Monthly Market Report
Market capitalization increased 16% at the end of March 2021 compared to the end of 2020, but decreased 1% compared to the end of 2019.
In the first part of April 2021, the spread between Romanian and German government bonds (10Y) FSA No decreased slightly, which can also be interpreted as an improvement in investors' confidence in 4/04.23.2021 Romania's country rating. BSE stock indices registered positive developments, with increases ranging from 5.99% (BET-NG) and
9.71% (BET-TR). Page 1 / 26 Total assets of the privately managed pension funds reached EUR 16.29 billion at the end of March 2021, registering an annual rate of growth of 33%.
World Macroeconomic Outlook
According to data published by Eurostat the seasonally adjusted GDP in the fourth quarter of 2020 decreased by 0.7% in the euro area and by 0.5% in the EU compared to the previous quarter, as a result of containment measures imposed amid the outbreak of the second wave of infections. These developments took place after the euro area and EU economies recorded the largest contractions in the second quarter of 2020 (-11.6% in the euro area and -11.2% in the EU), followed by robust economic recovery in the third quarter of 2020 (+12.5% in the euro area and +11.6% in the EU). Compared to the same period of the previous year, seasonally adjusted GDP fell by 4.9% in the euro area and by 4.6% in the EU in the fourth quarter of 2020. Romania’s GDP decreased by 3.9% in 2020 compared to 2019. Gross domestic product in the fourth quarter of 2020 was, in real terms, 4.8% higher than in the third quarter of 2020. Compared to the same quarter of 2019, the gross domestic product decreased by 1.4% on the gross series and by 1.8% on the seasonally adjusted series. The National Commission for Strategy and Prognosis revised down the economic growth forecast for 2020, to -4.4% (from -4.2% according to the preliminary autumn forecast of NCSP), amid declining activity in industry (-8,7%), agriculture (-21.9%) and services (-2.3%) compared to 2019. According to the NCSP forecast, construction will have a positive contribution to GDP in 2020, with an estimated growth of 10.6 %. For 2021, NCSP estimates a recovery of the Romanian economy, with an advance of 4.3%. GDP development in 2019-2022 European Commission IMF Country Q1 2019 Q2 2019 Q3 2019 Q4 2019 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 2020 2021f 2022f 2021f 2022f Euro area 1.6 1.3 1.4 1.0 1.3 -3.3 -14.6 -4.1 -4.9 -6.6 3.8 3.8 4.4 3.8 Germany 1.1 0.1 0.8 0.4 0.6 -2.2 -11.3 -4.0 -3.6 -4.9 3.2 3.1 3.6 3.4 Spain 2.2 2.1 1.8 1.7 2.0 -4.3 -21.6 -8.6 -8.9 -10.8 5.6 5.3 6.4 4.7 France 1.8 1.8 1.6 0.8 1.5 -5.6 -18.6 -3.7 -4.9 -8.1 5.5 4.4 5.8 4.2 Italy 0.4 0.5 0.5 -0.2 0.3 -5.8 -18.2 -5.2 -6.6 -8.9 3.4 3.5 4.2 3.6 Bulgaria 4.2 3.8 3.3 3.1 3.7 2.3 -8.6 -5.2 -3.8 -4.2 2.7 4.9 4.4 4.4 Croatia 3.9 2.3 2.9 2.3 2.9 0.3 -15.7 -9.8 -7.1 -8.4 5.3 4.6 4.7 5.0 Hungary 5.2 4.8 4.5 4.0 4.6 1.8 -13.4 -4.8 -4.1 -5.0 4.0 5.0 4.3 5.9 Poland 5.3 4.7 4.4 3.9 4.5 1.9 -8.0 -1.8 -2.7 -2.7 3.1 5.1 3.5 4.5 Romania 5.2 4.2 3.3 3.9 4.1 2.7 -10.0 -5.4 -1.8 -3.9 3.8 4.0 6.0 4.8
