Romanian Banks’ Bad Loans to Peak Mid-2011, Fitch Ratings Says

Romanian banks, mired in the second- biggest recession in the European Union, will probably see bad loans peak in mid-2011, according to Fitch Ratings.

A recession caused by government payroll cuts and tax increases led banks’ doubtful and loss loans to surge to 20.2 percent of total credit at the end of the third quarter from 6.5 percent at the end of 2008, Fitch analysts led by James Watson said today in a statement.

A sharp depreciation of the Romanian leu would increase the cost of monthly instalments, as 63 percent of total lending at the end of September was in foreign currency, and put further pressure on the banks’ asset quality, according to Fitch.

“The economic contraction negatively affected the banking system’s asset quality during 2009 and the first nine months of this year,” Fitch said.

Romania’s banking industry is struggling with bad loans as its lingering recession hampers customers’ ability to repay debts. Romania’s economy will probably shrink 2 percent in 2010 as austerity measures damp demand and grow as much as 2.5 percent next year, Fitch said.

The Balkan nation’s banking industry is dominated by Austrian banks, which control 38.4 percent of the market, followed by Greek banks with 17 percent and French banks with 14.8 percent. BCR, owned by Erste Group Bank AG, is the country’s largest bank by assets. BRD-Groupe Societe Generale ranks second.

Fitch today affirmed the individual ratings of five Romanian banks controlled by international lenders, including BCR, BRD and Unicredit Tiriac Bank SA, based on “institutional support from their ultimate controlling shareholders.”

The ratings company said the Romanian banking sector has “comfortable” liquidity, which “should give banks significant financial flexibility in working out asset quality problems.”

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez in Prague at jagomez@bloomberg.net

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