Romanian banks dominate EU's profitability charts, recording higher earnings, yet displaying reduced lending rates
Romania's banking sector has emerged as a beacon of resilience in Europe, boasting the highest profitability in the EU despite a low loan-to-deposit ratio. This impressive feat is primarily due to strong operating performance, efficient cost management, and robust capital ratios, rather than aggressive lending.
The sector's resilience can be attributed to several key factors. First, Romanian banks maintain high capital adequacy, with common equity tier 1 (CET1) capital ratios that are among the strongest in the continent. For instance, Erste Group reported a CET1 ratio of 17.4%.
Second, the banking sector experiences relatively low impairment losses, which limits profitability-draining write-offs. This is evident in the improving non-performing loan (NPL) ratio, a trend that has been attributed to prudent lending practices and effective risk management measures implemented in recent years.
Third, the low loan-to-deposit ratio signals conservative lending relative to deposits, minimizing credit risk while maintaining ample liquidity. This structure allows banks to optimize returns on assets and capital, preserving profitability.
Fourth, banking taxes in Romania are stable but manageable, with taxes such as the banking tax not unduly hampering net profits, which have in some cases grown year on year.
This contrasts with sectors relying heavily on aggressive loan growth, which face higher credit risk and impairment costs that suppress net returns. Thus, Romanian banks maintain high profitability through prudent risk management, efficient operating models, and strong capital buffers even with lower loan-to-deposit ratios.
The Romanian banking sector benefits from a relatively stable macroeconomic environment, high interest margins, and limited lending exposure. These factors have enabled Romanian banks to absorb market volatility more effectively than many of their European counterparts, maintaining strong capital buffers.
The National Bank of Romania (BNR) noted these findings in a report based on European Banking Authority (EBA) data. The report highlighted that the Romanian banking system is in a favorable position across key financial and prudential indicators, with solvency, balance sheet structure, and profitability metrics above European averages and within the optimal thresholds set by the EBA.
Asset quality in the Romanian banking sector has remained stable, and the NPL ratio in Romania has declined substantially since 2018, although it remains marginally above the EU average. This improvement, coupled with the sector's resilience, positions Romania's banking sector as a model of stability and profitability in the EU.
References:
- European Banking Authority (EBA) Report on Romanian banks
- National Bank of Romania (BNR) Quarterly Report on the banking sector
- World Bank Group, Romania Country Overview
- BCR Annual Report 2020
- Romania's banking sector, renowned for its resilience, maintains its position primarily due to factors such as strong capital adequacy, low impairment losses, conservative lending strategies, and favorable tax policies, which collectively contribute to high profitability and stable asset quality.
- Businesses operating in the Romanian banking sector commend the sector's efficient cost management, robust capital ratios, and prudent risk management measures, making it a beacon of resilience within the European Union, with profits surpassing those of many other EU countries despite a low loan-to-deposit ratio.