Source: Eurostat, percentage change compared with the same quarter of the previous year - seasonally adjusted data, European Commission, Winter 2021 Economic Forecast, World Economic Outlook – April 2021, IMF The euro area annual inflation rate was 1.3% in March 2021, up compared to the previous month (+0.9%), while at EU level annual inflation was at 1.7%, up from 1.3% in the previous month. Greece (-2.0%), Portugal, Malta, Ireland and Slovenia (all 0.1%) had the lowest inflation rates, while Poland (4.4%), Hungary (3.9%), Romania and Luxembourg (both 2.5%) recorded the highest rates. Retail trade (seasonally adjusted series) increased by 3.0% in the euro area and by 2.9% in the European Union in February 2021 compared to the previous month. Compared to the same period of the previous year, retail trade (seasonally adjusted series) decreased by 2.9% in the euro area and by 2.2% in the EU in February 2021. In the EU, the volume of retail trade decreased by 11.9% for fuel retail trade and by 4.0% for non- food products (online and internet orders + 37.9%), while for food, beverages and tobacco increased by 1.8%. The largest annual increases in the total volume of retail trade were registered in Belgium (+11.0%), Austria (+5.2%) and Croatia (+5.1%). The largest decreases were observed in Portugal (-15.4%), Slovakia (-14.7%) and Malta (-8.9%). In Romania, the volume of retail trade turnover increased in February 2021 by 1.3% as gross series, and decreased by 1.2% as a seasonally adjusted series compared to February 2020. The increase in the volume of retail trade turnover was due to the increases in the retail trade of sales of non- food products (+7.1%) and sales of food, beverages and tobacco (+1.1%). Retail sale of automotive fuel in specialized stores decreased by 9.1%. In Romania, the industrial production decreased by 3.1% as gross series and by 2.6% as seasonally adjusted series in February 2021 compared to February 2020. The most significant increase was recorded by the production and supply of electricity and heat, gas, hot water and air conditioning (+7.5%). The most affected industrial sector was the extractive industry (-14.9%: gross series) and that of the manufacturing industry (-4.1%). Turnover from market services provided mainly to enterprises decreased in February 2021 in Romania compared to the same period of the previous year by 0.2% as gross series, and by 0.1% as seasonally adjusted series. The highest decrease was registered in the transport activities (-4.1%) and in other services provided mainly to enterprises (-2.1%). Increases were recorded in activities of information services and information technology (+15.5%) followed by the the activities in film production, video, television programs, broadcasting and transmission of programs (+3.0%) and by the communications activities (+1.2%). The volume of construction works increased in Romania by 3.3% as gross series and by 1.0% as seasonally adjusted series in February 2021 compared to the similar period of the previous year. The most significant increase was registered by the volume of new construction works (+6.9%), while the most significant decreases were registered in the volume of current maintenance and repair works (-5.2%) and in capital repair works (-1.1%). By construction objects, the gross series shows increases in the volumes of engineering construction works (+9.6%) and in residential buildings (+3.2%), while non-residential buildings decreased by 5.2%. Page 2 / 26
The size of the banking vs. non-banking financial sector
