Romanian Banks: banking in the land of Dracula (Banca Transilvania stays BUY and BRD-GSG stays HOLD - transfer of coverage)

We remain constructive on the Romanian banks, thanks to a positive macro outlook, which we expect to translate into: 1) a pick-up in loan book development; 2) no abrupt rate cuts, allowing for a smooth transition and a margin normalisation; 3) no major asset quality deterioration; and 4) subsiding inflationary pressures. Moreover, the banks remain very well-capitalised, which should, we believe, in theory, allow for stable dividend payments in the years to come, in the absence of any misstep. Nonetheless, we expect a bottom-line contraction in 2024E from the current high levels, due to: 1) some NIM compression, as a result of rate cuts and an increase in the term deposits share; 2) a higher COR, vs. the low 2023E levels; and 3) the introduction of the new bank tax, from which we see an impact on the banks’ bottom lines (at 8-9%). Even so, our positive outlook for both banks is not altered by this potential slump, and their profitability should remain in the mid-to-high teens for the foreseeable future. We transfer coverage of Banca Transilvania (TLV), our preferred pick in the sector (stays BUY, with a slightly lower price target (PT) of RON 26.71/share), and BRD-GSG (BRD; stays HOLD, PT increased to RON 17.67/share).