A new stability is approaching

We expect the trend of consolidation to have yet another 2-3 years of intensity, but afterwards to stop in order to reap the benefits

I started last year by introducing the most praised element on which a financial system is built, and that is stability. A year passed and, at close examination, a lot has changed, the perspectives have changed, some of the market players have changed, there is an open path to adopt Euro, but the stability is well enforced, thus making the sector act as a balancing element within the economy. 


This can be considered a success, given the numerous events which have taken place in the market, and all these can be traced back to the NBR’s solid policies, which have delivered positive outputs between the targeted ranges of inflation and interest rates.

Notable trends have been observed during the past couple of years, of which three are worth discussing, namely:

1. STRENGTHENING OF THE REGULATORS AND MARKETS. With the formation of FSA, which has tightened the solvency conditions for insurance companies, as recently two companies had shown weaknesses. Another notable improvement has been seen in the profile of the Bucharest Stock Exchange. These changes have happened only recently and are yet to yield significant benefits.

2. CONSOLIDATION OF THE LENDING MARKETS. The markets were presented with numerous transactions in the banking and leasing markets, as per the table which presents the most prominent transactions of the past couple of years. As this process has started in force only during the past couple of years, our expectations are that it will have to continue for at least two years before sufficient transformation has been brought to the markets. The banking system could number only some 30 players by the end of 2017, down from 40 in 2012. A similar consolidation trend is expected in the Insurance market, where the accumulated market share of the first top 10 players is expected to reach 90%, up from less than 80% now.

3. CLEANING OF THE BALANCE SHEETS FOR THE LENDERS. The internal workout of the lenders has matured, but, and maybe more importantly, the transaction market has created a significant number of interested actors, thus offering an unbiased view for the market pricing of such assets, and a reliable mean of disposing of portfolios. The NPL rates will have to come below 10% for the banking sector at the end of the following two years.


In conclusion, we expect the trend of consolidation to have yet another 2-3 years of intensity, but afterwards to stop in order to reap the benefits, the trend of aggressive balance sheet cleaning to complete in the banking sector in the next two fiscal years, and by 2017-2018 also to see a similar process in the insurance market, and for the regulators, the major changes have already happened, it is just a matter of incremental delivery of success.

Adding to these trends the issue of stability, we thus have the main ingredients for the market’s perspective in the coming period, in order to form and coordinate the new establishment. By cold reading, it so seems there are significant reasons to be optimistic about the outcome of the sector in the coming period.

Gradually the whole system will acquire a new target, that of adopting Euro, and, as such, acts very diligently to promote stability and long term perspective. But a few milestones should be taken into consideration for the road to reach the destination as desired.

The effects of the preparation for integration into Euro zone will lead to tighter regulation, covering banking and insurance provisions, secondary market operators, and will disrupt the brokerages in both capital secondary market and insurance. At the same time the market will have displaced a barrier to entry of European based players, and the increased competition will change the established business models, but it is not expected to change it significantly.

On a separate note, the changes mentioned last year in regards to the Bucharest Stock Exchange have indeed been positive, and as of new the expectations are that, by 2017, the stock exchange to grow into the role which it had in other more developed regional markets. The current focus on increased volumes is supported by the initiatives to list new companies and develop the bond and derivatives markets.

It must be said that the changes, in what concerns the Bucharest Stock Exchange as a financing market, although positive, are expected to get incrementally better. Therefore it will continue to be regarded as a lower priority option for raising equity, but it has entered the real options list.