Financial Services Opportunities

An Expert's View about Finance in Romania

Last updated: 17 Jun 2011

Romania’s financial system is dominated by the banking sector, which since privatisation began in 1998, has seen a great deal of reform and restructuring. Romania joined the European Union in 2007, which prompted additional reforms to bring the financial sector in line with EU standards.

Sector briefing Financial Services Opportunities in Romania Why Romania? Romania?s financial system is dominated by the banking sector, which since privatisation began in 1998, has seen a great deal of reform and restructuring. Romania joined the European Union in 2007, which prompted additional reforms to bring the financial sector in line with EU standards. All subsectors have been affected to various degrees by the global economic crisis, but growth potential remains in all areas. The Government?s policies at macroeconomic level remain key to Romania?s recovery from recession. ? ?I would like to be on the The mostly foreign-owned banking system has same train with Romania?, - proved stable, thanks to highly effective the CEO of one of the largest supervision by the National Bank. banks in Romania has Romania officially entered recession in mid- recently stated. Areas of May 2009 after 8 years of economic growth, major potential are averaging 6%. In May 2009 the new government signed a ?20 billion stand-by infrastructure, agriculture, agreement with the EU and the IMF, which has energy and helped stabilise the currency and Romania?s telecommunications.? credibility with foreign investors. UK Trade & Investment Financial Services opportunities in Romania GDP shrank by 7.1% in 2009 and by around National Securities Commission and the Private 2% in 2010 mainly due to the fall in household Pensions System Supervisory Commission. consumption and the decline of the construction sector. However, Romania is The banking market in Romania remains one of currently seen as less risky than Greece, the most competitive sectors of the local Ireland, Portugal and Hungary in terms of CDS economy. There are currently 42 banks (Credit Default Swaps - a measure of risk registered in Romania, of which 2 are perception) prices. Exports increased by 21% government funded, 4 privately Romanian in 2010, which fuelled albeit fragile GDP growth owned, 26 foreign owned, 9 subsidiaries of of 0.1% in Q4/2010 and has encouraged foreign banks and 1 Credit Coop. analysts to become more optimistic. The Government?s austerity measures have also There is only one British bank operating in helped reassure investors and a new IMF Romania. Royal Bank of Scotland established agreement will serve as an anchor for further its presence here by taking over the ABN AMRO public sector reforms. A slight recovery of network in 2008 as part of a global transaction. around 1.5% is expected this year, based RBS held 1.8% market share at the end of mainly on exports and industrial output. 2010 and maintained their strategy to address the premium segment of the corporate market. The short-term picture is cautiously optimistic. RBS has recently started to focus on retail Romania remains well placed to resume a path banking. of above average economic growth in the medium term because it remains an attractive By the end of 2010, there were 8 banks destination for foreign investment, particularly holding more than a 5% market share, in sectors such as environment and renewable accounting for 70.7% of the market: BCR, energy, IT and infrastructure. BRD, Raiffeisen, CEC Bank, BAnca Transilvania, Alpha Bank, Unicredit and Volksbank. Opportunities Total bank assets have grown constantly both in value and in percentage of GDP which is Opportunities exist in most sectors and some underlined by an increase from ?15 bn in 2003 of them have been outlined above. However, to ?81.4 bn EURO in 2010 (though 2010 saw a Romania is also a competitive market. Whilst 4.1% decrease of ?71 million on 2009 due UK firms would appear slow to scope or enter almost entirely to loan defaults). The rate of the market, foreign firms/competitors have non-performing loans has stabilised since Sept committed heavily to this market and more will 2010 with the most significant losses recorded continue to do so. by 22 smaller banks, mostly holding less than 1% market share. Seven of the top 8 players If you have any questions on opportunities, were profitable in 2010, the most successful contact the UKTI contacts named in this report. being Banca Transilvania with an increase in Business opportunities aimed specifically at UK profit of 58% over 2009 essentially generated companies are