Boston, MA -- (SBWIRE) -- 09/04/2012 -- BMI View: Romania's commercial banking sector is likely to struggle by way of growth and profitability in the coming quarters. Beleaguered European parent banks and Romanian subsidiaries' dependence on external funding is likely to curtail credit growth, while the sector's exposure to foreign currencydenominated loans poses a risk to systemic stability. As domestic banks repair their balance sheets in the medium term, we expect profitability to suffer. We maintain our downbeat outlook for the Romanian commercial banking industry. The high proportion of western European banks operating in the country and their Romanian subsidiaries' dependence on external funding is likely to weigh on credit extension. Concurrently, as the Romanian economy slows, with the eurozone sovereign debt crisis weighing on the country's trade and investment outlook, demand for credit is also set to cool, while domestic sources of funding will also become harder to come by. The domestic banking sector's high exposure to foreign currency (FX) loans (around 64% of total loans), is also likely to curtail credit growth. As Romanian banks look to repair their balance sheets in the coming quarters, we have revised down our 2012 and 2013 loan growth forecast to 1.25% and 3.00% respectively, from 1.50% and 3.80% previously. Data from the Bank of International Settlements (BIS) for Q311 show the Romanian banking sector's dependence on external, and particularly European, funding. European banks' foreign claims on Romania comprise around 88% of total banking sector assets, with Austrian banks making up around 32% of total banking sector assets. The recent signing of the Vienna Initiative 2.0 agreement is likely to provide some respite for Romania's domestic banks, as western European parent banks are less likely to cutback subsidiary funding. However, the high proportion of peripheral eurozone banks operating in Romania, with Greek and Italian banks' foreign claims as a percentage of total banking sector assets standing at a high 16.0% and 11.3% respectively in Q311, underpins our bleak outlook for the industry. Recent data from the National Bank of Romania (NBR) show that the percentage of banking sector assets held by foreign-owned institutions has continued to decline to 83.1% in Q411, from 84.6% in Q311. Although this figure remains very high and reinforces our view that an all out withdrawal of core eurozone banks from Romania is an unlikely outcome, (see our online service, January 23, 'Credit Crunch Risks To the Fore'), we continue to expect peripheral banks to limit their loanbook exposure to Romania. Greek lender Piraeus Bank has already seen its assets in Romania decline by 9.4% year-onyear (y-o-y) year-to-date in September. As a number of embattled Greek banks, such as Alpha Bank, struggle to maintain profitable operations in the months ahead, we expect eurozone peripheral bank deleveraging to continue. As a result, we have revised down our asset growth forecast for 2012

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