Credit risk is what tops bankers’ worry list, as is seen as the main threat to the local banking system according to the latest “Banking Banana Skins” survey conducted by the Centre for the Study of Financial Innovation (CSFI) in association with PricewaterhouseCoopers.

Rank Concerns
1. Credit risk
2. Political interference
3. Currencies
4. Macro-economic trends
5. Risk management quality
6. Equities
7. Fraud
8. Credit Spreads
9. Derivatives
10. Business continuation
11. Too much regulation
12. Capital availability
13. Emerging markets
14. Hedge funds
15. Commodities
16. Environmental risk
17. Interest rates
18. Corporate governance
19. Money laundering
20. Retail sales practices
21. Rogue trader
22. High dependence on technology
23. Liquidity
24. Conflicts of interest
25. Back office
26. Management incentives
27. Payment systems
28. Merger mania
29. Competition from new entrants
30. Too little regulation

Even though in Romania, there are only two state-run banks, bankers are concerned by the possible political interference that would hurt their profits and activity.

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.

In a worst-case scenario, Greek banks would pull out a part of their capital from their Romanian subsidiaries, due to the severe debt crisis that has crippled Greece’s banking system.

Another fear is that risk aversion in banks will delay the economic recovery. The initial predictions had suggested that Romania’s GDP would turn positive to 1.3% in 2010, but economists are still cautious and say the country will emerge from recession as late as in third quarter this year, and the GDP growth shouldn’t stand above 1% at year-end.

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.

Apart from the macro-economic trend, bankers also worry about the currency risk, which would hurt borrowers’ cashflow and their repayment.

The national currency grew markedly in March, the EUR/RON rate sliding back to 4.065 lei/euro and even below in the interbank market, but pared March gains in just two weeks, when the rate hit the 4.1567 lei/euro level.

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.

At the opposite front, Romanian bankers say they are satisfied with the regulations enforced by the National Bank of Romania and place “too little regulation” worry at the end of the list.

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.