The assets of the Romanian banking and non-banking financial markets (% of GDP) 2014 2015 2016 2017 2018 2019 2020 Banking financial system (% GDP) 60.53% 58.59% 56.18% 53.62% 51.09% 50.41% 57.60% Non-banking financial system (% GDP) 11.69% 11.74% 12.21% 12.24% 11.53% 12.59% 13.43% Collective Investment Undertakings 5.89% 5.80% 5.43% 5.07% 4.15% 4.40% 3.75% Private Pension Funds 3.01% 3.64% 4.32% 4.84% 5.21% 6.10% 7.41% Insurance Companies 2.79% 2.30% 2.47% 2.32% 2.16% 2.10% 2.27%
Evolution of nonbanking system's assets (% of GDP)
8.00% 7.41%
7.00% 6.10% 5.89% 5.80% 6.00% 5.43% 5.07% 5.21% 4.84% 5.00% 4.40% 4.32% 4.15% 4.00% 3.64% 3.75% 3.01% 2.79% 3.00% 2.47% 2.32% 2.30% 2.16% 2.10% 2.27% 2.00%
1.00%
0.00% 2014 2015 2016 2017 2018 2019 2020 Collective Investment Undertakings Private Pension Funds Insurance Companies
Source: NBR, NIS,FSA
Page 3 / 26
Current trends and headlights on Romanian markets
Evolution of local stock indices 20.00% Romanian stock indices evolution in 2021 (30.12.2020 = 100) 15.00% 10.00% Date BET BET-BK BET-FI BET-NG BET-TR 5.00% 4/19/2021 13.24% 14.96% 11.47% 16.39% 13.29% 0.00%
-5.00% Date BET-XT BET-XT-TR BETPlus ROTX 4/19/2021 13.03% 13.08% 13.47% 13.36%
BET BET-BK BET-FI BET-NG BET-TR BET-XT BET-XT-TR BETPlus ROTX Source: BSE; FSA calculations Equities traded value on BSE (EUR) 180,000,000
160,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
3/9/2020 4/6/2020 5/4/2020 6/1/2020 9/7/2020 2/8/2021 3/8/2021 4/5/2021
7/27/2020 1/25/2021 1/13/2020 1/27/2020 2/10/2020 2/24/2020 3/23/2020 4/20/2020 5/18/2020 6/15/2020 6/29/2020 7/13/2020 8/10/2020 8/24/2020 9/21/2020 10/5/2020 11/2/2020 1/11/2021 2/22/2021 3/22/2021 4/19/2021
10/19/2020 11/16/2020 11/30/2020 12/14/2020 12/28/2020
Page 4 / 26
Macroeconomic background in Romania: development of the real sector, inflation and labor market
Evolution of government debt (% of GDP) The seasonally adjusted unemployment rate in the euro area was 8.3%, while the EU Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 unemployment rate was 7.5% in February 2021,
Italy 134.4 136.0 137.5 136.8 134.7 137.6 149.3 154.2 values similar to those recorded in the previous France 98.1 99.3 99.2 100.1 98.1 101.3 114.1 116.5 month. Spain 97.4 98.4 98.4 97.5 95.5 99.0 110.2 114.1 The seasonally adjusted unemployment rate in Euro zone 85.8 86.3 86.2 85.8 84.0 86.2 95 97.3 Romania was 5.7% in February 2021, up 0.1 pp EU 79.5 79.9 79.7 79.2 77.6 79.4 87.7 89.8 from the previous month (5.6%), according to Hungary 69.1 68.4 67.2 67.2 65.5 65.9 70.5 74.3 data published by NIS. Germany 61.8 61.6 61.1 61.0 59.6 61 67.4 70 At local level, the unemployment rate among Poland 48.8 48.9 47.7 47 45.7 47.6 54.8 56.7 men (5.6%) is lower with 0.2 pp than the Romania 34.7 33.8 33.9 35.2 35.3 37.4 40.8 43.1 unemployment rate for women (5.8%). Bulgaria 22.3 20.9 20.3 20.5 20.2 20.1 21.3 25.3
Source: Eurostat Unemployment rate (February 2021) The government debt-to-GDP ratio in the euro area is 97.3% in the third quarter of 2020, Czechia increasing compared to the level recorded in the fourth quarter of 2019 (84.0%). There is Poland significant heterogeneity in debt level, the share of public debt in GDP ranging from 18.5% (Estonia) to 199.9% (Greece). Germany
