S&P counts banking vulnerabilities

The economy and industry risks the banking system may be faced with remain high, partly because the asset-related risk maintains at a rather considerable level, due to the relatively weak credit culture and to the quick lending volume growth, an annual report on the Romanian banking system by Standard & Poor’s rating agency specialists shows. S&P estimates that in case of an economic recession, the highly problematic assets would account for 50%-75% of the total banking assets, or 5%-7% of GDP. “A major recession would hit most of the companies in Romania, and the banking sector would be seriously hurt,” analyst Magar Kouyoumdjian, one of the authors of the report, comments. He feels concentrating the economic activity on a limited number of sectors only serves to increase the lending-related risk. S&P believes that if the current conditions in which the banks in Romania are operating now are to improve, the reforms need to go on. The banking sector is still rather small, with an excessive number of banks and relatively concentrated. More than 70% of the sector’s assets, appraised at $15.2bn on June 30, 2003 are held by the top ten banks, led by Banca Comerciala Romana (Romanian Commercial Bank -BCR) – 30% of the local market. ZF