This report covers the market developments and statistics data released up to end March 2014 – including complete short-term series as of Q4, 2013 and selected series for January-February 2014.

Romania’s banking system reported an aggregated profit in 2013 after three years of losses, announcing aggregated profits of RON 500mn [EUR 111mn at eop exchange rate] in full year after recording a deep loss in Q4. The loss hit RON 972mn [EUR 217mn] in Q4 alone, according to our calculations. Banking system’s assets edged up slightly by 1.8% year on year to 80.8bn at the end of 2013. Including the non-bank lenders, total assets contracted actually slightly by 0.4% year on year to EUR 91.1bn at the end of the year.

But the profits posted by many Romanian banks are just accounting figures [not reflecting the operational profitability] and by repatriating these profits, foreign banks are deteriorating the capital adequacy of their local subsidiaries, the head of the central bank’s supervisory department, Nicolae Cinteza, warned. Nonetheless the capital adequacy ratios for the whole banking system look very good at 15% at the end of 2013.

Romania’s banking system tends to become self-sufficient – in the sense of loan-to-deposit ratio. Deposits are expanding [though the speed has eased significantly recently] and foreign financial groups are decreasing their exposure. The loan-to-deposit ratio decreased to 101% at the end of February from 114% a year earlier, with the ratio defined for non-government customers. After including the government, the ratio decreased below 100% - to 86%, at the end of February from 98% a year earlier.

Local currency lending gains ground moderately as the central bank cuts the monetary policy interest rates, but not quickly enough to offset the contraction in the stock of forex lending Nonetheless, the central bank officials expect the overall stock of loans to expand within several months. There is still a problem with evaluating the stock of loans anyway, since some 30% of them are either bad loans or doubtful loans and NPL ratio is around 22%.

Romania’s stock of bank loans contracted by 2% year on year to RON 218.3bn [EUR 48.5bn] at the end of February. Yet, loans expressed in the local leu currency expanded - by 1.4% year on year for households and by 2% year on year for non-financial corporations, according to central bank data.