Bad loans an eyesore to an otherwise profitable CEE banking sector

As a whole, the banking sector across the CEE region remains profitable. Interest margins have tightened recently, but are still much higher than in Western Europe. Lending growth has softened and banks have increasingly focused on attracting fundings from domestic sources, increasing competition for deposits. Western European banks, which hold more than two thirds of the CEE banking sector’s assets, have withdrawn significant amounts of parent funding, pressured by heightened capital requirements in their home countries, but are believed to remain committed to the region, which has a strong growth potential. The main weakness of the CEE banking sector is the high level of bad loans and the trend for further worsening of the asset quality in view of the weak economic environment.

Much more in the Intellinews report: CEE Banking Sector Report

 

Deleveraging continues in Romania

Foreign banks’ exposure against Romanian banking system down 11% y/y at mid-2012, XR effects filtered out.

The exposure* to Romanian banks of BIS-reporting Western banks, assets alone, decreased sharply by 4.1% q/q in Q2 of 2012, according to our calculations based on BIS data. Q3 data will be released in January 2013. Q2 marked the fifth consecutive quarter of decrease in this regard and the sense of flow for the foreign banks’ resources is unlikely to change any soon. Phasing out foreign currency lending from among the banks’ range of products goes hand in hand with the consolidation of deposit base as the main source of financing for local branches.

* exchange rate adjusted

Assets and liabilities of BIS banks versus Romania [banking and non-banking sector]

These are only a few of the insights in the new Intellinews Report : Romania Financial Sector. Learn more and purchase now>>

 

Unofficial data leaked from central bank paints bleak picture of Romanian banking system

Romanian banks incurred aggregated losses of RON 325mn (EUR 73mn at eop XR) in Q2, 2012, according to our calculations based on central bank data. Out of 41 banks, 23 reported profits and 18 losses, according to unofficial data leaked from the central bank. The banking system thus dipped back into the red after it posted aggregated RON 125mn (EUR 29mn, @ eop XR) profit in Q1.

Big picture: dividends vs. interest incomes derived by BIS-reporting banks in Romania [and elsewhere in region].

Nonetheless, this picture has to be put in the context of foreign financial groups. The foreign banks derive two types of benefits from their Romanian subsidiaries: firstly via dividends [probably the smallest portion of the benefits these days, most of the time re-invested when they were higher in the past] and secondly via the interest for the money lent at an interest rate that is driven by the country’s sovereign rating – meaning at high interest rates. The ROA for the foreign financial groups have thus nothing to do with the ROA reported by their local subsidiaries [assuming they finance their own subsidiaries, which is mostly the case].

Much more in the Emerging Markets Direct report: Romania Financial Sector

 

Indonesian banking industry projects steady growth

Consistent with Indonesia’s robust economic growth, the domestic banking industry continued to post significant gains in 2011. Total assets of banks in Indonesia stood at IDR 3,653tn as of December 2011, an increase of 21.4% y/y, while the asset quality remained strong over the same period. Total lending reached IDR 2,200tn in 2011, up 24.6% y/y. The increase occurred across all segments, both for working capital and consumption loans for both business and consumer lending.

On the funding side, total third party funds grew 19.1% y/y to IDR 2,785 in 2011, with increases in funding across all types of third party funds (savings, time and demand deposits). Faster paced growth in lending compared to that of funding resulted in a higher loan-to-deposit ratio (LDR) in 2011.

The overall performance of the Indonesian banking system improved in 2011, with banks achieving higher net interest margin (NIM) of 5.9% and industry’s profits rising to IDR 75tn. The banking industry’s capital also remained at a healthy level at 16.1% due to strong sector profitability.

The five leading banks in Indonesia recorded strong financial performance in 2011, thanks to favourable economic environment. Total loans were up with strong growth across all customer segments, while net income increased due to strong growth in lending and transaction accounts.

 Key Findings

• Total third party funds increased across all types in 2011, with saving deposits recording the highest growth rate of 22.5% y/y, followed by demand deposits (21.8%) and time deposits (15.3%).
• The industry’s net profits reached IDR 75tn in 2011, up 31.6% from IDR 57tn in 2010 with strong growth in NIM and loan portfolio.

Indonesian Banking Sector Highlights (IDR tn)

                                            Source: Bank of Indonesia

These are only a few of the findings in the new Indonesia Banking Industry report. Learn more and purchase now>>

 

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