Romanian banks boast the highest return on capital (ROE), almost 20%, more than double the European Union (EU) average and three times the figures in France or Germany, Ziarul Financiar reported.

At the same time, Romania has the lowest financial intermediation ratio in the EU, with a ratio of banking assets to GDP of only 50%, a fifth of the EU average (250%).

Experts questioned by the daily indicate the sovereign risk as the reason behind the high profitability.

However, while the risk is quantified very precisely by actuaries in the insurance business, based on past events, the risk "perceived" by foreign investors is rather a feeling or a sentiment. In fact, if the risk of doing business as a banker in Romania would be as high as indicated by the high ROEs, then they would at least from time to time materialise with the effect of a long-term ROE in line with the EU (or global) average. Still, analysts indicate the sovereign risk as the reason for foreign investors expecting high ROEs in countries like Romania.

"This should be attributed to the fact that this is exactly why Romania is attractive and must be attractive to foreign investors by offering a higher return on capital," argues economic analyst Aurelian Dochia.

He also said that things evolve over time, and he believes that this profitability differential will slowly decrease, but there will still be a difference between European countries.

iulian@romania-insider.com

(Photo source: Inquam Photos/Octav Ganea)