The banking incomes and costs represent an important source of information regarding the profitability of a bank. In a banking environment such as Romania's, constantly changing and subject to the pressure of a fierce competition, all the attention of the banks management teams is oriented towards the costs and their possible reduction in regard to maximizing the profit. The optimizing of the report between the incomes and the costs of the bank represents the essential objective of the banking management, having a direct influence over the banking profit and being an important part of the evolution of the banking performances. In this context we considered as particularly important the analysis of the bank costs within the framework of the Romanian banking system, analysis which targets their structure on one side and their evolution and efficiency on the other side.cost efficiency analysis, operational cost analysis, banking incomes, banking costs

Iudit FODOR

Robert DESPATIE

Rodica Coana

English

Research Papers in Economics

Year VII, No.8/2008                                                                                                    25 
 
 
CURRENT TRENDS IN THE EVOLUTION OF BANK 
COSTS WITHIN THE FRAMEWORK OF THE ROMANIAN 
BANKING SYSTEM 
 
Prof. J.E.M. Robert DESPATIE, PhD 
Rodica Viorica COANĂ, PhD Student, Arad 
Iudit FODOR, PhD Student, Arad 
 
General considerations 
 
Under the conditions of economic 
globalization it is unanimously accepted 
the fact that a healthy banking system is 
based on profitable and capitalized banks 
in an adequate manner. The banks' 
profitability is a relevant indicator of their 
competitive position on the banking 
markets and their managing team quality. 
The incomes and costs of the 
banks represent a key source of 
information regarding the profitability of a 
bank all over the world but also in a 
difficult banking system such as 
Romania’s, the attention being focused 
on costs and their possible reduction.  
The optimization of the report 
between the incomes and the costs of 
the bank is the essential objective of the 
banking management with a direct 
influence on the bank profit, it being an 
important side of the evolution of the 
banking performances.  
Within this context we consider 
as particularly important an analysis of 
the bank costs into the framework of the 
Romanian banking system, analysis 
which targets their structure on one side 
and their evolution on the other.  
                The  first  year  of  Romania’s 
accession to the European Union put the 
Romanian banks in straight competition 
with the foreign ones, and made the 
players on the market face an authentic 
competition. Our country’s EU 
membership will disseminate its effects in 
time, but the adjustments of this new 
capacity can already be seen in our 
banking environment, where aside from 
winning a market share at the expense of 
the other competitors and developing 
clients’ loyalty, a major objective of the 
credit institutions is represented by the 
reduction of bank costs. 
 
1. The evolution of the income – 
expense report within the framework 
of the banking system 
                      
Analyzing the financial statements 
published by the Romanian National 
Bank (RNB) at the end of 2007 in 
comparison with the previous years, we 
notice a rejuvenating of the growth 
rhythm of the profit against the one 
registered in the last years, based on the 
superior performances accomplished, 
especially at the level of large credit 
institutions. The profitability rates have 
continued their slightly descending trend 
although the evolution of the operational 
efficiency was positive in 2007 based on 
an increased interest from the credit 
institutions over the judicious costs 
management.  
 
 
 
 26                                                                       Finance – Challenges of the Future 
Diagram no.1 The evolution of the main expenses groups within the framework 
of the banking system 
0
500000
1000000
1500000
2000000
2500000
3000000
2007 2006 2005 2004
cheltuieli cu dobanzile 
cheltuieli cu taxe si
Interest expenses 
comisioane 
Fees and taxes expenses 
cheltu
valuta
ieli din operatiuni
re
cheltuieli din operatiuni cu
titluri 
Foreign exchange transactions 
expenses
Financial futures transactions 
expenses
Source: Own calculation based on RNB reports 
 
2. Cost efficiency analysis 
 
The capacity of the credit 
institutions to control the operational 
costs in the context of rapid expansion of 
the crediting activity, improved over the 
year of 2007, the 65,3% value of the cost 
income ration being reduced by 
approximately 2,2 points in comparison 
with the level registered in the previous 
year.  
 
Diagram no.2 
 
 
This performance was obtained 
based on a superior dynamics of the 
operational income in comparison with 
the operational expenses.  
The structural analysis of the 
operational income emphasizes the 
diversification of the sources of gains of 
the banks, due to the fact that full 
advantages was taken from the 
opportunities offered by the financial 
market.  
Cost income ratio 
Annual percentage increase of the operational income 
Annual percentage increase of the operational expenses  percentage 
Source  NBR 
We can see that the net income 
from foreign exchange transactions was 
the most dynamic component of the 
operational incomes, whereas, the fees 
incomes standstill at approximately 18% 
in the operational incomes registered in 
2006, their value increasing to a similar Year VII, No.8/2008                                                                                                    27 
rhythm to the one of the operational 
incomes.  
The interests from net incomes 
have reduced their weight in the 
operational incomes based on a slower 
increase of the interests incomes in 
comparison with the one of the interests 
expenses, the substantial increase of the 
interests expenses against the same 
period of the previous year is mainly due 
to the increases registered at the level of 
the paid interests for the deposits drawn 
from other credit institutions but also from 
those relating to the loans drawn from 
them.  
The recent disturbances on the 
international financial markets have 
increased even more the volume of the 
interests expenses by increasing the 
interest rates associated to the 
interbanking resources.   
 
