Romanian Banks: fishing in Romania’s murky waters (Banca Transilvania stays BUY, BRD-GSG stays HOLD)

While the macro outlook in Romania may not be the most inviting over the next few years, due to the budget consolidation efforts that Romania must undertake to comply with the EC targets and avoid being downgraded to non-investment grade, we remain fairly constructive on Banca Transilvania (TLV), while less so on BRD-GSG. Despite some pressure on margins, due to rate cuts by the ECB, we expect both banks’ NIMs to expand mildly in 2025E and, even though the tax burden is increasing and we see higher through-the-cycle CORs, we expect their underlying bottom lines to expand in 2025E (TLV at c.16% and BRD at a more conservative c.4%). Moving forward, however, we expect NIM compression, due to cuts in the reference interest rate by the NBR, and some bottom-line pressure in 2026E, due to the banking tax increase, but the underlying bottom-line growth over the period to remain rather solid (with TLV at a c.7.2% CAGR and BRD at c.6.7% CAGR in 2026-27E), and the ROEs to normalise (towards 21% at TLV and 16% at BRD). Our preferred pick is TLV, which we keep as a BUY, with a revised price target (PT) of RON 40.16/share (c.32% upside potential). We keep BRD as a HOLD, with a revised PT of RON 20.53/share (11.1% upside potential).