UniCredit: The profitability of the banking system will continue to shrink

The profitability of the banking system will continue to fall this year due to increasingly high operating costs, and certain small banks, which aren"t specialized, might exit the market, Răsvan Radu, the CEO of UniCredit Ţiriac Bank considers.

"I expect the profitability of the banking system to drop. Regulatory compliance costs are increasing, risk in Romania is increasing compared to other countries in the region and demand is low", said Radu, quoted by Mediafax.

He showed that unlike last year, when the banking system posted losses due to impairment charges, this year, the pressure will come from the need to lower operating costs.

According to Radu, the solution consists of renegotiating contracts, capping wage growth, and reviewing the profitability of banking systems.

He also said that in his opinion, the current business volume in Romania is too small to support the operations of all the banks present in the market and he doesn"t rule out the possibility of seeing some of the small banks, which are not specialized, heading towards other markets in the region.

"First and foremost I am expecting greater specialization, because all of them are currently doing everything. Any bank, regardless of its size, is a universal bank, which is rather hard to sustain in a small market. Second of all, yes, I am expecting certain institutions will come to the conclusion that they are too small for this market and they will focus on markets where they have a more significant presence, because they don"t have critical mass. They were all hoping they would be able to create critical mass when the economy was rising, but now, when the economy is in a plateau, you can"t create critical mass", Radu added.

The net profit of the banking system fell to 94.5 million lei at the end of June, compared to 373 million lei in March, amid the tripling of losses cumulated by the banks which had negative results.

According to data centralized by the NBR, 22 lenders had an aggregated profit of 1.076 billion lei, at the end of H1 2011, up 56% compared to the first quarter of 2011. Four major banks account for approximately two thirds of that profit.

At the same time, 20 banks posted total losses of 982 million lei, almost three times higher than the ones posted in the first three months of the year.

For the first time since 1999, the banking system ended with a net loss of 516 million lei, (rectified data), compared to an aggregated net profit of 815 million lei in 2009, as 20 banks had a net profit, and 22 lenders had negative results.