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Foreign banks’ invasion pays

Privatisation in the Romanian banking sector has sent foreign assets soaring in the last six years. And the flurry of activity shows no signs of dissipating.Since privatisation began with the 1998 sale of the Romanian Development Bank (BRD) to France’s Société Générale Groupe, the percentage of banking assets represented by foreign banks in Romania has skyrocketed to more than 50%. Besides the French, the Austrians are traditional players in the central and eastern Europe (CEE) banking sector, as are the Greeks, playing on their regional familiarity. The Dutch, Italians and even the Americans, through Citibank, also have considerable presence.
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Few traditional CEE banks lack

presence in Romania, though markedly absent are the Dutch KBC Group, Austria’s Erste, Italy’s Intessa and Hungary’s OTP. It is rumoured that at least some of these contenders are reconsidering their expansion strategies so as to include Romania, which would further consolidate the market.

Austrian success

In a strong turnaround performance, Raiffeisen managed a net profit of e4.6m in 2003, as opposed to last year’s e10m loss. This represents its first profitable year in Romania since it acquired Banca Agricola in 2000. Steven van Groningen, the bank’s president, resolutely states the bank “aims to be the third largest in Romania, with a market share of between 10% and 15%”. Raiffeisen now has 7%-8% of the Romanian market.

Raiffeisen hopes to reach its goals by doubling its 2004 profits toe9m and increasing its assets by 60%. It managed to boost its assets in 2003 by 55% to slightly more than e1bn. In 2004, the rate of asset growth is expected to decline somewhat due to a forecast rise of 20%, as the bank aims to focus more on consolidating the deposit side of its business, after focusing more on credits in 2003.

As such, loans had a particularly strong rate of growth, posting e677m in 2003, reflecting 150% over 2002. Nevertheless, deposits struggled to keep up, growing by only 40% to reach e674m.

More newcomers

In spite of this already aggressive exposure, Raiffeisen, together with Bear Sterns, is also financing nearly e500m of Romania’s newly announced, first multi-billion-euro highway project, to be built by American construction firm Bechtel; $250m was financed in 2003, while the rest will be disbursed in 2004. Part of the financing is guaranteed by the US Exim Bank, and the project has a completion due date of 2012.

Raiffeisen will be busy this year, as it is planning to invest e55m into its expansion in 2004. This comes on top of the e33m already invested in 2003 and the e20m allocated for 2002. The bank plans to focus on improving its IT system, developing its retail network and expanding its personnel training.

Hot on its trail is HVB. Though half the size of Raiffeisen with e500m in assets, HVB’s Romanian operations generated profits in 2003 of more than e8m, 30% higher than those of 2002. Traditionally focused on the high-end of the market, HVB is making strong inroads into the retail and real estate segments of the market. It is also one of two contenders vying for the purchase of consumer finance pioneer Banca Comerciala ‘Ion Tiriac’. Volksbank is the smallest of the Austrian banks present in Romania, although it has a strong leasing division and has been considering acquisitions.

First and biggest

Majority owned by Société Générale Groupe since 1998, BRD has an 18% market share of total banking assets, making it the largest private bank in Romania. In euro terms, BRD reported slightly lower profits of e62.5m for 2003, as opposed to e64.5m for 2002. In spite of this, the bank’s market capitalisation surged to more than e1bn amid banking regulations allowing for a higher payout ratio and speculations of capital increases. This compares very favourably to five years ago, when the bank’s market capitalisation registered e300m-e400m.

Looking ahead, the chief executive of BRD, Patrick Gelin, notes: “Our strategy for 2004 includes being more active in factoring in order to finance very small companies for which we are now drafting an offer and to play a more active role in the public sector.” BRD is also looking at an aggressive expansion strategy in 2004, adding 40 new branches to its existing 180 and focusing on its card market, mainly by introducing new products in this segment. Moreover, it is keen to enter into public-private partnerships for infrastructural projects – certain to be a hot topic on Romania’s road to EU accession.

While initially reluctant due to a perceived lack of a secondary trading market, BRD is looking to place ROL500bn (e13m) of bonds into the local markets by April 2004. This will represent one-third of the total outlay planned for this year and is part of the bank’s strategy to diversify its funding sources and secure longer maturities. The bonds will have a maturity of three years and carry a variable quarterly coupon. More banks are set to follow suit, as banks remain primarily deposit-funded and customer deposits account for more than two-thirds of all liabilities.

Other developments to look for in 2004 include the long-expected sale of the Romanian privatisation agency’s remaining 7.3% stake in BRD, probably through a secondary public placement. It is thought this could increase liquidity in its shares, thus attracting larger regional funds and further boosting the bank’s market capitalisation.

Greek ambitions

In a clear example of Greece flexing its regional muscle, the country has leveraged its traditional familiarity with the Balkans into a strong market presence in Romania. Alpha, Piraeus, EFG Eurobank, Egnatia and National Bank of Greece (NBG) have all been present in Romania for a number of years.

It was in 2003 that EFG Eurobank finally succeeded, after a number of years, in establishing majority control over Bancpost, gaining 53% of its shares. Furthermore, its shareholding could jump to about 62% in the course of this year, as it is expected to exercise its option over a stake currently owned by GE Capital. Bancpost has total assets of more than e500m.

