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Dec 28, 2007 17:33 EEST
December 28 (SeeNews) - Moody's Investors Service said on Friday its outlook for rated Romanian banks remains stable, reflecting good prospects for growth in an under-banked economy but also a rising credit risk profile.
"The bank financial strength ratings (BFSRs) of Romanian banks reflect the country's improving operating environment, with the on-going political and economic alignment with the European Union and good economic performance supporting the growth of the banking sector,” Constantia Constantinou, Moody's associate analyst and co-author of the agency's latest Banking System Outlook for Romania report, said in a statement.
The active involvement of foreign banks in the Romanian market has also raised the level of expertise in the system, contributing to the banks' franchise development and strengthening the sector in terms of technological expertise, product support, transfer of banking know-how, and in helping with capital and funding needs, Constantinou said.
However, the current ratings also take into account Moody's concerns regarding the high credit risks embedded in the banks' operations, especially in light of the rapid credit expansion in recent years, including a high proportion of foreign currency lending and still evolving and untested risk management systems.
The loan portfolio of Romania's commercial banks rose by 51.4% in the 10 months through October to 133.3 billion lei ($54.8 billion/37.4 billion euro), central bank data showed earlier.
“Moody's recognises the notable progress that has been made in banking regulation and supervision, but cautions that such rising credit risk profile necessitates a close monitoring of the banks' risk management practices”, the statement added.
Overall, the rated Romanian banks display good asset quality, adequate profitability, a relatively high capital adequacy ratio and good liquidity.
However, the sustainability of these ratios is being pressurised due to interest margin compression as well as increased costs relating to the banks' branch expansion strategies, while asset quality indicators may deteriorate as the portfolio matures or the operating environment weakens. The mismatches in the maturity profile of assets/liabilities indicate the banks' need to diversify and lengthen their funding bases, Constantinos Pittalis, Moody's vice president - senior analyst and report co-author said in the statement.
EU newcomer Romania, population 21.6 million, has 33 banks and six branches of foreign banks. The banking system's assets totalled 228 billion lei at end-October.
(1 euro = 3.5615 Romanian lei)
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