McKinsey expects RO banks’ revenues after risk to drop by a third in 2021 vs 2019

Banks in Romania could register an estimated loss in banking revenues after risk of around RON 58 billion (EUR 11.9 bln at the current exchange rate) by 2025, due to risk costs and decreased volumes, compared to the revenues that were expected before the pandemic, according to the latest research by McKinsey&Company Romania.

Banks are likely to face a two-stage challenge in the months and years to come. Credit losses will peak in the short term, by the end of 2021, as payment moratoria come to an end and Romanian banks will face a wave of distressed borrowers.

They will have to act quickly to manage them with minimal impact on provisioning, and McKinsey believes that banks can expect 10 to 15% avoidance of risk costs by transforming collections. Then, local banks could face a profound challenge to their on-going operations due to increased pressure on revenues and margins amid a muted global recovery in the medium term.

The most likely situation long-term is one of slower growth. Banking revenues after risk may decline by up to one-third in 2021 compared to 2019, McKinsey estimates.

Banks could stay below 10% in terms of return on equity after the pandemic, compared to an average of 12.6% in the period 2016-2019. Demand for both consumer and corporate lending may remain anemic for a while.

“The current crisis poses fundamental challenges to the way banks work in Romania, so they need to learn from the crisis and adapt accordingly. There are at least two key areas that banks should prioritize in the next period: strengthening the risk-management capabilities and securing the foundations for further growth to limit the negative impact of the pandemic while preparing to capture further growth via the right mix of product and channel, aligned with customer changing needs,” says Alexandru Filip, Co-ordinating Partner McKinsey & Company Romania.

(Photo courtesy of the company)