ROMANIA'S BANKING SYSTEM: CLEAN BILL OF HEALTH

UNCLAS SECTION 01 OF 04 BUCHAREST 000036

SIPDIS

STATE FOR EUR/NCE - AJENSEN, EB/IFD
TREASURY FOR LKOHLER
USDOC FOR KNAJDI

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EIND RO
SUBJECT: ROMANIA'S BANKING SYSTEM: CLEAN BILL OF HEALTH


This cable is Sensitive But Unclassified. Please handle
accordingly.


1. (SBU) Summary: Western banks play a dominant role in Romania's
growing economy, controlling slightly over 83 percent of the
country's banking system. This situation, coupled with tight
regulation and close supervision by the Romanian Central Bank (BNR),
leaves Romania with relatively few worries regarding money
laundering and large scale banking fraud. End summary.

Western Banking Brands Dominate the Market
--------------

2. (U) Western banks dominate Romania's savings and lending markets,
controlling over 83 percent of the commercial banking system.
Romania's banking system has total net assets amounting to EURO
42.919 billion. With Romania's GDP likely to exceed EURO 100
billion in 2006, experts predict continued strong growth in the
banking and credit sector to be led by Western banking interests.


3. (U) Romania's banking sector consists of several large banks that
control the vast majority of the banking business and numerous
smaller banks that take up niche markets or are struggling to stay
afloat in a period of increased competition. The following list is
a survey of the banks in Romania and their relative positions in the
market.

Banking Sector Census
--------------

4. (U) The Romanian Commercial Bank (BCR) is the largest bank in
Romania with over EURO 11 billion and a market share of 25.9
percent. Austria's Erste Bank purchased the entire state-owned
package in the bank in 2006, as well as the EBRD and IFC stakes. In
addition to the original 62.9 percent stake purchased in BCR, Erste
Bank has been acquiring shares from the Bank's employees, who owned
7.1 percent of the Bank prior to privatization. Five domestic
investment funds also still own an aggregate 30 percent in BCR.
Erste Bank has stated its intent to buy them out as well.


5. (U) The second largest bank in Romania is BRD Groupe Societe
Generale, owned by France's Societe Generale. BRD holds nearly EURO
7.2 billion in net assets and a 16.7 percent market share. The EBRD
has preserved a 5 percent stake in BRD.


6. (U) The third largest bank in Romania is Raiffeisen Bank with
almost Euros 3.6 billion in net assets and a market share of 8.3
percent. Austria's Raiffeisen Bank purchased the former state-owned
Agricultural Bank and buying out minority shareholders, including
the Romanian-American Enterprise Fund.



7. (U) Germany's HVB consolidated its position on the market with
the 2006 acquisition of the Ion Tiriac Bank, now ranking fourth on
the banking market. [N.B. Tiriac was German tennis star Boris
Becker's manager and Romanian tennis star Ilie Nastase's doubles
partner.] With a combined EURO 3.57 billion in net assets, HVB
Tiriac holds 5.7 percent of Romania's market.


8. (U) All other banks have market shares of less than five percent.
They include the following banks:

-- Cluj-based Banca Transilvania stands in fifth place, with around
EURO 1.9 billion in net assets and a 4.5 percent share of the
banking business. The Bank is managed by former ABN-AMRO Romania
CEO Robert Rekkers and is listed on the Bucharest Stock Exchange.
EBRD holds 15 percent of the Bank's capital. Various other Romanian
firms, including local investment funds, hold another 21.5 percent
of the Bank's stock.

-- Greece's Alpha Bank fully owns its namesake, Alpha Bank Romania.
The Romanian Alpha Bank has nearly EURO 1.9 billion in assets and
comprises 4.4 percent of the local market.

-- Bancpost is the next largest bank, with net assets standing at
slightly over EURO 1.87 billion and a market share of 4.3 percent.
Bancpost is a former state-owned commercial bank privatized in 1999.
Greece's EFG Eurobank Ergasias has gradually bought out several
other shareholders in Bancpost, including former minority
shareholder GE Capital, and now owns 77.6 percent of the bank's
total stock. The remaining shares in the bank are divided among
domestic private investment funds.

-- The lone remaining state-owned bank in Romania is the National
Savings Bank (CEC). The GOR has sought to privatize CEC since 2004,
with two calls for offers to date. However, the GOR has withdrawn
the privatization offer on both occasions, claiming that the bids
were too low. In December 2006, the GOR rejected the National Bank

BUCHAREST 00000036 002 OF 004


of Greece's best binding offer of EURO 560 million for majority
control. CEC has net assets worth over EURO 1.7 billion and has a
4.0 percent market share. While CEC's asset base is small, it has
one of the most extensive branch networks in Romania. The GOR has
pledged to infuse the bank with up to EURO 500 million in additional
assets, though some question whether such assistance is consistent
with European State Aid regulations. Post will analyze CEC's
current situation and future status Septel.