added daily to UKTI?s website. by interest rates and cost reductions. These leads are sourced by our staff overseas in British Embassies, High Commissions and The solvency ratio stood at 14.66% in 2010 Consulates, across all sectors and in over 100 (the international common position is that it markets. shouldn?t go under 8%), the leverage ratio stood at 7.87% (double what is accepted in the You can be alerted to business opportunities on EU). These indicators help underline that the a regular basis by registering on the UKTI Romanian banking system has adequate website. Find out more on UKTI?s business capitalisation. opportunities service on the UKTI website. Despite the high growth rates, the banking Banking penetration ratio stands at 66.8%, which is considerably lower not only than the EU Romania has a two-tier banking system, the average but also than the level of countries National Bank of Romania (NBR) acting as a such as Hungary, Czech Republic or Bulgaria. central bank, under Parliament?s control. In order to supervise and oversee the domestic financial markets, the NBR collaborates with the Insurance Surveillance Commission, the UK Trade & Investment Financial Services opportunities in Romania According to data published by the National Dealers Automated Quotation). RASDAQ was Bank, the volume of card transactions grew by established in 1996 to enable share trading of more than 7 times between 2003 and 2009 the 6,000 companies partially privatised under reaching ?24 million Euro between Sept 09 and the Mass Privatisation Programme into the Sept 2010. There were 12.6 million active ownership of 16 million Romanians. cards by the end of 2010, which means a ratio of 580 bank cards/1000 inhabitants, The National Securities Commission (?NSC?) is significantly lower than the EU average even at the regulatory and supervisory body for the 2007 levels (1,370). The volume of capital market. The NSC has certain extended transactions registered on corporate and credit prerogatives. It authorises investment firms, cards has started to grow rapidly since late management companies and undertakings for 2010, which reflects that activity is intensifying collective investments in transferable (according to the Head of Visa Europe for securities. It also provides the general listing Romania) requirements for issuers and regulates the securities exchange, including trading and The internet banking market grew by 20% in settlement mechanisms. 2010; this trend is expected to continue. All major players announced ambitious plans to In addition to the BSE, an independent increase the number of users especially to derivatives market operates in Sibiu, the cover retail banking, which is considered the Monetary Financial and Commodities Exchange main growth engine for banking products. (MFCE). This is Romania's second largest financial market. The MFCE focuses almost All these statistics are key contributors to exclusively on the exchange of derivative further growth in the Romanian banking financial products. It is Romania's first and system. largest market for Futures and Options contracts to date. Contracts are based on the The impact of the global recession has put an Romanian stock index, currencies, cross rates, abrupt end to the expansion of the banking interest rates, and (the latest addition - SIBEX sector, which includes attempts to streamline Gold) gold price. activities. The network of bank branches expanded from almost 3,000 in 2004 to 6,553 In April 2010 the National Securities in 2008 but decreased to 6170 by the end of Commission approved the alternative trading 2010. The number of employees in the banking system of BSE (CAN-BVB) for unlisted sector has decreased accordingly from 71,000 companies, start-ups and companies that do in 2008 to 66,000 last year. Only the ATM not qualify for the regulated market. network has continued to expand, which underlines the historically poor ratio of banking The Bucharest Stock Exchange (BSE) was services and penetration rate, especially in formally re-opened in 1995 (after the first rural areas. stock exchange was closed by the Communist regime in 1948). It started with one trading Over the short term, the biggest challenge will session per week and 6 companies. At the be non-performing loans. In the medium to beginning of 2011, there were 74 companies long term, each bank will determine its success listed that can be traded on a daily basis. based on its ability to adapt to market February 2011 marked the listing of the conditions and customer needs and through a ?Property Fund? (Fondul Proprietatea ? FP), competitive range of products and