Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Another chance to tap a promising market

A second round of consolidation and privatisation has begun in Romania’s banking sector, offering attractive propositions for growth. Matei Paun reports.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Romania’s banking sector is a dream come true for any banker looking for a dynamic and growing market. It seems the sky’s the limit for a country with a population of about 22 million, a booming economy and one of the lowest banking intermediation rates in Europe.

The banking sector has consolidated in the past few years and has become increasingly sophisticated since the first boom. This occurred in 1998-1999, when BRD, Banca Agricola and Bancpost were sold to Société Générale, Raiffeisen and EFG Eurobank respectively. Now another boom has started in earnest.

Acquisition courtship

UniCredit may have managed to break into the top bracket of the Romanian banking sector in less than a month. HVB agreed to acquire Tiriac Bank after a long courtship that began nearly two years ago. While following a rather long and twisted path, the sale, at one time or another, attracted interest from more than a half dozen institutions, including Piraeus, BNP Paribas, National Bank of Greece, Société Générale, OTP, Erste and Bayerische Landesbank.

The newly merged bank, which has been renamed HVB Tiriac and now comprises 72 branches and about 720,000 clients, racks up a 7.5% market share, ranking it fourth in asset size. Tiriac Bank finished 2004 with total assets of €620m and a profit of €17m. HVB topped €1bn in assets and posted a profit of more than €20m.

Although specific details of the transaction have not been released, it is understood that Romanian business tycoon Ion Tiriac has maintained a considerable interest in the new bank. This follows the same pattern of his earlier sale of Tiriac Insurance to Allianz, now renamed Allianz-Tiriac.

This creates a powerful combination that will only intensify the competitive pressures in the sector. Erich Hampel, CEO of HVB-owned Bank Austria Creditanstalt, said: “This decision offers us an important advantage with regard to our direct competitors.”

Market share

UniCredit’s proposed acquisition of HVB will boost its overall market share to 8.8%. This also presents something of a challenge to Romania’s government, which is intent on selling Romanian Commercial Bank (BCR), the country’s largest bank, which last year enjoyed a market share of 30%.

UniCredit and HVB were originally thought to be two of the strongest contenders for the planned privatisation of BCR. But it is now an open question whether UniCredit will still be interested. Even if they do proceed, they will do so on a full stomach. While others, namely Deutsche Bank, Intesa and BNP Paribas, have shown a strong interest in the privatisation, it is to be expected that this recent string of acquisitions will lessen the competition for BCR somewhat.

The Romanian government intends to sell a minimum of 50% plus one share, up to a maximum of 58%. This includes the 25% plus two shares that the International Finance Corporation and the European Bank for Reconstruction and Development acquired jointly for $222m two years ago.

An additional 4% owned by the government will be transferred to the Property Fund, which is being set up to compensate people who owned property that was confiscated by the communists and who have not yet been restituted. The balance is owned by BCR employees and five local investment funds.

Eyes on the price

Calin Popescu-Tariceanu, Romania’s prime minister, made it clear recently that “price maximisation” would be an important criterion in the privatisation process. This comes as no surprise given that BCR’s first quarter profits rose by 3%, compared with the same period last year, to about €72m. Total assets grew by 1.3%, in real terms, to about €6.7bn. Initial letters of interest are expected in early July and the government has set an ambitious target date of the end of November for signing a sales agreement.

Consolidation ahead

The consolidation of Romania’s banking sector is set to continue with the sale of the CEC (the state savings bank), which should follow the privatisation of BCR. Other small and medium sized local players are also expected to consolidate in the coming years. Eyes are fixed on Banca Transylvania in particular, which is expected to go on sale in either 2006 or 2007. Either way, in two years at most, Romania’s banking sector could be privatised and increasingly competitive.

Romania’s first and leading consumer finance company, Credisson, was recently sold by Oresa Ventures of Sweden to BNP Paribas. This will introduce a seasoned veteran with an impressive balance sheet and add further pressure to an already competitive retail credit sector.

All this is taking place against a background of strong business growth. The economy is expected to grow by up to 6%. This is leading to good profitability levels based, in part, on still healthy interest margins but also on continued volume growth, particularly in the retail sector.

Market pressures

Nevertheless, profitability and margins are expected to come under some pressure as competition heats up and expenses increase as a result of the costs of expanding branch networks.

Keeping an eye on the quality of the credit portfolio will become increasingly difficult, particularly as an ever-higher proportion of loans are denominated in foreign currencies (mainly euros). In the event of possible currency fluctuations, these may come back to haunt bank managers who are now eager to take advantage of the large spreads. At the same time, the banking sector suffers from a balance sheet mismatch that stems from a tendency towards short-term deposits and longer-term credits, particularly from the growing mortgage sector. Also, the present batch of credits (notably on the retail side) is as yet untested in less favourable economic conditions, which will inevitably arrive.

The second round of consolidation that has begun in Romania’s banking sector will surely transform it as much as – if not more than – the first round of privatisations and consolidations. Banks that missed out on the first round now have a second and, most probably, last chance to take advantage of one of New Europe’s most promising markets.

Was this article helpful?

Thank you for your feedback!

Read more about:  Central & Eastern Europe , Romania