Western Lenders Boosted Romanian Units Capital in First Half

International banks boosted the capital of their Romanian units in the first half by twice the amount provided for the whole of 2011 as bad loans increased.

Western lenders, which own about 80 percent of the Romanian banking industry, provided 550 million euros ($719 million) to their local units in the January-June period, compared with 280 million euros in 2011, the central bank said in its financial stability report.

“The banking sector operated within adequate parameters against the background of still modest economic growth, which also had an impact on the further increase in non-performing loans,” the central bank said.

Romanian banks are struggling to contain a rise in non- performing loans as a weaker currency and declining purchasing power made it harder to repay loans. The lenders will probably incur a loss this year as bad loans may exceed 20 percent of total lending, Ziarul Financiar reported on Sept. 6, citing Nicolae Cinteza, who heads the central bank’s supervision department.

The non-performing loans ratio stood at 16.8 percent at the end of June, compared with 14.3 percent in December, the central bank report showed. The banks posted a total loss of 192 million lei ($56 million) in the first half compared with a 777 million lei loss for 2011, the central bank said.

The central bank’s latest stress tests, which cover a two- year period, show a “good capacity to withstand macroeconomic shocks,” policy makers said. “A small number of lenders showed an increased vulnerability,” because of lower interest revenue and higher provisions.

The solvency ratio for the system was 14.7 percent and would decline by 2.4 percentage points to 12.3 percent, in an “adverse scenario,” the central bank said.

Romania’s banking industry is dominated by Austrian banks, which control 38 percent of the market, followed by Romanian lenders with a market share of 18.3 percent.

The market share of Greek banks declined to 12.9 percent from 16.3 percent, the central bank’s report showed. Banca Comerciala Romana SA, owned by Erste Group Bank AG (EBS), is the country’s largest bank by assets. BRD-Groupe Societe Generale (BRD) ranks second.

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

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