banking barometer arb & ey 2015 - amcham.ro banking barometer, an initiative intended to provide...
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Banking BarometerARB & EY 2015
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Banking Barometer, an initiative intended to provide bankersrelevant information
EY Romania conducted in a partnership with the Romanian Banking Association (ARB) thebanking industry index called The Banking Barometer ARB & EY, through a survey of thetop management of the ARB’s member banks. The banks participating in the surveyhave an assets market share of approximately 90%.
The Banking Barometer ARB & EY will be conducted annually with the members of theRomanian Banking Association and is intended to be an information tool for the bankers,regarding the way the top management of the Romanian banking system anticipate theevolution of the economic, business and legal environment as well as the implications ontheir organizations.
The Barometer also allows comparing the Romaniansurvey’s results with those of a similar survey conducted byEY with over 200 bankers from 11 other European markets(Austria, Belgium, Switzerland, France, Germany, Italy,UK, Netherlands, Poland, Spain and Nordics).
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Economic environment
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1. How do you expect the general economic outlook in Romania to change over the next12 months?
Most banks expect the economic environment to improve slightly
9%
76%
59%
24%
23% 5% 5%
2014
2015
Improve significantly Improve slightly Remain at today’s levels Worsen slightly Worsen significantly
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2. How do you expect to evolve the general outlook for employment in the economy overthe next 12 months?
46% of banks expect an improvement of the general outlook foremployment in the economy
Bankers are more optimistic than in 2014 when only 33% were expecting an improvement.
5%
33%
41%
62%
45%
5%
9%
2014
2015
Improve significantly Improve slightly Remain at today’s levels Worsen slightly Worsen significantly
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Expectations ref. consolidation of the banking industry aregrowing
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3. Please indicate the extent to which you anticipate that the consolidation of the bankingindustry will occur in Romania over the next 12 months. By consolidation we also meansale of portfolios.
50% of bankers expect a medium scale consolidation overthe next 12 months, compared to 24% in 2014
76%
50%
24%
50%
2014
2015
I do not anticipate any consolidation Small scale consolidation
Medium scale consolidation Large scale consolidation
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Over 40% of bankers expect a large scale consolidation over thenext 3 years compared to only 14% in 2014
15%
5%
71%
55%
14%
41%
2014
2015
I do not anticipate any consolidation Small scale consolidation
Medium scale consolidation Large scale consolidation
4. Please indicate the extent to which you anticipate that the consolidation of the bankingindustry will occur in Romania over the next 3 years. By consolidation we also mean saleof portfolios.
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Business outlook
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5. To what extend do you expect banks from Romania to engage in the followinginitiatives over the next 12 months?
85% of banks expect to engage more than in the past ininitiatives to promote growth (55% in 2014)
77% of banks anticipate to engage more in lending related initiatives, slightly less than in 2014 (80%). Howeverthe number of bankers anticipating significantly more engagement in such activities doubled from 2014 survey.
11%
5%
5%
10%
10%
29%
25%
11%
10%
19%
10%
35%
48%
60%
26%
47%
40%
33%
60%
45%
24%
10%
37%
5%
30%
24%
10%
10%
5%
26%
37%
15%
19%
10%
Accessing central bank funding
Introducing or increasing incentives to increasecustomer deposits
Seeking funding from wholesale capital markets
Reducing the size of the balance sheet
Reducing loan-to-deposit ratios
Selling assets
Lending to customers
Initiatives to promote growth
Significantly more More Stay the same Less Significantly less
2015
5%
10%
5%
14%
15%
5%
15%
40%
25%
52%
50%
67%
40%
55%
45%
50%
55%
23%
45%
19%
35%
25%
30%
5%
15%
14%
10%
15%
10%
5%
2014
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6. Which, if any, of the following activities is your bank likely to consider over the next12 months?
*Multiple answers question
Banks are more interested in selling assets than in 2014 but inmost of the cases it is about NPLs.
29%
43%
10%
19%
59%
32%
14%
0%
Sell assets Buy assets Partnerships and jointventures
Nu stiu
2014 2015
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7. How do you think will your bank evolve over the next 12 months in each of the followingbusiness lines?
Banks anticipate an improved outlook for main business lines,in line with 2014
9%
10%
15%
20%
10%
19%
18%
33%
45%
40%
38%
20%
52%
62%
27%
27%
18%
10%
15%
40%
38%
14%
9%
13%
10%
18%
13%
18%
10%
15%
13%
5%
Securities services (e.g., custody, fundadministration, collateral management etc.)