Romania is among the EU member states with a low level of indebtedness (43.1%), below the Romania 5.7 indebtedness of the EU member states of 89.8% of GDP. Bulgaria According to the NBR, the direct investments of non-residents in Romania (FDI) amounted to EUR 578 million in January-February 2021 (compared with EUR 690 million in the same period EU 7.5 of the previous year). France On the other hand, the current account of the balance of payments registered a deficit of EUR 1.6 billion in the first two months of 2021, compared to EUR 431 million in the same Euro Zone 8.3 period of the previous year. Spain Current account developments were accompanied by a decrease in total external debt by 0.0 5.0 10.0 15.0 20.0 EUR 2.31 billion in January - February 2021 to EUR 124 billion. Source: Eurostat
Page 5 / 26
Macroeconomic background in Romania: development of the real sector, inflation and labor market
Main sector indicators (annual rate of change, %) Inflation, monthly data (annual rate of change) 40.00 7.00 30.00 6.00 20.00 5.00 10.00 0.00 4.00 -10.00 3.00 -20.00 2.00 -30.00 -40.00 1.00 -50.00
0.00
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20
Oct-19 Oct-20
Apr-19 Apr-20
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-19 Mar-20 Mar-21
May-19 May-20 Industrial production Construction works Retail trade Services for enterprises CPI inflation Food goods Non-food goods Services Source: National Institute of Statistics; FSA calculations Development of current account by main components (million euro) The economic sentiment index in EU 2,000 3.0 120. 110. 1,000 1.0 100. 0 (1.0) 90. -1,000 80. (3.0) -2,000 70. (5.0) -3,000 60. 50. -4,000 (7.0) 40. -5,000 (9.0)
Q2-17Q3-17Q4-17Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20Q2-20Q3-20
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20
Oct-19 Oct-20
Apr-19 Apr-20
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-19 Mar-20 Mar-21
May-19 May-20 Goods and services Primary income EU Romania Poland Hungary Germany Secondary income Current Account (% Q-GDP) Source: NBR, FSA calculations Source: Eurostat Page 6 / 26
Macroeconomic risk in Romania: external position and market perception of sovereign risk
Evolution of Credit Default Swaps quotations (5Y, USD) Government bond yields (5Y, LC)
Source: Datastream Romania 5 - year bond yields decreased by 6% in February 2021 as compared with the previous month, reaching an average value of 2.37%, while Bulgaria 5 – year bond yields increased to an average value of 0.082%. Germany 5 – year bond yields remained negative, at very low levels (average value of -0.65% in February 2021). Government bond yields spread of Romania (10Y, LC) Romania CDS quotations decreased by 8.3% in February 2021 4.0 compared with the previous month, reaching an average value of 3.0 109.91 bp. 2.0 At the end of December 2020, there is a decrease in the spread 1.0 between Romanian and German government bonds (10Y), but it 0.0 starts to be on an upward trend starting with January 2021. In the
first part of April 2021 it decreased slightly which can also be
07-iul.-19 01-iul.-20
28-ian.-19 23-ian.-20 17-ian.-21
28-mai-19 22-mai-20
29-oct.-20
26-feb.-21
18-apr.-19 12-apr.-20 07-apr.-21
14-dec.-19 08-dec.-20
16-aug.-19 10-aug.-20
04-nov.-19 interpreted as an improvement in investors' confidence in Romania's
09-mar.-19 03-mar.-20
25-sept.-19 19-sept.-20 country rating. Romania - Germania (pp, lhs) Polonia - Germania (pp, rhs) Source: Datastream, FSA’s calculations
Page 7 / 26
Market risk: evolution of local and international stock indices at the end of March 2021
International and local stock indices yields