services. created by the Romanian Government in 2005 Sources in the market anticipate that during as a state-owned investment fund, with shares the first part of 2012 there will be consolidation from 88 state owned companies. The assets of which will see several banks merging and/or the Fund are currently estimated at 3.5 billion major changes in shareholder structure. The Euro and the underlying principle of its creation National Bank remains keen to see an was that it would be gradually privatised to improvement in the quality of shareholders for compensate former owners of nationalised some banks. properties. The Fund is managed by Franklin Templeton. Capital market Judging from the price to book ratio evaluation, The main capital market is the Bucharest Stock the Romanian stock market is the most Exchange (BSE), which also incorporates the interesting in Central and Eastern Europe in RASDAQ (Romanian Association of Security terms of high growth potential. The BSE?s short UK Trade & Investment Financial Services opportunities in Romania term objective is to reach an optimal mass of 29% per year between 2002 and 2007. Non- 60-70 million euro/day (in the first day of life insurance holds 80% of the market. trading of FP, the transactions volume recorded 57 million euro ? 88% due to FP). To this end, The insurance penetration rate (share of gross the management of BSE has been very active written premiums in GDP) decreased to 1.63% in modernising and diversifying the portfolio of (from 1.81% in 2009) which coupled with the services, introducing global accounts, offering low density of ?92/capita illustrates the high trading in oil, gold, DAX and also offering development potential for the Romanian access to shares in foreign companies (eg insurance market. Mercedes Benz). In terms of players on the market, there has The short term outlook for the capital market been an intense process of consolidation over depends very much on the performance of the recent years, with all large players in the foreign markets but also, increasingly region now having a local presence, including importantly, on the domestic economy. The Germany?s Allianz, France?s Groupama and Axa Government has an important role to play and Austria?s Uniqa and Vienna Insurance through its privatisation plans, specifically of Group. The concentration of the market grew energy companies such as Romgaz, Transgaz, slightly to 80.32%. Of the top ten companies, Transelectrica and their subsequent listing. only three registered growth in 2010 and two of those are Life Insurance specialists. 2010 Insurance saw Astra Asigurari take first position in the league of insurers with BCR Life Insurance The market is regulated by the Insurance breaking into the top 10. Of the top 10 Supervisory Commission created in 2001 as an insurers, there are two companies now autonomous administrative authority whose specialising on Life Insurance. main duties are supervision and control of the insurance industry. As a consequence of Top Insurers & Evolution Romania?s EU accession, insurance companies Company Gross written Evolution Market established in an EU or an EEA member state premiums in Euro Share may operate in Romania under a license issued 2010 (mil over 2009 2010 by the supervisory authorities in their home- Euro) (%) (%) countries. This can be done by setting-up a Astra 263.81 38.1 13.26 branch or by providing services directly. Asigurari Allianz- 245.14 -19.22 12.33 Tiriac Insurance activities are divided into two Omniasig 217.61 -17.26 10.94 categories: life and non-life, each with Groupama 191.43 -9.11 9.63 subsequent distinctions. Generally, an Asirom 135.58 -11.06 6.82 BCR 135.55 -0.3 6.82 insurance company may not perform both Insurance categories of insurance activities. However, life ING Life 129.08 3.77 6.49 insurance activities can be bundled with certain Insurance types of non-life insurance. Generali 104.09 -13 5.23 Uniqa 102.71 -12.38 5.16 BCR Life 73.01 21.25 3.67 A positive regulatory provision, which ought to Insurance increase the prospects of the market, is the implementation of the mandatory property On the non-life segment, there are various insurance policy, which commenced in January products with considerable future potential, 2010. The potential upside is enormous given such as health insurance, property, that only 8% of the 8.4 million dwellings in employment, accidents and even legal Romania were insured prior to this law being protection. Agricultural insurance is another implemented. category that has yet to reach its potential, given the vulnerability of the agriculture sector The market depends heavily on car