KPMG: Local banks have significant exposure to Romania’s sovereign debt

Romanian banks have insignificant exposure to Euro Zone governments that are now under strict supervision, on the other hand they have significant exposure to Romania’s sovereign debt, a fact that may present a risk in case the contagion caused by the Euro Zone countries’ debt crisis puts pressure on the country’s finances, Serban Toader, KPMG Senior Partner in Romania, stated.

In his opinion, the new series of regulations that will be introduced may affect the banks’ profits and the minimal capital requirements in line with Basel III will represent a challenge and will affect the profitability of the banks’ capital, informs.

“In this uncertain environment the outlook on the availability of future profits can change rapidly, resulting in a potential reduction of these balances by registering depreciation provisions,” Serban Toader added.

In his turn, Cezar Furtuna, KPMG Financial Services Partner in Romania, pointed out that “two of the 15 European banks analyzed in the ‘Focus on Transparency’ report have operations in Romania but the situation of most Romanian banks, including the Romanian branches of larger groups, is different compared to that of banks analyzed at European level.”

Thus, while 2008 was a good year in the recent history of the Romanian banking sector (in stark contrast with Western Europe but also influenced by certain profitable sales that the banks did that same year), in the two years that followed – 2009 and 2010 – the Romanian banks’ profits dropped substantially.

“The reason is that the recession hit Romania (and Central and Eastern Europe) later than it hit Western Europe, starting to really produce effects in 2009. Since then Romanian banks have continued to be affected by the economic slump that was worse than in other European countries and, likewise, by the restriction of the crediting activity, a restriction that perpetuated itself since the start of recession, thus resulting in the downward trend of profits in 2009 and 2010,” Cezar Furtuna pointed out.

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