saying that we should “never let a good crisis go to waste”, we also have to look at the most important positive effect generated by the pandemic, which is the acceleration of digitalization by automating the banking processes, which shall lead to lower costs and, further on, to resilient business processes.
One of our downsides compared to other countries, i.e. the banking system’s relatively limited footprint in the economy which translates into a mere 25% financial intermediation ratio, suddenly became an upside: it is a very good thing that we are a market with a quite small financial footprint. We have a great growth potential, we have a banking system that could commit to more loans than it currently undertakes, but we must grow in those sectors that will have a positive impact on the economy.
The future is being written here and now and the decisions we make this year will impact the next financial years; it is a face-off between the uncertainties already presented and to be presented by the COVID-19 crisis and the shaping of the future under the threat of the economic effects of the crisis, making use of the tools available to us socially, economically and politically. The main milestones on the road map are how we react to what is coming next and finding sustainable strategies.
In the upcoming period, we need to separate the positive drivers from the negative drivers that could have an impact on us. The main negative driver currently under the review and assessment of the banking system is the rise of the credit risk. This can manifest through greater non-performance and provisioning, which the banking system shall need to undertake soon.
Economy downturn is another negative driver, which will immediately result in less confidence for both individual and corporate investments. We have started a cycle of decreasing confidence in the economy, which we have seen before, in the interval of 2010-2014.
Before the emergence of the pandemic, Romania had seen a period of economic growth consistent with the trends of the European developments. However, no country is immune to the effects of today’s context.
The paradox is that financial intermediation might grow this year in Romania due to the base effect. Increased crediting and a lower GDP shall lead to a higher financial intermediation ratio in 2020, but, keeping in mind all the contextual issues, it will be very important how we act next year so that the slope of the economic revival be as steep as possible. One necessary step to support the growth of the financial intermediation ratio is to update the Romanian economy and society with European money. A second significant issue is society-wide structural digitalization. Third come the predictability and competitiveness of the regulatory framework, while the fourth matter is to identify nationwide priorities of the investments, we need to make to speed up Romania’s economic revival. Focus and efforts in 2021 should go to the areas where we can get the fastest effects and greatest traction for the Romanian economy.
In this context, the Romanian Association of Banks (RAB) with its close to three decades of history takes on an active role in calibrating the adequate measures to reinvigorate the economy together with the authorities. Regardless of the disruptions that have occurred, which should not be amplified by unfit legislative steps, the banking industry remains a partner for the Romanian government, people, and companies.
At social level, we have ideas and priorities, some of which are convergent with those of a large part of the society, and some are less so. Our common goal is to pace the steps to streamline the measures aiding economic recovery.
I will conclude by saying that we stand beside all our dialogue partners, bank leaderships, affiliated members, of the specialized Committees and the executive leadership of ARB, and we would like to thank them all for their openness and their input in developing Romania’s economy and increasing economic wellbeing.
President of the Board of Directors
Romanian Association of Banks