insurance, to weather conditions and the co-financing which makes it vulnerable to any downturn in requirements from banks for EU funded the car market. As a result of the economic projects. crisis, the market slowed in 2008 and stagnated in 2009. In 2010, gross written premiums decreased by 5% over 2009 to ?1.989 bn, compared to an average growth of UK Trade & Investment Financial Services opportunities in Romania Life-insurance market, despite its significant of 209 mil EUR. In Feb 2011 the participants to increase during previous years, is still hugely Pillar 2 and 3 reached 5.5 million, a 6% underdeveloped. In contrast to the general increase over 2010 (5.2 million under Pillar 2 insurance market, life insurance grew in 2010, and 0.22 million under Pillar 3) and the total albeit moderately by 3%. The top ten players assets were estimated at ?1.2 billion. There make up 94.5% of the market and generated are 9 Fund Managers for Pillar 2 contributions. business worth ?367 million in 2010. Seven of ING leads with 31% market share, followed by these registered growth last year. ING Life Allianz-Tiriac (25%) and Aripi (Generali) Insurance leads the way with a 33.08% market (9.5%). Aviva is fourth with 7.3%. share, followed by BCR Life Insurance (18.79%) and Alico (11.31%). British company 2010 was a good year for the Private Pensions Aviva is seventh with a 5.42% market share. Funds with yields considerably over the inflation level. The average yield was 15.1% Pensions (Pillar 2) and 11.5% (Pillar 3). It is estimated that 2011 will be another year of similar Demographic and macroeconomic pressures performances. Net assets administered by are largely responsible for Romania?s growing Fund Managers under Pillar 2 should increase pension deficit, and, consequently, for the by 50% and by 40% for Pillar 3. strain on the country?s public budget. In 2010, Romania?s pension expenditure was estimated Several improvements to the system are at 8.4% of GDP (10.2% - EU average) and the expected to be implemented in 2011. Military average dependency ratio deteriorated to 23%. pensions will come under the provisions of Pillar 2 regulations and extended tax The reform of the pension system is trying to deductibility will be granted to the voluntary address this critical situation by setting up a contributions. The occupational pension structure that will be effective in ensuring scheme law is currently under public debate. decent incomes for all the beneficiaries of the social insurance system and reducing the The emergence of the private pension funds growing pressure coming from the pension was meant to provide long-term finance to the sector on the state budget deficit. private sector and give a boost to asset- management businesses and contribute to the The new system follows the multi-pillar pattern development of the local capital market. recommended by the World Bank, aiming at However, as in the case of the other sectors, diversifying the sources for financing the the development of this market remains pensions by dividing the burden between public dependent on the general economic situation. and private sector. It is based on three pillars: PPP - The 1st pillar represents the mandatory public pension component which is being The Romanian Government has expressed administrated by the state and based on continuous and keen interest to implement PPP redistribution. projects. This interest has increased as a result of the economic crisis, given the acute need for nd - The 2 pillar is constituted by the investment in infrastructure projects and the mandatory private pension funds. The low level of financial resources available from contribution started with 2% of the insured the public budget. The PPP option is seen more income, reached 3% in 2011 and is and more as a solid alternative for developing scheduled to grow to 6% over a period of 8 local and national infrastructure, in transport, years. Each fund manager was required to education, healthcare, justice, waste constitute a reserve fund as guarantee. At management to name some of the main areas the same time, an overall guarantee fund targeted. was constituted from the contributions of all fund managers. The increased interest also resulted in changes to the relevant legislation. A PPP law was - The voluntary pension schemes issued in September 2010, aimed to act as a rd represent the 3 pillar. dedicated legislation for PPP projects that would encourage local authorities to use this The second pillar was launched in 2008 had a instrument. In response to European total of 4.5 million contributors by the end of Commission?s requests, the PPP law has been the year and resulted in a net value of assets amended in April 2011. The procedures used UK Trade & Investment Financial Services opportunities in Romania for the selection of investors are open Environment Ministry: procedure followed by a competitive dialogue 11. Siret ? Baragan canal (? 