the banking barometer arb & ey 2014

Banking BarometerARB&EY

Banking Barometer, an initiative intended toprovide to the bankers relevant information

EY Romania conducted in a partnership with the Romanian Banking Association(ARB) “The Banking Barometer ARB & EY“ a survey of the management of theARB member Banks. Banks participating in the survey have an assets marketshare of more than 85%.

The Banking Barometer ARB & EY will be conducted twice a year with themembers of the Romanian Banking Association and is designed as an informationtool for the bankers, regarding the way the management/leaders of the RomanianBanking system view the evolution of the economic, business and legalenvironments as well as the implications on their organizations.The results are presented as well on segments based on market share on assets:Banks with a market share > 5%, Banks with a market share between 1% -5%,Banks with a market share <1%.The Barometer also allows comparing the Romanian survey’s results with those ofa similar survey conducted by EY with 200 bankers from 11 other Europeanmarkets (Austria, Belgium, Switzerland, France, Germany, Italy, UK, Netherlands,Poland, Spain and Nordics).

Economic environment

1. How do you expect the general economic outlook in Romania to change over the next 6 months?

76% 24%

Improve significantly Improve slightly Remain at today’s levelsWorsen slightly Worsen significantly Don’t know/depends

Banks <1%

Banks 1%-5%

Banks >5%

Most banks expect the economic outlook toimprove slightly

TOTAL

71%

78%

80%

29%

22%

20%

Starting next run there will be a comparison to the previous estimates, making apparent thetrend of the expectations. This is valid for all questions included.

2. How do you expect the general outlook for employment in the market to change over the next 6months?

33% 62% 5%

Improve significantly Improve slightly Remain at today’s levelsWorsen slightly Worsen significantly Don’t know/depends

Banks <1%

Banks 1%-5%

Banks >5%

Bankers expect that the employment prospectsnot to change significantly in Romanian economy

TOTAL

29%

44%

20%

71%

44%

80%

12%

However the proportion of those expecting an improvement is higher than for thoseexpecting an worsening.

3. What (INDIRECT) impact do you think the Eurozone sovereign debt crisis will have on the bankingsector in Romania over the next 6 months, in comparison to the previous 6 months?

9% 67% 24%

Significantly increased impact Slightly increased impact About the sameSlightly decreased impact Significantly decreased impact Don’t know/ depends

Banks <1%

Banks 1%-5%

Banks >5%

The (indirect) impact of the sovereign debt crisis,is expected to remain unchanged

TOTAL

14%

20%

29%

89%

80%

57%

11%

A large scale consolidation of the banking industryis not expected on medium term

4. Please indicate the extent to which you anticipate consolidation of the banking industry will occur inRomania over the 12 months. By consolidation we mean, among other, the sale of portfolios.

76% 24%

I do not anticipate any consolidation Small scale consolidationMedium scale consolidation Large scale consolidation

Banks <1%

Banks 1%-5%

Banks >5%

Although considered unavoidable, bankers anticipatea small scale consolidation over the next 12 months

TOTAL

71%

89%

60%

29%

11%

40%

5. And again using the scale below, please indicate the extent to which you anticipate consolidation ofthe banking industry will occur in Romania within the next 3 years?

15% 71% 14%

I do not anticipate any consolidation Small scale consolidationMedium scale consolidation Large scale consolidation

Banks <1%

Banks 1%-5%

Banks >5%

On a 3 year time horizon, bankers do not expect alarge scale consolidation

TOTAL

28%

20%

43%

89%

80%

29%

11%

Business Outlook

6. Compared to today, to what extent do you expect that banks in Romania are likely to be engaged in thefollowing activities over the next 6 months?

Over 80% of banks expect the industry to engageto a greater extent in lending

5%

10%

15%

5%

14%

5%

15%

25%

40%

52%

40%

50%

67%

55%

45%

55%

50%

23%

35%

45%

19%

25%

30%

15%

5%

14%

10%

15%

10%

5%

Accessing central bank funding

Introducing or increasing incentives to increase…

Reducing the size of the balance sheet

Seeking funding from wholesale capital markets

Reducing loan-to-deposit ratios

Initiatives to promote growth

Selling assets

Lending to customers

Significantly more More Stay the same Less Significantly less

TOTAL

Over 45% of banks anticipate launching specific initiatives to promote growth.Although 55% anticipate an increase in sale of assets, many banks rather referred to NPL.



