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Ensight shows the results of the banking and insurance market analysis in Romania and Central and Eastern Europe
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Ensight Management Consulting conducted at the beginning of this year, an analysis of the banking and insurance market. The objective of the study is to understand the market evolution during the last years and to identify possible trends for the future short and medium term. The analysis was performed both at CEE level, in order to better understand the Romanian situation in the CEE environment, and at Romanian level, in order to understand the internal market and competition situation.
Central and Eastern Europe (CEE) banking market overview
Although the European economy was affected by the economic recession, in 2009 the total CEE banking assets increased in value by ~2%. Romania was the 4th biggest banking market in CEE in 2009, with total banking assets (78.1 bnEUR) above the CEE average.
As loans are concerned, their distribution per destination shows differences between CEE countries. While countries like Slovenia show an emphasis on the corporate sector, countries like Romania register a higher level of consumer credit. Also, according to official data, Romania has the highest level of non-performing loans among CEE countries. As deposits are concerned, Romania’s total value is below the CEE average. Moreover, for half of the CEE countries the loan-to-deposit ratio is over 1. On the credit cards and non-traditional banking payments market segments, Romania and Bulgaria are at the bottom rank among CEE countries. Thus, Romania’s number of credit cards per inhabitant (0.13) is half of Poland’s (0.25).
Romanian banking market overview
Considering the international economic and financial context, 2009 and 2010 were marked by a moderation of the banking activity in Romania, as reflected by the evolution of total banking assets. Consequently, banks shifted their focus from high growth expansion and mainly quantitative targets to a more qualitative driven orientation regarding strategy, branch network, product portfolio or cost control.
Non government loans’ (households and non-bank companies) high growth pace until 2008 was replaced by a contraction in 2009 and 2010, in real terms. Thus, the growth pace in real terms of RON loans reached negative territory in May 2009 and continued the trend throughout 2010. Loans in foreign currency had a different dynamic of the growth pace in real terms, and reached negative values in January 2010, regaining its small, positive growth towards the 2nd half of the year.
Deposits have continued their growth, although in 2010 at a slower pace compared to 2009 values. Average interest rates had a descending trend, for both loans and deposits, with a different dynamic depending on the type of currency, after the high levels reached in 2008.
The Romanian market has still a high growth potential as cards penetration is concerned, even more considering the descending trend for the number of both valid debit and credits cards observed during the last 2 years. Thus, the number of card valid units and values of ATM withdrawals were lower than their 2008 levels, while cards payment transactions have increased.
Increasing non performing loans, cumulated with reduced revenues (due to lower credit activity) have been affecting the profitability of the overall banking system. Thus, in 2009 the aggregated banking system’s net profit decreased with ~83%, compared to 2008, and at the end of 2010, the annual net aggregated loss was ~71 mEUR. Consequently, the banks have reduced their operational expenses and reconsidered their branch network expansion plans during the last 2 years.
Therefore, some of the main short and medium term trends on the Romanian banking system include: repositioning and refocusing of small banks on niche target segments, potential further consolidation of activities, increased competition for “good” customers, increase of cards penetration etc.
CEE4 insurance market overview
The CEE insurance market is characterized by high concentration on the non-life insurance market as compared to the usual EU averages. Romania shows these characteristics even more prominently than the other CEE countries, with non-life insurance holding more than 80% of the market and the non-life motor liability insurance holding more than 60% of the market.
The general trend of the non-life insurance market showed growth at the CEE level. The only non-life category that showed a decrease trend in the CEE region in 2009 was the property insurance category.
The life insurance market of most of the CEE countries has yet to reach maturity and was strongly affected by the economic recession. The Romanian life insurance market was, in 2009, at 7% of the CEE life insurance market averages by country.
The most utilized insurance distribution channels in CEE are Direct Writing and Intermediaries (Agents, Brokers). In 2009, around 36% of the Romanian total gross written insurance premiums were negotiated by brokers (40% for non-life insurance and only 6% for life insurance).
Romanian insurance market overview
The concentration degree on the Romanian market doubled in 2009 (41%) as compared to 2008 after the consolidation of various international groups with presence on the market.
The non-life insurance market still registered growth of gross written premiums in 2009 (2% in RON currency), although not as high as the one registered in previous years. The life insurance market, less developed in Romania than in developed European countries, was heavily affected by the economic recession and registered a market contraction in 2009
(-14%).
In 2010, the non-life insurance market was heavily affected by the downfall in the leasing market. The motor liability insurance market registered changes in structure due to the sales increase of auto liability insurance and the significant decrease of comprehensive insurance sales.
High level of dynamism was also registered in 2008 and 2009 on the non-life insurance classes that do not hold a high market share in the overall non-life insurance market. A good example is represented by the changes in the market shares and positions of competitors on the agriculture insurance market. In this respect, ASIROM lost the first position and approximately 13% of market share, while Omniasig VIG climbed to the third position and gained 12% market share.
The available capital on the insurance market faced an upward trend. This is primarily due to the life insurance sector that registered an average solvency ratio of 4.46 in 2009 (23% more than in 2008).
The profits registered in 2009 on the overall insurance market decreased by 15% (as compared to 2008), while the loss registered on the market more than doubled in the same time interval (103% growth). The net aggregated result of the insurance market is a loss of 582 mRON.
The operational costs (acquisition and administrative costs) increased for the overall market with 2% in RON calculation. This is due to the increase of costs coming from the non-life insurance sector (6%), in spite of a 9% decrease in acquisition and administrative costs registered by the life insurance sector.
In 2009, almost 19% of gross written premiums were ceded to reinsurance in Romania, representing a 14% decrease as compared to 2008.
The regulatory measures will focus for the next 2-3 years on risk management measures, while the trends on the market show further signs of moderate market consolidation, product innovation initiatives, increased rebranding activity and use of bancassurance as an insurance distribution channel..
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