Securities trading
Debt and equity issuance (for the clients), ifapplicable
Transaction advisory (e.g., M&A), if applicable
Asset management
Private banking and wealth management
Corporate banking
Retail banking
Very good Fairly good Neither good, or poor Fairly poor Very poor
14%
22%
8%
5%
6%
43%
14%
40%
14%
22%
34%
65%
61%
15%
57%
60%
57%
44%
50%
30%
33%
14%
29%
29%
12%
8%
14%
2015 2014
Bankers are more optimistic as regards Retail banking, slight more than in 2014 survey.
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8. How do you expect customer demand to evolve for the following retail products at yourbank and how does it to change over the next 12 months?
90% of banks predict an increase in demand for mortgage loansand 80% for consumer loans
The number of banks predicting an increase in the demand of mortgage loans doubled from 2014 survey.Furthermore, 24 pp of the 90% expect a significant increase in demand.
22%
20%
10%
21%
24%
28%
71%
42%
67%
28%
35%
19%
37%
5%
0%
10%
0%
17%
5%
Personal investment products
Personal savings and deposit products
Personal loans
Credit cards
Personal real-estate loans
Increase significantly Increase slightly Stay the same Decrease slightly Decrease significantly
16%
11%
16%
5%
38%
61%
50%
71%
41%
46%
22%
28%
24%
47%
6%
6%
12%
2015 2014
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9. How do you expect customer demand to evolve for the following corporate products atyour bank over the next 12 months?
Banks expect a slight increase in demand for corporate/businessloans as well as in demand for hedging products
17%
10%
20%
25%
25%
44%
60%
40%
33%
42%
33%
25%
20%
25%
17%
6%
Equity issuance / IPOs (for the clients)
M&A Advisory
Debt issuance (for the clients)
Hedging products (e.g., FX rates (also known asForex) or interest rates)
Corporate loans
Increase significantly Increase slightly Stay the same Decrease slightly Decrease significantly
12%
6%
20%
44%
50%
38%
60%
100%
56%
38%
56%
20%
Although a large share of bankers (70%) expect an increase in the demand for business loans, the share isless than in 2014 survey. As regards the hedging products, the share of those expecting an increase is 61%vs 44% in 2014.
2015 2014
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Operational efficiency
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10. Over the next 12 months, you expect the number of employees in your bank to have a:
55% of banks expect the number of staff to slightly decline, vs.29% in 2014
5% 14%
18%
52%
27%
29%
55%
2014
2015
Significant increase Slight increase Stay the same Slight decrease Significant decrease
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11. Compared to last year (2014), how do you expect the the level wage bill to change inyour organization in 2015?
However, the remuneration expenses will not decrease in over80% of banks (in 32% will increase)
32% 50% 18%TOTAL
Increase Stay the same Decrease
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Business priorities
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Risk management, especially reputational risk, rank the first onthe bankers’ agenda
12. Please rank the importance of the following aspects for your organization.
The respondents have been asked to rank the importance of the above mentioned aspects on a scale from 0 to 10, where 0 represents “Not at all important”,and 10 “Very important”. The percentages represent the number of respondents who scored 8, 9 or 10 points on this scale.
6%
0%
31%
25%
18%
45%
38%
53%
29%
29%
80%
61%
38%
21%
65%
50%
62%
85%
59%
80%
75%
11%
14%
18%
19%
24%
27%
33%
38%
40%
45%
48%
50%
50%
53%
55%
59%
62%
68%
71%
86%
91%
Disposing of assets or businesses
Reducing the number of products
Establishing new business segments
New remuneration systems (including emerging legislation)
Acquiring new assets or businesses
Cutting costs
Developing Recovery and Resolution Plans
Current changes in financial reporting/harmonization with IFRSs
Developing partnerships with non-banks
Restructuring the business operations or legal entities to cut costs
Diversity of Basel III/CRD IV
Investing in new customer-facing technology e.g. mobile solutions
Compliance with capital markets regulations (i.e., MiFID II/EMIR)
Restructuring the business operations or legal entities to comply…
Minimizing all non-essential expenditure
Developing/introducing new products
Data security
Streamlining processes / Further automation
Complying with consumer regulation issues and/or dealing with…
Risk management
Reputational risk (including tax transparency)
2015
2014
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13. How do you expect your lending policies for corporates to change in each of thefollowing sectors over the next 12 months?
Lending policies are expected to be less restrictive inAgriculture, Manufacturing, IT, Healthcare and for SMEs
The same industries and segment resulted from 2014 survey, the only exception being Telecom.