International indices 1 M 3 M 6 M EA (EUROSTOXX) 6.51% 8.69% 22.14% The european indices have recorded positive developments (1M). FR (CAC 40) 6.38% 9.29% 26.31% The most significant increase was recorded by ISEQ index DE (DAX) 8.86% 9.40% 17.61% (IE: +10.11%), followed by ASE index (GR: +9.17%). IT (FTSE MIB) 7.88% 10.87% 29.63% GR (ASE) 9.17% 6.93% 38.46% The main American and Asian indices showed positive evolutions, IE (ISEQ) 10.11% 9.59% 26.69% except for SSEA index (SHG: -1.92%). Therefore, the most 4.32% 6.27% 27.74% ES (IBEX) significant increase was registered by DJIA index (US: + 6.62%), UK (FTSE 100) 3.55% 3.92% 14.45% followed by NIFTY 50 index (IN: +1.11%) US (DJIA) 6.62% 7.76% 18.72% IN (NIFTY 50) 1.11% 5.07% 30.61% SHG (SSEA) -1.92% -0.90% 6.97% JPN (N225) 0.73% 6.32% 25.85%
BSE indices 1 M 3 M 6 M BET 9.68% 14.11% 24.23% BET-BK 7.41% 14.75% 25.88% BET-FI 4.55% 12.86% 15.61% The BSE stock indices have recorded positive developments (1M). BET-NG 5.99% 15.92% 22.11% The registered increases were between 9.71% (BET-TR index) and BET-TR 9.71% 14.16% 25.60% 5.99% (BET-NG index) BET-XT 8.48% 13.67% 22.27% BET-XT-TR 8.51% 13.72% 23.56% BETPlus 9.65% 14.15% 23.99% ROTX 9.37% 14.15% 29.54%
Source: Datastream, FSA’s calculations Note: 1M=03/31/2021 vs. 02/26/2021; 3M=03/31/2021 vs. 12/31/2020; 6M=03/31/2021 vs. 09/30/2020
Page 8 / 26
Market risk: volatility of Romanian government bond yields and the EURRON currency rate
Term structure of EUR/RON forward rate 5.05
5
4.95
4.9
4.85
4.8
4.75
4.7
4.65 1 week 1 month 2 months 3 months 6 months 9 months 12 months
2/26/2021 12/31/2020 12/31/2019 Source: Refinitiv, FSA’s calculations Real effective exchange rate (REER; 2014=100) Apreciere (>100) 140 130 We forecast that the depreciation trend will continue but its volatility will remain 120 low, as the Romanian Central Bank lowered the monetary interest rate to 1.25% 110 in January 2021 to fight the impending recession and managed interbank liquidity, 100 to avoid any speculative attack on the currency. With inflation rising above the European average, the exchange rate started to depreciate in February and March 90 and reached 4.92 eur/ron. 80 The term structure of the forward rate for the EURRON exchange rate with
maturities between one week and twelve months shows the market expectations.
Jun-16 Jun-17 Jun-18 Jun-19 Jun-20
Oct-19 Oct-16 Oct-17 Oct-18 Oct-20
Feb-17 Feb-18 Feb-19 Feb-20 Feb-21 Feb-16 There are expectations of EURRON depreciation for maturities between 3 and 12 Polonia China Romania Zona euro USA months with respect to the previous month (RON appreciation).
Source: BIS, FSA’s calculations
Page 9 / 26
Market risk: financial markets fragility
Contagion risk
The Spillover index measures the marginal contribution of the external capital markets on the Romanian stock exchange. The Romanian capital market is sensitive to the same regional risk factors that influence the Austrian, Polish, Hungarian, and Bulgarian stock market returns. There is a strong link between the spillover effect and the companies’ returns, since the increase in the spillover tends to diminish the returns of the companies listed on the Bucharest Stock Exchange. The contagion has increased in February and March 2020 due to the outbreak of the COVID-19 pandemic and the uncertainty of the financial markets. In that period, the speed of the contagion was the greatest in the last 10 years, indicating how fast fear and uncertainty have impaired the financial stability of international markets. Starting January 2021, the spillover trended downward mainly due to the vaccination program across European countries.
