Fitch Says Global Econ Slump To Hit Romanian Banks

Fitch Ratings agency said Friday in a report that the global financial turmoil has increased the risks for Romanian banks, as banks’ funding will shrink, the cost of funding will rise, which would result in slower economic activities, higher impaired lending and lower profitability.

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"Ongoing margin compression, slower loan growth and rising impairment charges as a percentage of loans are expected to be dominant features in the Romanian banking landscape," Gulcin Orgun, director in Fitch's Financial Institutions team said.

Fitch noted the Romanian banking sector's performance has been affected by margin compression mainly due to increased funding costs, higher expenses related to the continued expansion of branch network and higher loan impairment charges.

However, Fitch said that while loan growth is slowing, it is still high and continues to increase credit and operational risks at Romanian banks.

“Some signs of asset quality deterioration are already evident. The high share of foreign exchange loans is an additional risk in the event of a sharp depreciation in the RON,” Fitch said.

Also, Fitch noted that overall liquidity of Romanian banks is comfortable “owing to stringent regulatory measures.”

“From a capital adequacy perspective, the banking system stood at 12.78% at end-H108, above the regulatory minimum of 8%. Nevertheless, faced with growing asset quality concerns, mounting risks in the operating environment and profitability pressure, Fitch believes banks would benefit from more conservative capital management,” Fitch stated.

Ratings agency Fitch has lowered earlier this week the sovereign ratings on Romania by two notches, citing vulnerabilities in the emerging markets, spurred by the global crisis and the countries’ high current account deficits.

Thus, Romania’s long-term foreign currency IDR downgraded to 'BB+', with a negative outlook from 'BBB'.

Fitch said Romania’s two-notch downgrade reflects concerns about the macroeconomic policy framework in Romania and the country’s ability to deal with a severe economic and financial crisis.

Following Romania’s sovereign rating downgrade, Fitch also has downgraded five Romanian banks, namely BCR, BRD-GSG, Bancpost, UniCredit Tiriac Bank and Banca Romaneasca.

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