3. Operational costs analysis 
        
As the diagram below shows, in 
the operational expenses structure, the 
personnel expenses continue to 
represent the main component based on 
the increase of the number of the 
banking officers with 7648 persons, 
against 58536 persons in the year 2006. 
   
Diagram no.3 
 
billion Other operational 
expenses 
Amortization 
expenses 
Third parties materials, 
works and services expenses 
Personnel expenses 
 
                  
Source: NBR 
At the same time, the expenses on 
materials, works and services performed 
by third parties but also the amortization 
expenses have not registered significant 
side slipping. 
The contingencies expenses have 
increased in real terms in 2007, mainly 
as an effect of the non governmental 
credit expansion, but also due to 
legislation changes.  
Keeping with the strict levels of the 
profitability set by the shareholders and 
the increasingly competition on the 
Romanian banking market are pressure 
factors over the credit institutions in 
finding proper solutions with regard to 
continuing the positive dynamics of the 
efficiency of the banking activity. The 
profits arise more and more from the 
volume of the activity with valuable 
effects over the financial mediation in 
Romania.                 
          Romania is ranking 5
th in a top of 
the member states of the European 
Union as regards the differences of the 
banks’ tariffs for the services they 
perform, according to a report of the 
World Bank, Capgemini, ING and the 28                                                                       Finance – Challenges of the Future 
European Financial Marketing and 
Management Association. 
        The  tariffs  differences  for  the 
banking retail segment was calculated at 
46%, Romania being on the fifth place in 
EU after Denmark, where the differences 
between bank tariffs can reach 154%, 
Ireland 51%, Spain - 50% and Slovakia - 
47%. The analysts think that retail is still 
a national business and have analyzed 
the differences between the tariffs at a 
national level. It is stated in the report 
made by the World Bank, Capgemini, 
ING and the European Financial 
Marketing and Management Association 
that the differences are generally 
associated with the markets where the 
rhythm of the changes is rapid such as 
Spain and Ireland in the euro zone, 
Denmark, Romania and Slovakia outside 
the euro zone or China and India in Asia 
– Pacific.  
The analysts note that on the 
mature markets, the tariffs of the banks 
are of close value due to competition. 
According to the report, this year, 40% of 
the incomes relating to the services 
performed by the Romanian banks will be 
obtained from account management, 
32% from payments, 27% of the tariffs 
perceived following the use of cash, and 
1% of different exceptional operations   
performed by the employees of the credit 
institutions, such as suspending some 
payments or documents searching.  
At the level of all EU member 
states which have not adopted the euro, 
20% of these incomes come from 
accounts management, 16% from the 
use of cash and 9% from exceptional 
operations. The greatest weight in the 
banking services incomes, of 55%, will 
be represented by the payments made 
by the clients of the banks. 
 
Conclusions 
 
In our opinion, the main 
challenge for the Romanian banking 
system is to join the competition for the 
reduction of the banking costs – because 
until now, there has been a fierce 
competition between the banks focused 
mainly on getting a market share. 
Also, we think that the year 2008 
could be a very difficult one for the 
banking sector in Romania. The 
profitability of the banks may decrease 
under the pressure of interest and 
competition margins, the costs increase 
with the investments for network 
expansion, but also the world crisis on 
liquidity.  
In our opinion, another important 
factor which can reduce the profit rate at 
the level of the Romanian banking sector 
is represented by the increase of the 
contingencies need as an effect of the 
assisted credit dynamics, continuing the 
investments in the territorial networks, 
but also the costs related to the 
implementation of the Basel II 
Agreement.
 
 
 
 
Berea, A.O.,  Banking strategy, Expert Publishing House, Bucharest, 2001; 
Daianu, D.,  What the future holds for the post-communist countries?, Economic 
tendencies at the beginning of the century, Polirom Publishing house, 
Bucharest, 2000; 
Dardac, N., Basno, 
C., 
Banking products, costs and performances, Economic Publishing 
House, Bucharest, 2000; 
Opritescu, M. and 
associates 
Currency and credit, University Publishing House, Craiova, 2003; 
REFERENCES Year VII, No.8/2008                                                                                                    29 
Opritescu, M. and 
associates 
Banking risks and performances management, University Publishing 
House, Craiova, 2006; 
Spulbar ,C., Nanu, 
R., Berceanu, O., 
Compared banking systems, Sitech Publishing House, Craiova, 2005; 
*****  Magazine collection “Finances, Challenges of the future”  2005-2008;  
*****  www.birouldecredit.ro ; 
*****  www.bnr.ro/raport asupra stabilitatii financiare 2007/ 
 
 

Current trends in the evolution of bank costs within the framework of the Romanian banking system

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