-- The Dutch ING Bank Romania follows with over EURO 1.6 billion in
net assets and a 3.8 percent share.

-- Another Dutch bank, ABN AMRO Romania, follows with net assets
amounting to slightly over EURO 1.3 billion and a 3.1 percent market
share.

-- Austria's Volksbank fully controls Volksbank Romania, with net
assets amounting to slightly over EURO 1.02 billion and a market
share of 2.4 percent.

-- The National Bank of Greece (which tried unsuccessfully to
purchase CEC through privatization) has purchased a former private
domestic bank, Banca Romaneasca, which has net assets amounting to
EURO 882.5 million and 2.1 percent market share.

-- Citibank Romania is the only major U.S. bank operating in
Romania. It has EURO 719.3 million in net assets and a market share
of 1.7 percent.

-- Italian-owned UniCredito has close to EURO 714 million in net
assets and a 1.7 percent share of the market. Unicredito will
combine its branches with HVB Tiriac following last year's
international merger.

-- Finansbank Romania is the local operation of the Turkish bank
with the same name, with net assets in amount to EURO 545 million
and 1.3 percent market share.

-- Piraeus Bank is the local operation of its Greek namesake. In
Romania, Piraeus Bank's net assets amount to EURO 257.9 million and
has 0.9 percent local market share.

-- Carpatica Bank has a local market share of 0.8 percent with net
assets of EURO 369 million. The private bank is based in Sibiu and
the stock is listed on the Bucharest Stock Exchange. 53.6% of
Carpatica Bank's fragmented shareholders structure is with Romanian
individuals, 27.9% with foreign individuals, 13.2% with Romanian
legal entities and 5.3% with foreign legal entities.

-- Hungary's OTP Bank purchased the former Turkish-owned RO-Bank and
has net assets in Romania of around EURO 565 million, giving it a
1.3 percent market share under the OTP Bank Romania name. OTP
sought to expand through participation in the CEC privatization, but
chose not to submit a final bid.

-- Banca Italo-Romena, based in Treviso, Italy, is a
Romanian-Italian banking joint venture between Italy's Gruppo Veneto
Banca (92.3 percent shares) and Romania's banking leader BCR (7.7
percent shares). Banca Italo-Romena has net assets amounting to
EURO 376.7 million and a local market share of 0.8 percent.

-- Italian SanPaolo IMI Bank has net assets of nearly EURO 258
million and 0.6 percent market share. The Italian bank in 2003
bought more than 95 percent of the former private domestic West Bank
based in Arad.

-- Turkish-owned Garanti Bank International has local net assets
amounting to 174.5 million and a market share of 0.4 percent. The
bank is legally based and supervised in the Netherlands.

-- Anglo-Romanian Bank follows with net assets amounting to EURO
164.6 million and a market share of 0.4 percent. Anglo-Romanian
Bank is BCR's international brand with branches in London and
Frankfurt.

-- Egnatia Bank Romania is the local operation of the Greek bank
bearing the same name. Egnatia Bank Romania's net assets amount to
EURO 162.1 million and a market share of 0.4 percent.

-- Bank Leumi Romania belongs to its Israeli namesake, Leumi Bank.
In Romania, the bank has net assets amounting to EURO 146.3 million
and market share of 0.3 percent.

-- Libra Bank has net assets of EURO 115.5 million and a 0.3 percent
market share. U.S. investment fund New Century Holding (NCH),an
off-shore company based in Cyprus, has had full control of Libra

BUCHAREST 00000036 003 OF 004


Bank since 2003. NCH's diverse investment portfolio makes it one of
the largest U.S. investors in Romania. The fund owns Libra Bank
through several non-banking local firms.

-- Emporiki Bank Romania is the local bank owned by its Greek
namesake, the former "Commercial Bank of Greece". Emporiki Bank
Romania has net assets of EURO 99.0 million and a market share of
0.2 percent.

-- Romanian International Bank (RIB) has net assets of EURO 71.1
million and a 0.2 percent market share. RIB is nearly completely
owned by Amcit Daniel Roberts, owner of Merchants Bank of
California. Roberts purchased RIB from the former Turkish bank
Sumerbank.