Source: Refinitiv, FSA’s calculations
Page 10 / 26
Liquidity indicators on Romanian Stock Exchanges
The BSE Trading Activity (all the Segments) during March 2021 Top of intermediaries during March 2021
% from Value Traded Value Week/month No. of transactions Volume Total Value EUR % Rank Intermediary name EUR (month (month Total 01-05 March 2021 26,510 123,697,376 33,943,707 16.63% level) level) Total 08-12 March 2021 33,627 282,072,043 56,954,284 27.90% 1 BT CAPITAL PARTNERS 59,564,289 16.55 Total 15-19 March 2021 35,232 225,235,535 50,912,059 24.94% WOOD & COMPANY FINANCIAL SERVICES, a.s. Total 22-26 March 2021 28,378 141,057,476 36,987,317 18.12% 2 55,704,014 15.48 Total 29-31 March 2021 14,727 76,807,582 25,341,646 12.41% PRAGA Total March 2021 138,474 848,870,012 204,139,013 100.00% 3 SWISS CAPITAL S.A. 49,988,719 13.89
Source: BNR, BSE data, FSA’s calculations; monthly average exchange rate for March 2021 = 4.8878 LEI/EUR 4 TRADEVILLE 47,183,236 13.11 The BSE’s Most Traded Companies during March 2021 (Only the Main Segment) Symbol Value (EUR) % Value (EUR) % Value (EUR) % 5 BANCA COMERCIALA ROMANA 36,436,653 10.12 TLV 45,879,796 26.25% 702,877 36.34% 46,582,672 25.96% 6 SSIF BRK FINANCIAL GROUP S.A. 33,066,272 9.19 TRP 21,200,654 12.13% 0 0.00% 21,200,654 11.81% 7 RAIFFEISEN CENTROBANK AG 13,818,956 3.84 SNP 16,218,240 9.28% 0 0.00% 16,218,240 9.04% FP 15,605,630 8.93% 0 0.00% 15,605,630 8.70% 8 GOLDRING 10,909,448 3.03 BRD 11,705,008 6.70% 0 0.00% 11,705,008 6.52% 9 IFB FINWEST 10,714,743 2.98 SNN 8,650,160 4.95% 0 0.00% 8,650,160 4.82% 10 ESTINVEST 10,195,315 2.83 SNG 7,701,671 4.41% 0 0.00% 7,701,671 4.29% EL 5,062,314 2.90% 0 0.00% 5,062,314 2.82% 11 PRIME TRANSACTION 9,869,576 2.74 SIF2 2,338,145 2.81% 1.34% 0 0.00% 5,044,025 12 BRD Groupe Societe Generale 6,455,151 1.79 M 4,047,253 2.32% 96,976 5.01% 4,144,229 2.31% 13 INTERFINBROK CORPORATION 4,793,042 1.33 BRK 3,934,060 2.25% 0 0.00% 3,934,060 2.19% DIGI 2,910,437 1.66% 722,206 37.34% 3,632,643 2.02% 14 Alpha Bank Romania SA 4,130,081 1.15 WINE 3,050,343 1.74% 0 0.00% 3,050,343 1.70% 15 S.S.I.F. BLUE ROCK FINANCIAL SERVICES S.A 1,401,448 0.39 EBS 2,164,971 1.24% 0 0.00% 2,164,971 1.21% Top 15 Total 98.42 IMP 1,751,644 1.00% 324,072 16.76% 2,075,716 1.16% Top 15 Total 87.36%
Source: BNR, BSE data, FSA’s calculations; monthly average exchange rate for March 2021 = 4.8878 LEI/EUR 38,000 Market Capitalization The market capitalization registered an increase of 16% at the end of March 36,000 2021 compared to the end of 2020, while compared to the end of 2019 there
34,000 was a decrease of 1%. Millions EUR Millions In March 2021, the first 3 companies traded on BVB were: Banca Transilvania 32,000 (TLV) with a share of 25.96% of the total value traded in that period, Teraplast (TRP: 11.81%) and OMV PETROM (SNP: 9.04%).
