Zoltan Major, UniCredit: Austerity package will weigh on consumption

Costs of Romanian banks could increase further due to the new regulations, but on a long term, the battered banking system could recover, said Zoltan Major, retail executive vice president at UniCredit Tiriac Bank.
The new regulations will lead to higher costs for banks. At the same time, the austerity package put in place by the Government, that includes public wage cut of 25%, will lead to over-indebtedness and a decline in consumption and hurt lending, said Major.

“We will see a decline in consumption of few percentages, according to latest estimates”, said Major.

“On a short term, Romanian banks will focus on improving the efficiency of network and cost containment. Over-indebtedness is a rising problem since public servants will face a 25% wage cut, and therefore, customer relation and cost management will be the main priorities”, Zoltan Major pointed out.

He added that profits will fall further for the remainder of the year: if in 2008 the banking system posted an aggregate profit of around 4 billion lei, in 2009, it fell to 900 million lei. The state took the benefits from profit taxes, and its decline will hence lead to lower revenues to the state from the industry, Major continued. Furthermore, a big portion of this profit went to capital hikes in order to keep capital at adequate ratios.

But despite all the hardships the banking industry has been facing, the consumer-lending outlook is brightening, Major added.

“Romanians access to mainstream financial services remains poor, the share of mortgage loans in GDP is merely 5% while in other European countries is double, and in some western countries is even 40% of GDP. We will not come across with 50-70% growth rates any longer. The market will undergo a sustainable growth”, said the director of UniCredit.

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