Banks >5%

14%

17%

29%

17%

17%

43%

67%

33%

57%

17%

17%

50%

67%

14%

17%

67%

14%

66%

67%

33%

16%

28%

17%

16%


Introducing or increasing incentives to increase customer deposits





Selling assets



On an average, Banks >5% are even more confident: approximately 30% expect asignificant increase in the engagement of the industry to lending activities.



Banks 1%-5%

11%

11%

22%

56%

56%

44%

56%

78%

78%

67%

67%

44%

33%

33%

44%

22%

11%

11%

11%

11%

23%

11%







Selling assets





Banks <1%

20%

20%

40%

20%

20%

40%

40%

40%

60%

60%

60%

60%

40%

40%

40%

20%

60%

20%

20%

20%

40%

20%







Selling assets



7. Which, if any, of the following activities is your bank likely to consider over the next 6 months?

29%43%

10%19%

Sell assets Buy assets Partnerships and jointventures

Don't know

* Banks could choose more than one response

Banks are rather interested in buying assets. Many of thebanks considering selling assets referred rather to thealready regular NPL sales.

TOTAL

43%57%

0% 0%

22%33%

11%

33%

20%

40%

20% 20%

Sell assets Buy assets Partnerships and jointventures

Don't know

Banks >5% Banks 1% - 5% Banks <1%

8. How do you rate the outlook for your bank over the next 6 months in each of the following businesslines?

Banks anticipate an improved outlook for mainbusiness lines

TOTAL

14%

8%

22%

6%

5%

43%

40%

34%

22%

61%

65%

15%

60%

50%

44%

33%

30%

14%

8%

12%

14%Securities services (e.g., custody, fund administration, collateralmanagement etc.)

Debt and equity issuance (for the clients), if applicable

Private banking si wealth management

Asset management

Retail banking

Corporate banking

Very good Fairly good Neither good, nor poor Fairly poor Very poor



Banks >5%

25%

16%

17%

50%

50%

17%

33%

57%

57%

25%

50%

67%

50%

43%

43%

Securities services (e.g., custody, fund administration, collateralmanagement etc.)

Debt and equity issuance (for the clients), if applicable

Private banking si wealth management

Asset management

Retail banking

Corporate banking




Banks 1%-5%

71%

78%

29%

22%

Retail banking

Corporate banking

25%

25%

50%

50%

25%

25%

Retail banking

Corporate banking


Banks <1%

9. How do you expect customer demand for the following retail products at your bank to change over thenext 6 months?

Banks predict an increase in demand for credit cards andconsumer loans

TOTAL

16%

16%

11%

5%

41%

38%

50%

61%

71%

47%

46%

28%

22%

24%

12%

6%

6%

Personal real-estate loans

Personal investment products

Personal loans

Personal savings and deposit products

Credit cards

Increase significantly Increase slightly Stay the same Decrease slightly Decrease significantly


Banks predict an increase in demand for credit cardsand consumer loans

Banks >5%

14%

29%

67%

57%

71%

86%

57%

33%

29%

29%

14%

14%Personal real-estate loans


Personal loans


Credit cards



Banks predict an increase in demand for credit cardsand consumer loans

Banks 1%-5%

40%

15%

14%

57%

20%

57%

57%

57%

43%

40%

29%

14%

29%

14%

14%

Personal real-estate loans


Personal loans


Credit cards



A significant percentage of banks anticipate an increasein demand for both consumer and business lending

Banks <1%

50%

25%

34%

25%

50%

67%

33%

100%

25%

25%

33%

33%Personal real-estate loans


Personal loans


Credit cards


10. How do you expect customer demand for the following corporate products at your bank to changeover the next 6 months?

The banks expect an increase in the demand for corporate/business loans and, to a certain extent, for hedging products