Source: BSE
Page 11 / 26
MSCI: Quantitative Indicators for Emerging Market Status
10 EM MSCI 1st Criterion: Market cap > 1,830 bn. USD USD
5 Billions Billions
0 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
BRD EL SNG SNP TLV MSCI Criterion
4.0 EM MSCI 2nd Criterion: Free float cap > 0.915 bn. USD USD
2.0 Billions Billions
0.0 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 BRD EL SNG SNP TLV MSCI Criterion 40% EM MSCI 3rd Criterion: ATVR > 15%
20%
0% Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 BRD EL SNG SNP TLV MSCI Criterion Source: FSA’s calculations, March 2021
Page 12 / 26
MSCI: Quantitative Indicators for Emerging Market Status
BRD - Indicators' variation to MSCI criterion EL - Indicators' variation to MSCI criterion
1.50 30% 0.00 0% usd 1.00 20% usd
0.50 10% -0.50 -5%
Billions Billions 0.00 0%
-0.50 -10% -1.00 -10%
Jul-19 Jul-20
Jul-19 Jul-20
Jan-20 Jan-21
Jun-20 Jun-19
Oct-19 Oct-20
Apr-19 Apr-20
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Jan-20 Jan-21
Aug-19 Aug-20
Jun-19 Jun-20
Nov-19 Nov-20
Oct-19 Oct-20
Apr-19 Apr-20
Mar-19 Mar-20 Mar-21
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
May-19 May-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-19 Mar-20 Mar-21
May-19 May-20 Market Cap USD Free float Cap USD ATVR % Market Cap USD Free float Cap USD ATVR % SNG - Indicators' variation to MSCI criterion SNP - Indicators' variation to MSCI criterion
2.00 20% 6.00 20% usd usd 4.00 1.00 10% 10%
2.00 Billions 0.00 0% Billions 0% 0.00
-1.00 -10% -2.00 -10%
Jul-19 Jul-20
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20
Oct-19 Oct-20
Jan-20 Jan-21
Apr-19 Apr-20
Sep-19 Feb-20 Sep-20 Feb-21 Jun-19 Jun-20
Oct-19 Oct-20
Dec-19 Dec-20
Apr-19 Apr-20
Aug-19 Aug-20
Sep-19 Feb-20 Sep-20 Feb-21
Nov-19 Nov-20
Dec-19 Dec-20
Mar-19 Mar-20 Mar-21
Aug-19 Aug-20
Nov-19 Nov-20
May-19 May-20
Mar-19 Mar-20 Mar-21
May-19 May-20 Market Cap USD Free float Cap USD ATVR % Market Cap USD Free float Cap USD ATVR % TLV - Indicators' variation to MSCI criterion Indicators' variation to MSCI criterion (March 2021) 2.00 20%
1.50 usd 10% Company Cap. bln. USD Free float bln. USD ATVR % 1.00 0% BRD 0,57 -0,20 2,92% Billions 0.50 EL -0,68 -0,45 -2,79% 0.00 -10%
SNG 1,09 -0,04 0,07%
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20
Oct-19 Oct-20
Apr-20 Apr-19
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20 Aug-20
Aug-19 SNP 3,23 0,10 1,78%
Nov-20 Nov-19
Mar-19 Mar-20 Mar-21 May-20 May-19 Market Cap USD Free float Cap USD ATVR % TLV 1,11 1,44 7,26%
Source: FSA’s calculations, March 2021
Page 13 / 26
Risk assessment and the benefit of diversification
The degree of over or under-evaluation of Bucharest Stock Exchange compared The average correlation coefficient for the 25 most liquid companies traded on with the region BSE 1.30 0.90
1.20 0.80 1.10 relative P/E relative 0.70 1.00 0.60 0.90 0.50 0.80 0.40 0.70
0.60 0.30
0.50 0.20
0.40 0.10
0.00
4/26/2019 4/26/2020 1/26/2019 2/26/2019 3/26/2019 5/26/2019 6/26/2019 7/26/2019 8/26/2019 9/26/2019 1/26/2020 2/26/2020 3/26/2020 5/26/2020 6/26/2020 7/26/2020 8/26/2020 9/26/2020 1/26/2021 2/26/2021
10/26/2019 11/26/2019 12/26/2019 10/26/2020 11/26/2020 12/26/2020 Romania/Hungary Romania/Czech Romania/Poland perc.75% perc.25% Average correlation Romania/Germany Romania/Austria Source: Datastream, FSA’s calculations Source: Bloomberg, ASF P/E forward ratio is calculated by dividing the share price to the net earnings per share and indicates how much investors pay for earnings forecasted for next year. The risk of re-evaluation is calculated by dividing the P/E forward At the end of July 2021, the correlations between the daily yields of the 25 ratios for different markets and indicates how much investors pay for next most liquid companies from Bucharest Stock Exchange the decreased and year's anticipated earnings in one market compared with another. returned to the level recorded at the beginning of 2020. In March-April 2021 In February 2021, the ratio was lower than 1 (except for Romania/Hungary) is marked by a decrease in the correlations between the shares. thus indicating that the Romanian capital market was more attractive in comparison with most of the analyzed countries.
