Shares in Austria's two biggest lenders, Erste Group Bank AG and Raiffeisen Bank International AG, plummeted Dec. 19 following an announcement by the Romanian government that it plans to impose new taxes on various industries, including the banking sector.
Romania's Finance Minister Eugen Teodorovici said Dec. 18 that the government wants to raise 10 billion Romanian lei, equivalent to about €2.1 billion, by taxing banks, infrastructure and energy companies operating in the country. The move is aimed at reducing the country's budget deficit, which is close to breaching the EU's 3% ceiling.
Erste Group, which owns Romania's biggest bank by total assets, Banca Comercială Română SA, saw its shares plummet by as much as 9% in morning trading. The stock was down 8.33% at €29.82 at 15:09 p.m. CET on the Vienna Stock Exchange.
Romania is the third-largest market for Erste with 3.2 million customers, 7,241 employees and 510 branches after Austria and the Czech Republic. Its Romanian arm accounts for 8.4% of the group revenues and for 6.9% of total assets at Erste, ABN AMRO bank analyst Tom Kinmonth said in a note Dec. 19.
Erste was the worst hit on the stock market followed by RBI, which took a share price hit of around 4% in morning trading, Kinmonth said. RBI runs Romania's fifth-largest bank by total assets, Raiffeisen Bank SA, and the country is the group's fifth-largest market with €5.4 billion loans booked as of Sept. 30. RBI's shares were trading down 3.74% at €22.93 at 15:10 p.m. CET on the Vienna Stock Exchange.
Reaction 'a little overdone'
RBI is aware of the measures being discussed in Romania but it is too early to estimate the effect on the bank's business in the country, a spokeswoman for the bank said in an emailed comment. Erste Group was not immediately available to comment.
The market reaction is "a little overdone," Kinmonth said in his comment. "A new tax would eventually have to be absorbed by the public and should help protect the banks' margins in the future," he said. Although earnings are bound to suffer in the short term, previous experience with similar tax measures discussed in Spain and Mexico resulted in a much smaller final impact than initially expected, Kinmonth said.
The effect was negligible for other foreign banks exposed to the Romanian market, such as France's Société Générale SA and Italy's UniCredit SpA, which own the third- and fourth-largest Romanian banks, respectively. After a temporary wobble below the prior-day close of less than 1%, Société Generale's share price recovered during the morning session. It was trading up 0.5% at €28.95 on Euronext Paris at 15:28 p.m. CET. UniCredit's share was trading higher than the previous close throughout the Dec. 19 session and was up 3.23% at €10.81 at 15:30 p.m. CET on Bolsa Italiana.
The Italian group's exposure to Romania is limited with its local subsidiary accounting for only 4% of group earnings in the third quarter of 2018, Kinmonth noted.
However, domestic companies were considerably more affected than foreign players. Shares in Banca Transilvania SA, the second-largest lender in Romania, slumped by more than 18% on the news about the government plan. At 4:20 p.m. CET on the Bucharest Stock Exchange Dec. 19, the bank was trading 18.38% lower at 1.91 Romanian lei. The BET benchmark index was down 11.52% on the prior-day close around the same time.
As of Dec. 18, US$1 was equivalent to 4.09 Romanian leu.