The net profit of banks in the first five months of 2007 has stagnated at around one billion RON (327 million euros), against the same time last year, according to data reported to the National Bank of Romania.
Stagnation has occurred at a time when banks' territorial networks have increased by 1,009 branches, from May 2006 through to May 2007, and the number of employees has increased by almost 5,800, therefore generating substantially higher costs.
The top ten lenders, such as Alpha Bank and ING, had originally estimated a slight or even a 50% decline in 2007 profits, as early as the beginning of the year, due to the investment efforts entailed by network expansion.
"A significant number of banks have realised that in order to secure a good position on the market and withstand competition they will have to provide more and more investments, which eat into the profit margin. The advantage of a local presence on the retail market will continue for a long time into the future, so that on top of narrowing profit margins, first of all, banks will have to bear the costs of retail positioning," Mihai Bogza, Bancpost chairman, told ZF.
Still, the total profits witnessed in the banking system in the first five months have accounted for almost half the total profit of 2006, which amounted to 2.2 billion RON (about 650 million euros).
The month of May came with improved profit growth, with the increase on April increasing to almost 33%, compared with 24% in April from March.
Despite the visible increase in the number of employees, to 60,856 at the end of May, banks managed to preserve an average profit per employee of 18,000 RON (around 5,500 euros) against May 2006.
The net profit per employee last year stood at 38,000 RON (about 11,500 euros). Bogza says that Bancpost has completed most of its restructuring programmes, and can breathe a sigh of relief now that it is has a faster growth rate than the market's.
Meanwhile, other major players still have to bear significant restructuring costs: BCR's integration into the Erste Group is now in full swing, though the bank has not given up its bold profit target, and the new UniCredit Tiriac Bank is to invest in the expansion and optimisation of its operations.
Smaller banks, which attracted new owners last year - MKB Romexterra, ATE Bank - have investments planned for developments that could put significant pressure on their profit margins.
Each of the 37 banks operating on the market made an average net profit of 27.7 million RON (some 8.4 million euros) in May.
Although coming with a higher increase in profit across the entire banking system, May was also the month when the banks' assets stagnated, at almost 184 billion RON (55.7 billion euros). This may have occurred because many retail clients postponed taking out a loan, preferring to wait for the new more lenient terms to be implemented.
The assets of the banking sector increased by 6.4% in the first five months of the year compared with the end of 2006, and by almost 32% compared with the same time last year.
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