-- Blom Bank Egypt is the Romanian branch of the former
Romanian-Egyptian banking joint venture MISR, based in Cairo. Blom
Bank Egypt still is based in Cairo and the Romanian operation
technically is a branch. Earlier in 2006, about 99 percent of the
parent bank was purchased by Blom Bank, which claims to be the
largest bank in Lebanon. It is currently the only Arab-owned bank
in Romania. Blom Bank Egypt's Romanian branch has net assets of
EURO 66.6 million and a market share of 0.2 percent.

-- Banca C.R. Firenze Romania has net assets of EURO 66.8 million
and a market share of 0.2 percent. Italy's Banca C.R. Firenze
purchased the majority shares in the former South-Korean owned
Daewoo Bank Romania.

-- Banca di Roma SpA. Italia owns a Romanian branch. It is the only
bank with a market share of under .2 percent (it has .1 percent) to
hold a universal banking license. Its net assets total EURO 50.3
million.

Smallest Banks Find Niche
--------------

9. (U) Many other, smaller banks operate in Romania, with most of
their activities limited to niche markets and customers. These
include:

-- ProCredit Bank has net assets of EURO 194.6 million and 0.5
percent local market share. The bank, which specializes in
micro-lending, is fully owned by Germany's ProCredit Holding AG.

-- Mindbank has net assets of EURO 85.5 million and a market share
of 0.2 percent. The bank was originally established by the Romanian
Handicraft Cooperative Union. In early 2006, the Agricultural Bank
of Greece purchased 62 percent of Mindbank's total stock, with the
Union retaining close to 20 percent. The remaining stock is held by
minority individual shareholders.

-- Raiffeisen Housing Bank is Austrian-owned Raiffeisen Bank's local
specialized arm dealing with home and mortgage lending. It has net
assets of EURO 62.8 million and a market share of 0.1 percent.

-- Porsche Bank Romania is a full member of Austria's specialized
car loan Porsche Bank Group, financing the sales of Audi,
Volkswagen, Seat, Skoda and Porsche cars in Romania. Porsche Bank
Romania has net assets of EURO 50.0 million and a market share of
0.1 percent.

-- HVB Housing Bank is a German-owned specialized bank dealing with
real estate and mortgage lending. It currently has net assets of
EURO 10.2 million and a market share of 0.02 percent.

The Last "Problem Child" is Sold
--------------

10. (SBU) Romexterra Bank holds a 0.7 percent market share with net
assets of EURO 308.6 million. Until recently Romexterra Bank was the
outlier in the general trend toward clean banking in Romania. The
Central Bank considered it the main potential threat to the
integrity of the Romanian banking system, particularly because of
the reputation of its owners. Initially the bank of the Romanian
natural gas industry, Romexterra gradually fell into the hands of
the main oil workers' trade union, Petrom and then Petromservice
controlled by controversial union leader Liviu Luca and his business
partner, Sorin Ovidiu Vantu. Vantu is currently under investigation
and court proceedings for his role in various financial schemes,
including the fraudulent bankruptcy of the former largest equity
fund FNI and several extinct commercial banks (BRS, BID, Banca
Agricola). He has successfully escaped conviction thus far.


11. (SBU) In 2006, Hungary's MKB bank, the country's third largest
bank (controlled 90 percent by Germany's seventh largest bank -
Bayerische Landesbank) purchased the Luca/Vantu group's shares in
Romexterra - 55.2 percent of the bank's total stock. Romgaz and

BUCHAREST 00000036 004 OF 004


Transgaz, the state-owned natural gas productin and transport
companies, decided not to sell teir minority stake in the bank.
The new majorityowners of the bank are working to hire new
personel and change the bank's management, alleviating te concerns
of the Central Bank's regulators.

Comment
--------------

12. (SBU) If there is one areaof post-communist financial
management that Romaia has gotten right, it is the cleanup of the
Roanian banking system. Romanian authorities' openness to allowing
western banks to purchase domesticbanking assets and the Romanian
Central Bank's aggressive efforts to push shady businessmen out of
the banking business have been important elements of Romania's
economic transition. Due to strong Central Bank oversight, Post
assesses that the money laundering risks in the Romanian banking
system are low and the overall stability of the banking system is
high.


13. (SBU) Although there will always be the risk of financial
manipulation and banking fraud, Post believes that Romania's real
money laundering challenges lie outside the banking system, namely
with insurance houses, real estate brokerage firms, securities
exchange houses, foreign exchange houses and casinos. Post
recommends continuing consultation with, and assistance to, the
Central Bank and other regulatory agencies to ensure that Romania
can meet the challenges of overseeing an increasingly complex
financial system.

Taplin