Romanian banks’ profits exceed EUR 2 bln, resulting in 21% ROE in Jan-Sept

Romania’s 32 banks achieved an aggregated net profit of RON 10.4 billion (nearly EUR 2.1 billion) in January-September 2023, which is 16% of their equity, resulting in an annualised return on equity (ROE) of 21.3%, far above the 16.4% posted in 2022 and 13.3% in 2021.

The annualised return on assets (ROA) was 1.9%, up from 1.5% in 2022 and 1.36% in 2021.

Bank profitability was never so high in Romania, not even during the 2007-2008 real estate bubble that ended with the broad economic crisis, credit crunch and the dramatic deterioration of the credit quality not measured at that time by the National Bank of Romania (BNR) but revealed by the first readings at above 20% in 2014.

This time, the banks’ profitability is built not on quick lending (stock of loans was only 4.5% up y/y as of September) but on robust net interest income. Household purchasing power is much stronger compared to 2007-2008, and the companies are in a stronger financial position, which translates into significant “consumption” of loans – on the other hand, visible in banks’ profits, counted as value-added and a positive contribution to overall economic growth.

High profitability means inter alia banks can afford to pay 7.5% coupons on their euro-denominated MREL bonds, a yield that may seem impressive but is only a fraction of their ROE ratio.

Indeed, the non-performing loans (NPL) ratio was only 2.6% at the end of September 2023, down from 2.8% in September 2022 and 3.8% in September 2021.

The banks’ assets increased by 11.5% to RON 757.3 billion (EUR 152.2 billion) at the end of September – nearly three times faster than the stock of loans (+4.5% y/y). The loan-to-deposit ratio remains below 70%. The ratio was lower only during the COVID-19 crisis, when lending was frozen for a period before the government stepped in and provided abundant guarantees for corporate lending.

(Photo source: Alexandru Marinescu/Dreamstime.com)