The outlook of banking in Romania seems difficult to predict. Fears were expressed about the weakness of the economy and its impact on banks through rising loan defaults and declining profitability.

Another fear is that risk aversion in banks will delay the economic recovery. Some respondents consider that in an extreme situation the banking system will be provided the necessary safety net by government; others fear that this would undermine banking responsibility.

The need for better risk management is seen as pressing, while additional regulation, in order for the banking system to be better prepared to cope with the new challenges, would be recommended.

“The Romanian banking sector avoided the initial phase of the financial crisis in late 2008. Credit risk is however now becoming a significant concern for Romanian banks, as the ongoing economic recession leads to a growing number of insolvencies and bankruptcies of local businesses. Banks expect further deterioration of the quality of credit and the provisions for bad loans will predictably keep rising and further more, turn into real losses for the lenders”, stated Dan Iancu (photo), Partner, Consultancy Services, PricewaterhouseCoopers Romania.

On a global level, respondents said that the “politicisation” of banks as a result of bail-outs and takeovers posed a major threat to their financial health.

“It is ironic that politics should emerge as a risk when the banks had to be rescued in the first place. But there is clearly a crisis in the relationship between banks and society, and it will take years to rebuild trust. Until it is, banks will operate under a financial handicap,” said David Lascelles, Banking Banana Skins 2010 survey editor.

Many of the risks identified by the survey – such as the credit risk - stem from concern about the effects of the recession on the banking industry. The bulk of respondents were gloomy about the outlook, fearing a “double dip” recession with a further wave of bad debts hitting the banks.

The annual poll of banking risk assessed the 30 most serious risks to banks during this period of financial crisis. The poll is based on responses from 450 senior figures from the financial world in 49 countries, who include practicing bankers as well as close observers of the financial scene and regulators. In Romania, 13 senior level banking managers participated in the survey.