200m). covering assessment and negotiation. nim endigna feugue modoluptatie exero od min ut Ministry of Regional Development: vel iniamcor acin volorem veriustio consenisit 12. 10,000 residential homes in Bucharest. The new version also provides the public 13. Esplanada real estate project in Bucharest partner?s obligation to publish a notice of (?1bn). selection in the Official Journal of the European 14. Danube ? Bucharest navigation canal. Union for projects higher than ? 125,000 for 15. Braila ? Tulcea road bridge over the goods and services and ?4.845 m for works. Danube. Changes have been introduced to the operation Health Ministry: of the Central Unit for Co-ordination and 16. Six emergency hospitals. Monitoring of Public Procurement, which was 17. ?Ana Aslan? healthcare center. moved from the Ministry of Finance to the Government Chancery. The new department is Justice Ministry: supposed to act both as legislative body in 18. Penitentiary. charge of issuing policies and strategies for promoting and implementing PPP projects and also as a monitoring and surveying centre for PPP projects developed by Central and Local Government. Romania currently lacks the necessary expertise to ensure the Government/Municipality can achieve a ?good deal? from PPP projects. Mostly international firms act as consultants for PPP projects as the experience required is rarely found locally. International firms are also the ones that give weight to bids under PPP projects launched, often in partnership with local companies. The Government has recently made public a list of PPP projects planned for the near future. Ministry of Transport: 1. Comarnic ? Brasov highway - under concession. 2. Sibiu ? Pitesti motorway ? 116 km. 3. Ploiesti ? Buzau ? Focsani motorway ? 133 km. 4. Targu Mures ? Iasi ? Ungheni motorway ? 307 km. 5. Bucharest Sothern&Northern ring road. Ministry of Economy: 7. Tarnita ? Lapustesti waterpower plant (estimated at ? 1.1m). 8. 3rd and 4th units of Cernavoda nuclear power plant (estimated at ? 4 bn). 9. Doicesti thermal power station (? 700m). 10. AGRI project ? transport of natural gases from Azerbaijan to Romania. UK Trade & Investment Financial Services opportunities in Romania Next steps - UKTI CONTACTS How UKTI can help Ms. Ileana Buia, Senior Trade Adviser BRITISH EMBASSY BUCHAREST British companies wishing to develop their Address: Str. Jules Michelet nr.24, sector business in the Romanian market are advised 1, Bucharest to undertake as much market research and Tel: 0040 21 201 72 64 planning as possible in the UK. UKTI?s team in Fax: 0040 21 201 73 11 Romania with its wide local knowledge and E-mail: ileana.buia@fco.gov.uk experience, can provide a range of services to British-based companies wishing to grow their Ms Adriana Marin, Trade Adviser business in global markets. BRITISH EMBASSY BUCHAREST Address: Str. Jules Michelet nr.24, sector This can include: 1, Bucharest ? Provision of market information Tel: 0040 21 201 72 61 ? Validated lists of agents/distributors Fax: 0040 21 201 73 11 ? Key market players or potential E-mail: adriana.marin@fco.gov.uk customers in the Chinese market ? Establishment of interest of such contacts in working with you ? Arranging appointments ? Organise seminars or other events for you to meet contacts and promote your company in the Chinese market This work is available via our Overseas Market Introduction Service (OMIS) a chargeable service which assists British-based companies wishing to enter or expand their business in overseas markets. To find out more about commissioning this work, or accessing other UKTI services and specialist advice, please visit the UKTI website, www.ukti.gov.uk to find contact details for your local UKTI office. Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation & Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published 2011 by UK Trade & Investment. Crown Copyright © Published 2011 by UK Trade & Investment. ©Crown Copyright 2011 You may reuse this information (not including logos, images and case studies) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk This publication is also available from our website at www.ukti.gov.uk or for more information please telephone +44 (0)20 7215 8000. UK Trade & Investment Financial Services opportunities in Romania
Posted: 16 June 2011, last updated 17 June 2011