The Romanian operations of the Greek bank, Piraeus, registered profits of around e2m on assets of close to e170m, an increase of more than 30% on 2002. For 2004, Piraeus aims to grow its assets to e240m, though this does not take into account the fact that it is looking to aggressively increase its market share through two potential acquisitions – Banca Comerciala ‘Ion Tiriac’ and the smaller RoBank.

NBG has recently expanded its presence on the Romanian market by acquiring 81% of Banca Romaneasca. NBG’s total Romanian assets now amount to e250m. In 2003 the Romanian American Enterprise Fund sold to NBG its share of Banca Romaneasca for the reported sum of $40m. The European Bank for Reconstruction and Development (EBRD) is now in discussions with NBG to take a 15% stake in the bank for e5m-e6m. The EBRD’s participation would seek to modernise the bank’s activities and help it focus on the growing small to medium-sized enterprise sector.

An Italian wave

Though present in Romania, Italy’s champions have not been as aggressive as some of its neighbours in taking advantage of the market’s growth potential. Even if Unicredito has yet to leverage the full force of its experience and resources, it is promising to make inroads into the market in the near future by focusing on card products and the retail sector.

Another example of a “small giant” is the tiny Romanian branch of Italy’s San Paolo IMI group which will receive a e5m boost to its capital base as a first step in its long-awaited expansion plans. The Italian banking group acquired the local West Bank in two transactions, beginning in 2001, for a total acquisition cost of nearly e18m.

The sleeping giant

With more than 1600 branches, state-owned CEC savings bank is Romania’s great sleeping giant. Though lagging in terms of modernisation, it managed to double the credits it extended in 2003, reaching in excess of e170m. In particular, retail loans, accounting for the vast majority of loans, more than doubled to slightly higher than e150m. Corporate credits registered a slower growth rate of 34%, which is less than e20m.

This growth has also translated into higher net profits for 2003 of nearly e12m, more than double 2002’s performance. This came as a relative surprise, as profits were, in fact, expected to reach less than half of those reported, but it is explained by the bank’s aggressive restructuring programme that has resulted in the closure of 200 branches and dismissal of about 20% of the workforce since 2001. For 2004, the bank expects to produce similar results, as it anticipates entering the card market and further restructuring its branches and forex operations.

In a bid to fulfil the bank’s universal banking mandate, Constantin Teculescu, CEC’s president, has recently indicated the institution aims to establish both a leasing and stock brokerage company by year-end. Also planned is a joint venture with Germany’s Erste Bausparkasse to focus on the mortgage sector. All in all, CEC intends to invest in excess of e11m in its development in the coming year.

Whoever snatches up CEC could well come from behind to gain the lead in Romania’s banking market. The privatisation process is expected to begin sometime in 2005 and finish by 2006.

Local all-stars

Owned by one of Romania’s wealthiest and most respected businessmen, Ion Tiriac, who also achieved international fame as a tennis champion and manager of other tennis stars such as Boris Becker, Banca Comerciala ‘Ion Tiriac’ was founded in 1991 as the first private bank to operate in Romania. It has since evolved with the market, emerging from the 1990s with a cleaned-up balance sheet, new management team and revamped strategy.

In the past several years, Tiriac bank has focused on the retail market, pioneering the consumer loan segment and establishing a strong franchise in the card segment. One secret to its success is the strong relationships it has built with some of Romania’s leading retailers, thus providing it with tremendous reach.

With total assets of nearly e500m, Banca Comerciala ‘Ion Tiriac’ is up for sale. Both Piraeus and HVB are in the running for an acquisition that could radically change their positions on the Romanian market and give Tiriac bank the necessary resources to further leverage its existing lead in the retail sector.

Banca Transilvania is one of the most actively traded stocks on the Bucharest Stock Exchange, with a recent market capitalisation exceeding e150m. Owned by a group of Romanian businessmen, together with the EBRD, which has a 15% stake, Banca Transilvania is the only institution of note that is not headquartered in Romania’s capital, Bucharest. Instead, it is based in the provincial Romanian capital of Cluj. In 2001, Banca Transilvania appointed a new management team and embarked on an aggressive expansion strategy that has since taken it to more than 70 branches and agencies and separate divisions in leasing, insurance, securities trading, and consumer finance.

For 2003, preliminary results point to profits of nearly e14m, which is 3.5% over 2002 and 12% over what was initially expected. In terms of assets, it counted some e300m in September 2003. Tiriac bank and Banca Transilvania represent the last two mid-sized acquisition targets, and Banca Transilvania is likely to command a hefty premium upon its sale, expected sometime in the next 12-18 months.

Balli Group, an Anglo-Iranian commodities trading house, is attempting to sell its stake in RoBank, a small,corporate-oriented institution holding less than 1% of total banking assets. Piraeus and Hungary’s OTP both have declared their interest in acquiring the bank, whose value estimatedly tops $50m. If OTP wins the bid, then this would not only introduce a new player into the Romanian banking market, but it would also further OTP’s well-known regional ambitions.

In association with Banca Comerciala Romana

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