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Fitch: Bad loans to peak towards late 2011 in Romania

The bad loans in the banking systems in Romania, Bulgaria and Croatia will reach their highest level towards the end of 2011 and in 2012 in Slovenia and Hungary, reads a report of the credit rating agency Fitch Ratings written for Central and Eastern Europe.

The recession in Romania affected the quality of banking assets. The bad loans used to represent 13 percent of all credits in late April compared to 11.9 percent in late 2010 and 7.9 percent in late 2009. According to Fitch, the stabilization and the improvement of the assets is the main challenge faced by the Romanian banks at the moment. The agency expects that the bad loans should peak in late 2011, somewhere between 14 and 16 percent of the total amount, compared to most of the countries in the Central and Eastern Europe.

Fitch believes that the foreign currency loans still prevail among the credits, representing 64 percent of the retail credits and 60 percent of the exposure on companies in late Q1 2011. The depreciation of the domestic currency compared to the euro was curbed during the crisis and Fitch does not expect this trend to change on short term, however, in case of a sharp depreciation, both the quality of assets and the capital adequacy ratio could be subjected to pressure.

Loaning out was severely affected both by the low industrial activity and the decline in consumption which started in late 2008, and the process followed a negative trend both in 2009 and 2010 with the exception of the mortgage loans within the 'First Home' housing programme.

The National Bank of Romania took measures to stimulate the loaning activity. Thus, the interest rate has been kept a a record low level of 6.25 percent since June 2010 and the requirements about the smallest mandatory deposits for the foreign currency liabilities reduced from 25 to 20 percent to release cash, assesses the credit rating agency, which estimates a higher credit activity in 2011 due to the recovery of the economic activity and of the supporting monetary policies.

The Romanian banking system made a comeback into profit over the first quarter of 2011 and Fitch estimated that the banks would end the year with a profit hike. The capitalization of the banking system is proper now, and the capital adequacy ratio was 14.8 percent in late Q1 2011, although it is strongly linked to the economy performance and to the domestic currency trend, warns the credit rating agency.

Romania's economy shows signs of improvement after a protracted recession, leading to a better performance of the banking system, Fitch claims, but Romania got stuck into recession in 2010 because the austerity measures taken by the Government, involving 25 percent payroll cuts in the public sector, were implemented right over the effects of the world financial crisis, as compared to other Central and Eastern Europe countries.

Fitch rated Romania's banking outlook as stable and the Banking System Indicator (BSI) is rated 'D' for Romania. Only Poland, the Czech Republic and Slovakia benefit from a 'C' rating of the BSI among the Central and Eastern European countries whereas Hungary, Bulgaria, Romania, Slovenia and Croatia have a 'D' rating.

On July 4, Fitch upgraded Romania's outlook for the long-term foreign currency loans to 'BBB minus,' the short-term rating to 'F3,' the rating for the long-term loans in the domestic currency to 'BBB' and the country ceiling to 'BBB plus.'

Thus, Romania's sovereign rating returned to the 'investment grade' category recommended for investment. The prospect for long-term ratings is stable.

Sursa: http://www.actmedia.eu

Tags: percent currency rating banking loans romania fitch euro