Romania Country Report - December, 2013

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Romania Country Report - December, 2013

This report covers the main Romanian macroeconomic releases of December 2013 as well as financial and political trends in the country during this period. It also reviews corporate news for companies including Hungary’s MKB Bank and its Romanian subsidiary Nextebank as well as Romania’s largest bank BCR, part of Austria’s Erste Group.

Good news surfaced over the year-end period: exports continued to grow at robust rates in November and the EU funds absorption rate improved in October–November. Industry performed encouragingly driven by external demand. On the downside, credit continues to shrink and the bank loan quality to deteriorate, albeit at slower rates. The central bank’s radical step of concomitantly cutting the interest rates by 25bps to 3.75% and the required reserve ratios by 2%–3% for forex and local currency liabilities is (debatably) likely to stir lending.

An absence of long-term concepts and strategies on the part of the courts and the country’s politicians in several recent legal and legislative cases has led to a mimetic adherence to principles invoked by the EC or IMF that are not actually absorbed and included in broader strategies. This inhibits investor and consumer confidence and has a material impact on the potential growth rate.

Key Points:

• In corporate news, Hungary’s MKB Bank announced the sale of its investment (96.3% direct ownership) in its Romanian subsidiary Nextebank. Romania’s largest bank BCR—part of Austrian group Erste—is considering the issue up to EUR 2.4bn of bonds in 2014, given Erste Group’s potential exposure to regulations resulting in weaker financial support for foreign subsidiaries.

• Romania’s current EU funds absorption rate increased significantly by 18.55pps to 33.47% at the end of 2013, the Ministry of European Funds announced. The intermediary payments already cashed by final recipients of EU-funded projects increased by 15.02pps to 26.49% at the end of the year.

• Romania’s industrial production index increased by 7.4% year on year in January–October after strengthening by 10.6% year on year in October alone, the statistics office reported on December 10.

• In October the industrial expansion hit its steepest annual rate in more than two years. Exports continued to rise robustly in November by 7.7% year on year, contributing to the significant 9% year on year advance in January–November 2013.

• The 12-month rolling exports as of November 2013 [EUR 48.8bn] were 44.5% above the pre-crisis peak level reached in September 2008.

Table of Contents

1. Relationship with IFIs
1.1 Deadlock on 2014 budget planning is settled, yet unclear whether in a satisfactory manner

2. Politics
2.1 EC Justice Commissioner Reding worried about anticorruption stance in Romania
2.2 Tensions between leaders of Romania's ruling coalition parties escalate
2.3 Court sentences former Romanian PM Nastase for corruption again

3. Real Sector
3.1 Corporate, structural reforms
3.2 GDP, forecasts
3.2.1 Romania’s potential GDP growth to rise to 4% after 2015 – Erste Group
3.2.2 World Bank sees robust economic growth in Romania but also highest poverty rate among EU11 countries
3.2.3 Romania corrects 2012 GDP growth to 0.6% from previous 0.7%

3.3 Industry, Constructions, Retail
3.3.1 Industrial production up 7.4% y/y in Jan-Oct
3.3.2 Construction works index up 0.9% y/y in Jan-Oct
3.3.3 Retail sales up 1.8% y/y in November 2013

3.4 Prices, Inflation
3.4.1 Headline inflation slows down to 1.8% y/y in November
3.4.2 Industrial prices down 0.3% y/y in November 2013

3.5 Labor Market
3.5.1 Average wage up by real 2.1% y/y in October
3.5.2 ILO unemployment up 0.6pps to 7.3% in November

4. Fiscal Sector
4.0.1 President endorses 2014 budget as government delays car fuel excise tax hike

4.1 Budget Execution
4.1.1 Jan-Nov budget deficit narrows 0.3pps y/y to 1.56% of GDP
4.1.2 Transfers from EU budget 3.6 times up y/y in Oct-Nov

4.2 EU Budget
4.2.1 Current EU funds absorption rate up by 18.55pps y/y to 33.47% at end-2013

4.3 Fiscal Policy, Public Debt
4.3.1 Treasury to issue RON 4bn and EUR 200mn of securities in January

5. Financial Sector
5.0.1 Fitch maintains negative outlook on Romania’s banking system
5.0.2 Romanian central bank cuts monetary policy rate, minimum reserve requirements

5.1 Bank Loan Quality
5.1.1 NPL ratio up to 21.95% at end-Nov
5.1.2 Overdue payments on bank loans in Romania hit EUR 7.7bn at end-Nov

5.2 Loans, Deposits
5.2.1 Romania’s bank loans shrink 4.1% y/y at end-Nov
5.2.2 Romanian bank deposits up 7% y/y at end-Nov

5.3 Corporate
5.3.1 MKB Bank sells Romanian subsidiary Nextebank
5.3.2 Leading bank BCR to replace parent group financing with bonds

6. External Sector
6.1 Balance of Payments
6.1.1 CA gap shrinks 89% y/y in Jan-Oct

6.2 Foreign Trade
6.2.1 Exports rise 7.7% y/y in November, up 9% in Jan-Nov 2013
6.2.2 Trailing 12-month FOB trade gap narrows 49% y/y at end-Nov 2013

6.3 External Debt
6.3.1 Romania’s external public debt up 36.4% y/y to 21.7% of GDP at end-Oct

6.4 Forex Reserves
6.4.1 Romania’s forex reserves up 4.2% y/y to EUR 32.5bn at end-2013

Number of pages: 29
Release Date: Fri, 10 Jan 2014