The Romanian banking system
In Romania, the banking industry has – due to the specifics of its activity – a key role in the smooth functioning of economic and financial mechanisms, with impact on macroeconomic developments, the business environment dynamics and the improvement of economic welfare in our country.
The Romanian banking sector includes 34 credit institutions of which 8 represent branches of foreign banks. The Romanian banking sector’s assets stood at 664.4 billion lei at the end of June 2022. About 67.6% of the Romanian banking sector’s assets are held by credit institutions having foreign capital, a downward trend compared with 91.3% at the end of 2016.
During the pandemic, Romania witnessed an increase in financial intermediation (calculated as weight of non-government credit against the GDP), up to 27%, after almost a decade in which its pace kept decelerating. In Romania, the banking sector holds three quarters of the financial sector’s assets. Romania ranked last in the EU as regards the weight of banking sector’s assets against the GDP at the end of Q3 2021 – namely, 56.1% compared to 246.1% in the EU. Financial inclusion advanced to 68%, boosted, among others, by the mobility restrictions in the context of the pandemic.
Our goal is the enhancing of financial intermediation toward the European average of 92% and financial inclusion from 68% toward the European average of 95%. Reaching this goal would allow for the increasing of the Romanians’ economic welfare and, at the same time, catching up (as regards the gaps) compared to the European averages.
The growth rate of non-governmental lending remained at the highest level compared to the last 13 years, being 16.8% at the end of July 2022, but a slight moderation in the level of credit demand is observed. The share of credits in lei represents 72.7%.
The new loans granted by Romanian banks to the population and companies in the two years of the pandemic, in the period 2020-2021, amounted to 194.5 billion lei, which shows the support the banking sector offered for the development of Romanian society. In the two years under review, lending was driven by the companies segment, with a share of more than 55% of loans. In 2021, the second year of the pandemic, in which the state of alert was maintained, there was a 31.5% increase in the total volume of new loans granted, up to 110.5 billion lei, compared to 2020, due to the accommodation population and companies in the context of the pandemic and due to the intensification of activity compared to the previous year.
Thus, in the context of the pandemic, Romanian banks granted loans in a sustained manner, as in a normal period and on a sustainable basis. In 2021, the share of new loans represented a third (34%) of the non-governmental loan balance at the end of the year, which amounted to 324 billion lei, according to data from the National Bank of Romania. This high share of new loans in the balance of non-governmental credit is explained by the short maturity of some loans, under one year, especially in the area of companies. The loans accessed by companies amounted to almost 61 billion lei in 2021, which means a 25.4% increase compared to the previous year.
The degree of non-performing loans coverage with provisions is 67.22% in March 2022, much higher than the European average of 44.5%.
The rate of non-performing loans stood at 3.01% at the end of June 2022, but certain vulnerabilities can be observed among those who resorted to the moratorium. The non-performance rate for those who resorted to the moratorium is three times higher than for debtors who did not resort to this facility (13.8% compared to 4.2% in the case of non-financial companies, respectively 10% compared to 3 % in the case of the population, according to BNR data). Lenders now have solutions to address the financial problems of those customers who are experiencing difficulties at the moment. It is very important that these solutions are calibrated to the specific needs of customers.
Savings advanced at an annual rate of 9.7% in July 2022, the deceleration of the growth rate of savings being explained by the lower resources for saving generated by the vacation period and against the backdrop of inflationary pressures, as inflation reached 15 .32% in August.
The contribution of the banking system to the economy
- In Romania, the banking sector’s economic impact is estimated to have stood at 2,247 billion lei during 1990-2020, according to the survey ″The contribution of the banking sector to the economy in the last 30 years″, drawn up by KPMG Advisory upon the request of the Romanian Association of Banks. The impact of the banking industry on the production of goods and services amounted to 2,087 billion lei, while the impact on the remuneration of employees and on household consumption stood at 160 billion lei.
- The total direct, indirect and induced impact upon the production of goods and services brought about by financial intermediation during 1990-2020 against Romania’s 2020 GDP stood at 198%.
- The contribution of financial intermediation in Romania can be directly quantified as the sector’s weight against the GDP. Function of the year, the financial intermediation sector has contributed directly between 2.5% and 3.5% to the GDP. During 1990-2020, the direct contribution to the production of goods and services stood at 1,546 billion lei.
Advances in the field of digitization
The banking sector of Romania made notable progress during the pandemic, taking into account digitalization. In 2022, financial inclusion stood at 68% compared to 58% in 2017. The passage to cashless and contactless operations is a trend which has intensified lately contemplating the digitalization of banking services. Before the pandemic, 94% of payments made in Romania were made in cash, but after the first year of the pandemic, 27% of bank customers made payments via Internet/Mobile Banking.
The value and number of the payment transactions made by cards issued by resident payment services providers went up by 53.3% in December 2021 compared to December 2019. The value of card payment transactions amounted to 48.5 billion lei while the number of payment transactions stood at 365 million.
Since the outburst of the pandemic, we have been witnessing the consolidation of the investments in digitalization and the expansion of the array of online products and services. The value of the expenses underlying the digitalization segment in the first two years of the pandemic, for the first 15 banks function of their market share, amounted to 2 billion lei.
For 2022, there is some unpredictability which could influence the maintaining of the growth pace of bank ratios similar to the one of last year. This situation is generated especially by the conflict at Romania’s borders, the risks regarding the deterioration of macroeconomic balances and the evolution of the pandemic. The risk map identified by the NBR when it comes to financial stability signals two severe systemic risks and two high systemic risks. Under severe systemic risks, there are the uncertainties generated by the current context of the war in Ukraine, the Covid-19 pandemic and the energy crisis, next to the deterioration of domestic macroeconomic balances. Under high systemic risks, we find, on the one hand, the possibility of an increase in the NPL rate and, on the other hand, the delaying of reforms and the absorption of European funds, especially as regards NRRP. We have been witnessing high volatility contemplating all these risks.
One of the opportunities that the banking sector has is the possibility of direct involvement in the National Recovery and Resilience Plan (NRRP). The banking sector can play a major role in the successful deployment of some government initiatives which support the post-pandemic recovery of certain industries. We mean the potential the banking sector has to support the development of the Romanian society in general. The acceleration of digitalization represents but another opportunity to enhance financial inclusion in Romania moving it toward the European average.
