AT Kearney: Romanian banks to barely break even over next 18 months

Shrinking revenues and rising risk costs will result in the Romanian banks' profitability dropping close to zero over the next 18 months, according to the head of AT Kearney's local office, Ștefan Marcu.

According to his estimates, a lower propensity for borrowing and shrinking individual incomes will result in fewer loans; hence, the banks' revenues could drop by 15%-20% over the next 18 months, Economica.net reported.

Separately, the rising risk costs will also squeeze the banks' profitability. The risk costs could rise mainly for old loans, granted one to three years ago to companies that now show signs of weakness. In this context, cutting operational expenses is critical, Marcu concluded.

The Romanian banks' overall profit remained close to the all-time high in 2019. However, their earnings already deteriorated in the first quarter (Q1) of 2020, although Romania's National Bank (BNR) did not impose a provisioning policy ahead of the coronavirus crisis.

The return on assets (ROA) and return on equity (ROE) at the end of 2019 were 1.35% and 12.32%, respectively. In Q1, 2020, the average ROA dropped to under 1.3% from 1.6% in the same period last year. The return on equity (ROE) also went down from 14.5% to 11.7%.

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