The Romanian banking sector consists of 32 banks, of which 24 are Romanian legal entities and 8 are branches of foreign banks. The consolidation process of the banking sector has continued in the post-pandemic period and is expected to continue in the coming period amid the need to improve operational efficiency, according to a stability report published on Wednesday by the BNR.

The composition of the banking sector by country of origin of capital has remained relatively stable over the past three years, with the impact of acquisitions and mergers completed during this period limited (combined market share of acquired banks below 2.5%).

The dominant position is occupied by banks with Romanian capital (33.0% of total net assets), followed by banks from Austria (23.2%), the Netherlands (11.5%), France (10.7%) and Italy (9.2 %).

Banks with Austrian capital outperform other banking groups on an aggregate level

In terms of profitability and asset quality, credit institutions with Austrian capital generally outperform other groups of banks, defined according to the country of origin of the capital. In the case of Austrian banks, the ROA (which shows how profitable a company is in relation to the assets it owns) is 2.4%, which is associated with a higher net interest margin (NIM) of 5.9%

Net Interest Margin (“Net Interest Margin”) is a measure used to compare the net interest income a bank receives from loan products to the interest paid on deposits. Net interest margin is calculated as the ratio of interest income minus interest expenses divided by the bank’s assets.

At the same time, the cost-to-income ratio (CTI, calculated as the ratio between operating expenses and operating income) of 41.1% also indicates good control over operating expenses.

Among the analyzed bank groups, solvency is lower in the case of Austrian banks (22.2%), but close to the sector average (22.8%, June 2023).

At the opposite pole, banks with Romanian capital register lower financial performance than the banking sector average, but have higher solvency than the banking sector as a whole.

The importance of subsidiaries of foreign groups present in Romania and branches of foreign banks is relatively low, these groups have extensive cross-border activities

The share of assets of banks with Austrian capital present in Romania in the total consolidated assets of the groups to which they belong is less than 6.5%.

In the case of banks with Dutch capital, this share is less than 1.5%. Although the local subsidiaries of the groups with French and Italian capital, respectively, are relevant to the local banking market, the proportion of their balance sheets in the total of the international French and Italian groups, respectively, is low.

In terms of profitability at the consolidated level, parent groups of banks with Austrian capital recorded the highest profitability, followed by Italian and Dutch groups, while parent groups with French capital stood out as less profitable (including as a result of their large size).

Despite the low importance of assets at the level of the parent group, the subsidiaries and branches of foreign banks present in Romania make a significant contribution to the total profit of the groups to which they belong, with a level of net interest margin and ROA higher than the group averages, but also higher operating efficiency than the group. The analyzed parent groups have adequate but lower capitalization compared to their local subsidiaries