Romania Ctrl Bk: Higher Margins, Asset Sales Bolster Short-Term Banking Revenue

„Banking profitability slid into negative territory in the first half of 2010, particularly due to higher costs with provisions. The banks initiated cost-control measures (…). Higher interest margins on both leu and foreign currency denominated products, selling immobilized assets and purchasing state notes were the most frequent strategies applied to improve the banks’ short-term financial position,” the central bank said in its latest annual financial stability report.

End-June, the banks’ operating profit was 20.6% higher compared with the year-ago period, as operating income fell at a slower pace than the expenditure, the report noted.

The cost to income ratio on the domestic banking market improved by 8 percentage points in June to pre-crisis levels, central bank data showed.

„We estimate banking profitability will remain under pressure for the remaining of 2010, due largely to higher provisioning following the continued deterioration of asset quality induced by lower appetite for risk and further economic adjustments required by a persistent recession,” the report noted.

Romanian banks reported combined a net loss of 234 million lei (EUR1=RON4.2396) in the first half of 2010, from earnings of RON90 million in the same period a year earlier.

The local lenders booked provisions amounting to RON20.2 billion in January-June, nearly 80% higher on the year.

Nonetheless, the system’s capitalization rate stood at 14.3% at the end of June, above the 8% level imposed by the central bank, the report noted.