TOTAL

6%

12%

20%

44%

38%

50%

60%

56%

56%

38%

20%

M&A Advisory

Hedging products (e.g., FX rates (also known as Forex) or interest rates)

Debt issuance (for the clients)

Corporate loans


10. How do you expect customer demand for the following corporate products at your bank to changeover the next 6 months?

The banks expect an increase in the demand for corporate/business loans and, to a certain extent, for hedging products

Banks >5%

14%

17%

57%

83%

29%


Corporate loans


Banks 1%-5%

11%

57%

78%

43%

11%


Corporate loans

34%

50%

33%

25%

33%

25%


Corporate loans

Banks <1%

Operational efficiency

11. Over the next 6 months, do you expect the headcount of your bank to… :

5% 14% 52% 29%

Significant increase Slight increase Stay the sameSlight decrease Significant decrease Does not apply

Banks <1%

Banks 1%-5%

Banks >5%

The restructuring in the industry is close to an end:70% of Banks will not cut down the no. of employees

TOTAL

20%

22%

20%

71%

44%

40%

29%

33%

20%

The decrease could continue in the support functions but some expect an increase incommercial/ business lines.

Business priorities

Streamlining processes, risk management and preparingfor Basel III/CRD IV are at the top of banks’ agenda

12. Score the importance of some specific activities for you organization.

0%6%6%6%7%

18%21%

25%29%29%31%

38%38%

45%50%

53%59%61%

65%75%

80%80%

85%

0% 20% 40% 60% 80% 100%

Reducing the number of productsDisposing of assets or businesses

Off-shoringOutsourcing

New foreign markets/internationalizationAcquiring new assets or businesses

Restructuring the business operations or legal entities to comply with…New remuneration systems (including emerging legislation)

Developing partnerships with non-banksRestructuring the business operations or legal entities to cut costs

Establishing new business segmentsDeveloping Recovery and Resolution Plans

Compliance with capital markets regulations (i.e., MiFID II/EMIR)Cutting costs

Developing/introducing new productsCurrent changes in financial reporting/harmonization with IFRSsComplying with consumer regulation issues and/or dealing with…

Investing in new customer-facing technology e.g. mobile solutionsMinimizing all non-essential expenditure

Reputational risk (including tax transparency)Preparing for Basel III/CRD IV

Risk managementStreamlining processes / Further automation

Respondents were asked to rank the importance of the above points on a scale from 0-10, where 0 means “Not at all important" and10 “Very important". Percentages represent the number of respondents have been classified in points 8, 9 or 10.

TOTAL

13. How do you expect your lending policies for corporates to change in each of the following sectorsover the next 6 months?

TOTAL

5%

5%

5%

5%

11%

13%

11%

11%

6%

17%

6%

5%

11%

16%

21%

53%

58%

47%

40%

53%

58%

69%

72%

89%

74%

73%

79%

74%

37%

37%

31%

47%

31%

26%

25%

5%

5%

16%

11%

10%

5%

11%

5%

5%

6%

Information technology

Manufacturing & industrials (including chemicals, engineering,…

SMEs (small-medium size enterprises)

Agriculture

Media and telecommunications

Health care (including pharmaceuticals, biotechnology and life sciences)

Professionl services

Retail & consumer products

Energy, mining & minerals

Financial services

Transport

Commercial real estate

Construction

Significant more restrictive More restrictive Stay the same Less restrictive Significant less restrictive

Lending policies are expected to loosen in Manufacturing,Information Technology, Agriculture, Telecom, Healthcareand the SME segment


Banks >5%

14%

15%

15%

14%

14%

71%

71%

43%

67%

71%

71%

86%

86%

100%

100%

100%

86%

100%

29%

29%

29%

33%

14%

14%

14%

14%




Agriculture






Financial services

Transport


Construction



13. How do you expect your lending policies for corporates to change in each of the following sectorsover the next 6 months

