In 2006, it experienced another strong rise in market share, as well as high and improving profitability, driven by the strong performance in retail lending. Its market share gain in loans compared with 2005 was 2.5 percentage points (4.5 percentage points in the lucrative retail segment).
Retail loans comprise 51 per cent of the customer loan portfolio and BRD has a 22 per cent market share, closing in fast on market leader BCR. BRD’s clear strength is consumer lending: consumer loans comprise 80 per cent of the retail book and the bank is a leader in the debit and credit card business, with over 1.8 million cards issued at end-2006.
During 2006, BRD expanded considerably its credit card clients through a special promotion with famous Romanian athletes. Evidence of its dynamism in the corporate segment is the fact that the bank has agreements with 1,085 companies, with presence in over 3,800 stores to provide point-of-sale finance.
Among these companies are top retail chains like Carrefour and Praktiker. It has also developed cobranded credit cards with many retailers. Even in the corporate sector, BRD is geared towards the most profitable segments, i.e., SMEs. Loans to SMEs constituted 71 per cent of the total corporate loan volume in 2006 compared with 52 per cent in 2005.
BRD is also more focused on private sector lending (claiming to be the No. 1 lender to private sector corporates and SMEs). It has also developed specific tailored offers for “certified freelancers” (doctors, lawyers, craftsmen and other freelance professionals), addressing in a focused way a corporate segment that has strong retail characteristics. As a result, corporate loans grew by 48 per cent, also at a higher pace than the sector.
The bank also increased its market share in customer deposits in 2006 (by 0.7 percentage points), but the overall pace was much slower than that of loans. As a result, the loans-to-deposits ratio in RON reached 79 per cent, compared with 51 per cent in 2005, which, in view of the high required reserves results in a shortage of RON deposits, a challenge for its future retail loan growth.
BRD is one of the most profitable financial institutions in the region, with RoE exceeding 34 per cent. Commission income grew almost twice as fast as that of the sector in 2006 and was the main contributor to total revenue’s advancement by 33 per cent. Common to all banks, NIM declined further, but it still remains the highest among the three main banks at 5.2 per cent.
Operating costs increased at a higher pace than that of the sector, as a result of a dramatic expansion in the branch network and personnel (600 branches and agencies compared with 326 in 2005 and 7,286 employees compared with 5,654 in 2005). This resulted in a slight increase in the cost-to-income ratio, which at 53 per cent is still the best in the market.
Despite the rapid loan growth, it is important to note that P&L provisions stood at 0.5 per cent of the average loan portfolio (1.1 per cent in 2005) and are less conservative than the provisions of the other Romanian banks (about 1.2 per cent). In view of the rapid revenue growth, net profit for the year reached EUR 200 million, up 43 per cent compared with 2005.
Overall, BRD seems to have a focused and aggressive retail strategy that is backed up by very strong results. It is well positioned in retail, and if the market continues to expand rapidly the bank will reap a large part of the benefits as it has the know-how, and also a large branch network to generate retail sales.
In H1:2007, profitability continued to improve. Loans to customers advanced by 15 per cent since the beginning of the year (13 per cent in retail and 18 per cent in corporate lending), slightly less than the rest of the market. As a result, BRD’s bottom line earnings advanced by 32 per cent, from an impressive increase of 27 per cent in NII and 68 per cent in commission income.