European banks from Romania show standout profitability amidst reduced loan issuance within the EU context
Romania's Banking Sector Thrives Amid Conservative Lending and High Profitability
Romania's banking sector stands out in the European Union (EU) with a lower loan-to-deposit ratio and higher profitability compared to the average EU bank. The sector's loan-to-deposit ratio, currently at 63%, is significantly below the EU average that exceeds 100%, indicating a more conservative lending approach by Romanian banks [1][3].
This conservative approach, coupled with a favorable interest environment, has enabled Romanian banks to achieve returns nearly double the EU average [1]. Key factors contributing to this success include high interest margins, prudent lending, effective risk management, and a stable macroeconomic environment [1].
Romanian banks operate in an environment of relatively high benchmark interest rates, around 6.5% as of mid-2025, which allows them to earn more from lending activities even with a smaller loan book [1][3]. The banks' prudent lending and effective risk management have resulted in a substantial reduction of non-performing loans (NPLs) since 2018, indicating sound credit risk controls and maintaining asset quality [1].
Maintaining a more balanced loan-to-deposit ratio means fewer risks related to liquidity and solvency, allowing banks to absorb market volatility better than many European peers [1]. The stability of the Romanian economy supports the sector’s resilience against shocks, reinforcing profitability despite lower lending activity [1].
In contrast, the EU average loan-to-deposit ratio above 100% suggests a heavier reliance on funding beyond customer deposits, potentially increasing risk and costs, which might depress profitability relative to Romania [1].
The Romanian banking sector's resilience to potential shocks from macroeconomic and political uncertainties remains adequate, as stated by the central bank. Solvency, balance sheet structure, and profitability metrics in the Romanian banking sector are above European averages and within the optimal thresholds set by the European Banking Authority (EBA) [2].
The sector's improvement in asset quality is attributed to prudent lending practices and effective risk management measures implemented in recent years. The non-performing loan (NPL) ratio in the Romanian banking sector has declined substantially since 2018, but remains marginally above the EU average [1].
The Romanian banking system is in a favorable position across key financial and prudential indicators, as evidenced by a report based on data from the European Banking Authority (EBA) and the National Bank of Romania (BNR) [2]. The report highlights the sector's ability to absorb market volatility more effectively than many of its European counterparts.
References:
[1] European Banking Authority (EBA) and National Bank of Romania (BNR) report, 2025 [2] National Bank of Romania (BNR) press release, 2025 [3] European Central Bank (ECB) report, 2025
In light of Romania's lower loan-to-deposit ratio and higher profitability compared to the EU average, it can be inferred that Romanian businesses benefit from a more conservative finance approach by banks, contributing to a favorable business environment. Furthermore, the Romanian banking sector's robust prudential indicators and effective risk management strategies position it for a stronger resilience against potential shocks, fostering a stable business climate.
