Romania’s banking sector maintains low exposure to commercial real estate

The Romanian banking sector’s exposure to the commercial real estate (CRE) market, excluding residential properties, surpassed RON 100 billion as of September 2024. This represents approximately half of the sector’s total exposure to non-financial corporations, according to data from Cushman & Wakefield Echinox based on National Bank of Romania (BNR) reports.

The increase is largely attributed to the use of commercial properties as collateral for loans. Nearly 60% of these loans are secured by real estate assets, while the remainder consists of direct exposure to companies in the sector. In 2024, direct bank exposure to real estate businesses rose by 10%, compared to a 6% increase in indirect exposure.

Romania’s banking sector exposure to construction and real estate companies stands at 21%, one of the lowest in Europe and Central and Eastern Europe. In comparison, exposure levels in the Czech Republic (35%), Poland (24%), and Hungary (22%) are notably higher. Nordic countries such as Sweden (62%), Norway (49%), and Denmark (47%) have significantly greater exposure, while Southern European nations, including Greece (10%), Malta (14%), and Italy (15%), report lower levels.

Vlad Saftoiu, Head of Research at Cushman & Wakefield Echinox, noted that Romania’s relatively low banking exposure to construction and real estate suggests a balanced approach that supports both stability and investment potential. “This exposure level allows room for growth and development while maintaining financial prudence,” Saftoiu stated.

Although the quality of the CRE loan portfolio remains lower than that of overall loans to non-financial corporations, it has shown improvement in recent years. The non-performing loan (NPL) ratio for construction and real estate companies stood at 4.3% in September 2024, reflecting a slight decline from the previous year (4.4%) and a significant reduction from 2019 (8.8%). Similarly, the NPL ratio for loans secured by real estate collateral (excluding those granted to construction and real estate firms) fell from 6.1% in 2023 to 4.9% in 2024.

Most commercial real estate loans (86%) have a debt service coverage ratio above 2, indicating that borrowing companies can cover at least twice their annual debt service payments. Recent assessments suggest that vulnerabilities in Romania’s commercial real estate sector remain manageable, with signs of gradual improvement as the market recovers.

The construction and real estate sectors are key contributors to Romania’s economic stability due to their size and connections to the financial system. In the second quarter of 2024, these sectors accounted for 15.3% of Romania’s GDP, up from 13.8% in Q2 2022. This level is higher than the EU average of 14.9% and exceeds the contributions of peer economies such as Bulgaria (10.8%) and Poland (11.2%).

As of 2023, Romania had approximately 126,000 construction and real estate companies, making up 15% of all non-financial corporations. These businesses employed around 486,000 people, or 12% of the national workforce, and held 20% of total corporate assets.

While companies in the sector have higher debt levels compared to the broader non-financial sector, their overall indebtedness has been declining. The debt-to-equity ratio for construction and real estate firms was 181.7% in 2023, down from 210.6% in 2022, though still higher than the 158.2% average for all non-financial corporations.

Despite challenges, Romania’s commercial real estate market remains on a stable trajectory, with prudent banking exposure and improving loan quality indicating a measured approach to sectoral growth.