Emerging Europe: Romania’s rocky road to recovery

The country’s banking sector has staged a remarkable comeback over the past two years and is well-positioned to support growth and investment. Whether or not that will materialize, however, depends on its politicians.

Even by European standards, Romania’s banking sector had a bad crisis. The bursting of the country’s real estate bubble in 2009 caused bad debts to soar, loan books to shrink and profits to plummet. By the end of 2013, nearly a quarter of all loans were non-performing, deleveraging was accelerating as demand for new credit remained stagnant, and the country’s leading banks were struggling to break even.

The intervening years, however, have seen a remarkable turnaround. Moves by the Romanian central bank to boost provisioning and streamline insolvency procedures in 2014 sparked a wave of debt write-offs, work-outs and portfolio sales. While pushing the sector to a loss of more than €1 billion for the year, this helped slash the non-performing loan ratio to below 14% and set the stage for a return to profitability in 2015. 

External factors have also helped. After a sharp recession...