BUCHAREST – Like many Romanians, Manuela Radulescu never wanted to open a bank account, fearing her money would disappear. But such distrust is slowly breaking down and banks are now jostling for position in a fledgling market. «I will not take a loan or keep money in a bank because I do not trust banks. I’d rather keep my money at home,» said Radulescu, 34, from the small town of Focsani. For years, this kind of mistrust was common in the ex-communist Black Sea state, where only one in three people has a bank account, and where many still remember a wave of bank collapses in the 1990s. But bankers believe things are changing as Romanians rush to borrow money and improve living standards after decades of spartan life under communism. With privatization of state-owned banks likely to end this year, banks are fighting to develop new products and establish market share, even at the cost of profits, analysts say. «Banks are trying now to occupy the best positions in the sector, preparing for the next phase, that of a development in quality, of offering much more complex products and services,» said banking analyst Florin Petria. «This year seems to be the final one for banks to gain better positions,» he said. «After that, they will learn to win the loyalty of their customers by offering them very complex financial services, like in the EU.» Room to grow Foreign banks are also eager to secure a place in this country of 22 million. But with only one major bank left for sale, competition is getting fiercer. The centrist government has delayed the sale of a 70 percent stake in CEC, the «people’s bank» under communism, hoping for a better price after a successful sale of the country’s largest bank, BCR, last year. The 3.75-billion-euro ($4.77 billion) BCR sale to Austrian Erste Bank was one of the biggest sales in a region where most post-communist privatization has already taken place. «CEC is the last chance to enter the attractive Romanian market, which will be reflected in its price,» said Jiri Stanik, banking analyst at Wood & Company in Prague. CEC has an extensive network of branches in rural Romania, where billions of euros from European Union funds are expected to flow when Romania joins the bloc, scheduled for 2007. Romania’s finance minister has said the sale of CEC could value the bank at 1 billion euros ($1.26 billion). A recent research note by Merrill Lynch valued the stake at just under 500 million euros. Although Romania has enjoyed a consumer boom since an economic recovery began in 2000, financial intermediation, or total assets as a percentage of gross domestic product (GDP), still only stands at 21 percent. This compares with 37 percent in fellow EU candidate Bulgaria and between 30 and 46 percent in eight Eastern European new EU members, analysts say. «Romania is still at the bottom of convergence curve,» said Steven van Groningen, CEO of Raiffeisen Bank Romania, the country’s third-largest bank, which hopes to win the CEC bid. «If you look at financial intermediation here… and you look at European levels, it is very clear that there is an enormous catch-up going to take place,» he said. A study by Bank Austria Creditanstalt shows bank loans grew at annual rates of around 42.5 percent in Romania and deposits by around 38 percent since 2000 – among the fastest rates in Eastern Europe, although starting from a low base. Risky business The battle between banks to win market share has been costly and analysts predict weaker lenders among the country’s 39 banks may be forced to close down or merge with stronger rivals. Bankers said margins for some corporate and municipal banks had already fallen to or below levels seen in Western Europe. «Margins will go down to the hard bottom, to around 3 percent like in the EU. They are at 6 percent for new loans but they fall every month,» said CEC head Eugen Radulescu. A Wood & Company study forecast the return on equity (ROE) in the banking sector would fall to 22.7 percent this year from 23.8 percent in 2005, but will still remain above values seen elsewhere in the region. Banks’ cost to income ratio is expected to rise slightly to 63.2 percent this year, the highest level among regional peers. The ratio is seen at 49.5 percent in Hungary, 45.8 percent in the Czech Republic or 60.2 percent in Poland, the study said. Among the risks to the sector, analysts say, are a rapid loan expansion, the large percentage of hard-currency loans and inefficient bankruptcy legislation. Although competition is pushing lending rates lower and drawing more people to leu loans, many still prefer hard-currency credit. «A major risk… is a high level of foreign-currency lending,» said Tim Beck, banking analyst at Fitch Ratings.