Banca Transilvania profit up 44%

The net profit of Banca Transilvania reached 69.7 million lei, after the first nine months of the year, or a 44% increase YOY, according to a press release by the institution.

Robert C. Rekkers, the Managing Director of Banca Transilvania, said: "Our operating profit increased 35% YOY in the first nine months of 2010. This year we had a stable course because we retained our cautious management style in our four major divisions: corporate, SMEs, individuals and the Division For Doctors. We have also paid extreme attention to risk management and cost control. We remain focused on meeting our goals for 2010, even if difficult things still lie ahead".

The bank saw a 35% YOY increase of the operating result after the first nine months, to 581 million lei.

The operating revenue at the end of Q3 2010 increased 17% YOY, to 1,104 million lei, in particular thanks to income from interest, operations involving securities and fees. The bank"s on balance sheet assets increased 4% in the first nine months of the year, from 19,472 million lei at the end of last year, to 20,212 million lei.

"Due to a cautious approach, Banca Transilvania has a good liquidity ratio, thanks to the considerable amounts of funds raised", the press release states. The loan/deposits ratio remained stable around 0.83, and the resources raised from customers increased 6% in 2010. The solvency ratio remains at 12.33%, without including the profit made at the end of September 30, 2010, far above the 8% level required by the NBR. Loan loss provisions increased 64% in the first nine months of 2010, from 752 million lei to 1231 million lei, of which 230 million represent provisions which are not tax deductible, set up as an additional layer of protection in order to adapt the bank"s risk management to the current economic environment. The non-performing loans/provisions ratio is 135%, which is a relatively prudent level.

• Non-performing loans - 6.92% of the total

The loan portfolio had a relatively good evolution, posting an 8% increase from the beginning of the year, reaching 13.173 million lei, on September 30, 2010. OF the aforementioned account companies account for 59.48% and individual borrowers account for 40.52%. 62% of the loans were issued in lei and 38% are denominated in foreign currencies. Non-performing loans which are more than 90 days overdue, account for 6.92% of the total loan portfolio.

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The net costs of credit risk saw an upward trend, reaching 474 million lei, compared to 358 million lei, in last year"s similar period. Given the current economic context, the increase of the net cost of securing risk, due to the deterioration of the loan portfolio, affected the bank"s profitability, despite the increase in operating revenues and the fact that operating expenses remained low.

• The Government Emergency Ordinance 50 should only apply to new loans

Banca Transilvania agrees with the main goal of the Government Ordinance 50/2010, to ensure that borrowers receive more transparent and accurate information, but it thinks that the ordinance should have followed the provisions of the European Directive and only apply to new loans, instead of also including ongoing loans. The bank"s officials said: "The implementation of the Ordinance was not intended to lower the interest rate via an administrative measure. Since Banca Transilvania is not part of an international banking group, it did not have access to cheap foreign financing whose cost was based on the Euribor; instead, it has secured its resources via raising funds from the foreign or the domestic market. Thus, the cost of the bank"s resources is a lot higher costs due to the sovereign risk rating, of the issuer risk, and due to the risk of the minimum mandatory reserve. Given these circumstances, the bank"s actual margin is not equal to its profit because, by using a different indicator than the one which was initially used and was included in the loan agreements, the current margin needs to include all the other costs that the bank needs to bear in order to award a loan".

Out of the 400,000 ongoing loans, the bank received a relatively low number of notifications from customers - around 800. Most of them complained about the margin / interest rate levels - and not about other costs, such as the risk commission - since Banca Transilvania has not charged such fees in the past either.