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New entrants in profits drive

Matei Paun reports on the host of foreign banks hoping to cash in on Romania’s burgeoning finance sector.
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The Banker’s recent Banking on Romania conference confirmed the strong development of Romania’s banking sector with competition set to rise as new entrants aim to grab a slice of the growing finance sector.

Looking to capitalise on new niches brought about by Romania’s booming real estate market, Raiffeisen Bank has launched a joint venture with Bausparkasse Schwäbisch Hall (BSH) that aims to introduce to the Romanian market the German banking model. Since 1948, BSH has financed the building or refurbishment of over seven million homes in Germany, and is today working with over 10 million clients across the CEE.

Another Austrian player, Porsche Bank, is opening a Romanian operation as it seeks to fund the sales of automobiles belonging to the German Volkswagen group. Presently VW brands are in the lead with over 14,000 automobiles imported in 2003. By expanding to Romania, Porsche Bank hopes to add to the €906m in assets it had at the end of 2002. This will likely result in increased competition in the automobile financing sector of the market.

Hungarian interest

A less specialised but certainly no less ambitious player, Hungary’s OTP, has recently entered the Romanian market through its acquisition of RoBank. Following on its recent moves into Bulgaria and Slovakia, OTP aims to invest around $100m, on top of the $47.5m it paid for RoBank, to develop a 100-strong branch network and win a market share of 4% to 5% within four years.

It will likely face strong competition from existing mid-sized banks such as Transylvania Bank and Tiriac Bank, whose majority shareholder, Ion Tiriac, recently reversed his decision to sell his stake, opting instead, for an aggressive growth strategy.

State privatisations

Other changes are expected as the largest bank, state-owned Banca Comerciala Româna (BCR), continues down the road of privatisation, soon to be joined by the CEC, a sleeping giant of a savings bank with nearly 1500 branches. After agreeing to sell 25% plus two shares of its BCR stake to the European Bank for Reconstruction and Development and the International Finance Corporation for $222m, the government hoped to complete the deal by the end of May.

At the recent Banking on Romania conference, Nicolae Danila, BCR’s president, declared that as part of its bid to complete the bank’s privatisation, BCR’s management would spend over $150m to develop its network and infrastructure so as to enable it to grow its customer base from 4.1 million to 6.8 million. Also, it is expected that at least some of the government’s shares will be offered through a stock exchange listing.

The selection of the government’s consultant for the CEC’s privatisation is due to be completed by September, as a call for proposals is to be published by the end of May. This should set the bank on track for successful completion of its privatisation by the end of 2005.

CEC recently reported first quarter 2004 gross profits of Leu287.4bn (e7m), three times the equivalent 2003 figures, resulting mainly from cost cutting and deposit growth.

Yet, not all will be smooth sailing for Romania’s banking sector. Recent growth in private sector loans point to a strong preference for foreign currency loans, mainly due to high local currency interest rates. March figures published by the National Bank show that foreign currency loans grew by 5.9%, the biggest surge in the last six months. Local currency loans, in contrast, grew by 0.5%.

This could point to a potential currency risk, should Romania’s currency suffer a pronounced devaluation in the years to come, as Hungary and Poland have in the recent past.

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Read more about:  Central & Eastern Europe , Romania