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S&P upgrades rating on Romanian banking system

Financial evaluation agency Standard&Poor's ratings services raised its Banking Industry Country Risk Assessment (BICRA) on Romania to Group 7 from Group 8.

''The BICRA upgrade reflects the good growth and profitability performance of the Romanian banking sector, following several years of a healthy growth pace and accumulating wealth in the economy; and massive inflow of foreign investments into the banking sector, which has created a solid funding base for credit acceleration. The upgrade also reflects the stronger banking penetration and services coverage, and advancing banking technologies in the Romanian banking sector. These were to a large extent led by the import of Western banking technologies, EU convergence requirements, and the start-up of the adoption of Basel II principles,'' reads the release issued by Standard&Poors.

''Despite these improvements, the banking industry country risk in Romania is still higher than its peers (Bulgaria, Croatia, Hungary, Lithuania, and Poland). This is due to accumulating economic imbalances, negative spillovers from global financial market tensions, deteriorating operating flexibility due to the increasing scarcity of deposits and capital, high reliance on funding from parental foreign banks, balance sheet currency mismatches, and the country's still-weak (although progressing) legal and supervisory framework.

While Romania was posting robust growth over the previous several years, the economy now shows clear signs of overheating. High external imbalances, a procyclical fiscal stance, rising inflation, less stable currency, and the global financial market turmoil are amplifying the risk of a hard landing,'' reads the release issued by Standard&Poors.

''The Romanian banking sector remains small and concentrated. About 50 percent of the sector's assets are held by the five-largest banks, led by recently privatized Romanian Commercial Bank with a dominant 26 percent market share at end-2007. Foreign shareholders largely dominate the sector, controlling 88 percent of the total banking capital in Romania. Extensive foreign direct investments have had a strongly positive impact on the system,'' reads the release issued by Standard&Poors.

Strong loan growth over the past several years (50 percent per year on average) has pushed up the scope of financial intermediation in Romania. The ratio of domestic credit to GDP surged to 37 percent at year-end 2007.

Strengthened regulatory framework by the National Bank of Romania has, in Standard & Poor's view, provided a better mechanism for managing potential systemic problems, should they occur.

Sursa: http://www.rompress.ro

Tags: banking percent sector standard romanian romania

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