Banks 1%-5%

12%

12%

12%

12%

12%

33%

12%

12%

17%

15%

14%

13%

25%

25%

50%

50%

37%

37%

38%

50%

71%

86%

50%

50%

63%

38%

50%

50%

38%

67%

50%

38%

33%

14%

25%

13%

13%

13%




Agriculture






Financial services

Transport


Construction




Banks <1%

25%

25%

75%

75%

67%

50%

50%

67%

50%

75%

75%

67%

100%

100%

25%

25%

25%

33%

25%

50%

33%

25%

25%

33%

50%

25%

25%




Agriculture






Financial services

Transport


Construction



14. Over the next 6 months, do you expect your bank’s total provisions against loan losses to…?

15% 50% 30% 5%

Increase significantly Increase slightly Remain at current levelsDecrease slightly Decrease significantly

Banks <1%

Banks 1%-5%

Banks >5% 17%

11%

20%

50%

56%

40%

33%

22%

40%

11%

TOTAL

Over 80% of banks expect the expenses with credit riskprovisions not to increase or even decrease (35%)

15. How do you expect your bank’s overall performance to change over the next 6 months?

25% 55% 20%

Strengthen significantly Strengthen slightly Stay the sameWeaken slightly Weaken significantly

Banks <1%

Banks 1%-5%

Banks >5%

The improvement of financial results will not come strictly from the decrease inexpenses with provisions

TOTAL

17%

22%

40%

50%

56%

60%

33%

22%

About 75% of banks expect financial results to improve.Significantly more than the banks expecting the expenseswith risk provisions to decline.

Local aspects

16. What are the main issues specific to the local market (to Romania) that negatively affect the lendingappetite, cost or your capacity / ability of lendingTOTAL

15%

11%

21%

28%

33%

48%

21%

42%

37%

44%

38%

38%

53%

42%

37%

28%

29%

14%

11%

5%

5%

The administrative restrictions on lending

The state’s payment behavior

The way European consumer related regulations have been transposed inthe Romanian legislation

The local legislative initiatives referring to consumers

The economic prospects over the next 12 months

The current legislative framework on insolvency

Very great extent Great extent Small extent Not at all

The legislative framework on insolvency (and the way itis enforced) deters lending, as per 85% of banks

The confidence in the economic prospects and the legislative initiatives on consumertopics are the next two issues deterring lending.

16. What are the main issues specific to the local market (to Romania) that negatively affect the lendingappetite, cost or your capacity / ability of lending

Banks >5%

17%

17%

33%

33%

29%

29%

17%

17%

33%

33%

29%

57%

66%

66%

34%

34%

42%

14%








The legislative framework on insolvency (and the wayit is enforced) deters lending, as per 85% of banks


Banks 1%-5%

12%

12%

12%

25%

23%

34%

33%

44%

33%

50%

44%

44%

33%

33%

44%

25%

33%

22%

22%

11%

11%










Banks <1%

25%

25%

25%

60%

100%

75%

50%

50%

40%

75%

25%

25%

25%









The Banks < 1% seems to be affected to a greater extent, than first two segments, by the insolvencylegislation.

17. What do you consider to be the main implications of local initiatives on the consumer topic?

TOTAL

53%

61%

15%

23%

24%

8%

8%

8%

It affects the trust in/image of the banking system

Induce moral hazard/ affets negatively the paymentbehavior


Certain legislative initiatives on consumer topics and theway are advertised can induce moral hazard and sendmisleading messages regarding banks’ practices

Contacts

Gelu Gherghescu+40 21 402 [email protected]

About ARB

Romanian Association of Banks concentrates entirebanking industry in Romania, being the voice of thebanking sector in relation with the Romanianauthorities, the International Monetary Fund,European Commission, World Bank and othernational and international bodies.Its main objective is to represent and protect therights and interests of the members, especially nowwhen the well-normed European regulation system,may exert additional pressure on banks' role asfinancer of the economy.The Romanian banking sector largely finances theRomanian economy, providing about 92% of totalfunding on the Romanian financial system.The Romanian Banking System, serving millions ofcustomers proved to be resilient during the crisis, noneed of support from public funds.

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