5%
5%
10%
10%
15%
14%
5%
0%
11%
15%
14%
19%
15%
48%
55%
36%
60%
50%
62%
75%
63%
70%
71%
75%
57%
60%
29%
40%
45%
35%
45%
19%
19%
16%
15%
14%
15%
14%
10%
24%
5%
5%
5%
14%
6%
5%
SMEs (small-medium size enterprises)
Manufacturing & industrials (including chemicals,…
Agriculture
Health care (including pharmaceuticals,…
Information technology
Retail & consumer products
Professionl services
Energy, mining & minerals
Financial services
Transport
Media and telecommunications
Commercial real estate
Construction
Significant more restrictive More restrictive Stay the same Less restrictive Significant less restrictive
2015 2014
5%
5%
5%
5%
11%
13%
11%
17%
6%
6%
5%
11%
11%
16%
21%
47%
58%
40%
58%
53%
72%
69%
89%
74%
73%
53%
79%
74%
31%
37%
47%
26%
37%
5%
25%
5%
16%
11%
31%
11%
5%
5%
10%
6%
5%
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14. Over the next 12 months, do you expect your bank’s total provisions against loanlosses to…
Over 80% of banks expect their expenses with credit riskprovisions not to increase, or even to decrease (40%)
The percentage of the banks expecting a significant decline of their cost of risk has increased to 27% (from 5%in 2014 survey).
15%
18%
50%
41%
30%
14%
5%
27%
2014
2015
Increase significantly Increase slightly Remain at current levels Decrease slightly Decrease significantly
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15. How do you expect your bank’s overall performance (i.e. financial results) to changeover the next 12 months?
Over 90% of banks expect improved financial performance,compared to 80% in 2014
25%
36%
55%
55%
20%
5% 5%
2014
2015
Strengthen significantly Strengthen slightly Stay the same Weaken slightly Weaken significantly
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Local aspects
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16. What are the main issues specific to the local market (to Romania) that negativelyaffect the lending appetite, cost or your capacity / ability of lending?
The legislative framework on insolvency (including enforcementthereof) continues to be the main aspect that deters lending for95% of banks, 10 pp more than in 2014
The local legislative initiatives regarding consumers as well as The way the European regulations on the sametopic are being transposed into the Romanian legislation are the next two reasons which deter lending.
15%
14%
19%
24%
53%
50%
25%
41%
38%
43%
32%
41%
45%
27%
38%
29%
16%
9%
15%
18%
5%
5%
The administrative restrictions on lending
The economic prospects over the next 12 months
The state’s payment behavior
The way European consumer related regulationshave been transposed in the Romanian legislation
The local legislative initiatives referring toconsumers
The current legislative framework on insolvency andthe envisaged changes
Very great extent Great extent Small extent Not at all
2015 2014
15%
33%
11%
21%
28%
48%
21%
38%
42%
37%
44%
38%
53%
29%
42%
37%
28%
14%
11%
5%
5%
Page 25
17. What do you consider to be the main implications of local initiatives on the consumertopic?
Certain legislative initiatives on consumer topics and the wayare advertised can induce moral hazard and send misleadingmessages regarding banks’ practices
67%
33%
22%
44%
11%
11% 11%
It negatively affects financial discipline/payment behavior of the debtors
It affects the trust in the banking system
Very great extent Great extent Small extent Not at all
2015 – TOTAL
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18. Do you consider beneficial the continuation of the agreement with IMF – EC – WB froma financial stability perspective?
The majority of banks consider beneficial the continuation ofthe agreement with IMF
Yes, 68% No, 32%TOTAL
Page 27
19. How do you expect that the recent modification of the write-off practices will affect theactivity of NPLs sale to third parties (i.e. outside of the Group)
The recent modification of write-off practices will not reallychange the pace of NPLs sale
23% 27% 45% 5%TOTAL
Significant increase Slight increase No effect Slight decrease Significant decrease
About EY România
EY is one of the world's leading professionalservices firms with approximately 190,000employees in 728 offices across 150 countries, andrevenues of approximately $27.4 billion in the fiscalyear that ended on 30 June 2014. Our network isthe most integrated at global level and its vastresources allow us to help our clients benefit fromevery opportunity. In Romania, EY has been aleader on the professional services market since itsset up in 1992. Our over 500 employees in Romaniaand Moldova provide seamless assurance, tax,transactions, and advisory services to clientsranging from multinationals to local companies. Ouroffices are based in Bucharest, Cluj-Napoca,Timisoara, Iasi and Chisinau. In 2014, EY Romaniahas affiliated to the only global competitiondedicated to entrepreneurship, EY Entrepreneur OfThe Year. The winner of the local edition representsRomania in the international finale that takes placeevery year in June in Monte Carlo. The WorldEntrepreneur Of The Year title is awarded at theinternational finale. For more information, pleasevisit www.ey.com.
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.