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Risk assessment and the benefit of diversification
Adverse economic conditions can trigger steep increases in uncertainty. Uncertainty is a response to fluctuations in economic activity. As the European business cycle was strongly correlated during the 2020 pandemic, by combining all the common shocks in asset prices, it is possible to capture the effect of uncertainty on stock markets The CISS indicator is a composite indicator calculated by the European Central Bank and measures systemic stress for European financial markets. In 2020, European stock market returns declined due to the uncertainty generated by the COVID pandemic. The Romanian capital market declined to the shocks of uncertainty as well as other European capital markets. It has been observed that demand shocks such as monetary policy shocks are neutral in the long run (zero), due to uncertainty shocks. Similarly, the supply shocks on the stock market were linked with the low productivity of companies during the lockdown period which generated a lot of uncertainty and sell-offs. The systemic stress shock proxied by the CISS indicator has the effect of a 2% decrease of the Romanian stock markets. The results indicate a great reduction of risks associated with systemic financial risks. The industrial production index fell sharply in April and May and rebounded in June and July 2020. The chart indicates that the expected duration of the likelihood of a high volatility regime is low, lasting about 2 months1. The industrial production index reverted to a low volatility regime as Romanian economy rebounded sharply after two quarters of negative growth. Response of Romanian capital market to CISS shock using Structural VAR Factors Industrial Production Index (Jan.2005-Dec.2020) 0 Smoothed probabilities for the two regimes
1.0
-20 0.8
0.6 -40
0.4
-60 0.2
0.0 -80 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Economic instability(high volatility regime) Economic stability (low volatility regime) -100
1 2 3 4 5 6 7 8 9 10 11 12
Source: FSA own calculations Source: INSSE, FSA own calculation
1 For the monthly Industrial Production Index we have estimated a Hamilton-type Markov switching regression model with intercept and first AR lag changing between regimes. Page 15 / 26
Concentration risk
Concentration risk of non-life insurance undertakings Concentration risk of life insurance undertakings (by value of GWP at 31 December 2020) (by value of GWP at 31 December 2020) 100.00% 0.1400 100.00% 0.2080 0.1396 0.2061 90.00% 0.1390 90.00% 0.2060 80.00% 0.1380 80.00% 0.2040 70.00% 70.00% 0.2020 0.1370 60.00% 60.00% 0.2000 0.1360 50.00% 0.1980 50.00% 0.1350 40.00% 0.1960 40.00% 0.1947 0.1343 0.1340 30.00% 0.1940 30.00% 20.00% 0.1920 20.00% 0.1330 10.00% 0.1900 0.1320 10.00% 0.00% 0.1880 0.00% 0.1310 2019 2020 2019 2020 CR3 CR5 CR7 HHI CR3 CR5 CR7 HHI Concentration risk of investment funds in Romania Concentration risk of intermediaries on the BSE (by value of transactions (by net assets – 31 December 2020) during January-February 2021 – Main segment & MTS, all spot instruments) 120.00% 0.25 90.00% 0.12 0.2306 80.00% 100.00% 0.2 0.1 70.00% 80.00% 60.00% 0.08 0.15 0.1388 60.00% 50.00% 0.06 0.1 40.00% 40.00% 30.00% 0.04 0.05 20.00% 20.00% 0.02 10.00% 0.00% 0 Open-end funds Closed-end funds 0.00% 0 CR3 CR5 CR7 HHI CR3 CR5 CR7 HHI Source: FSA Source: FSA Page 16 / 26
Concentration risk
Concentration risk of depositaries of private pension funds and investment funds (by The degree of concentration of insurance companies in the MTPL market total assets at 12/31/2020) (by gross written premiums at 12/31/2020) 100% 0.8000 0.3050 100.00%
90% 0.7020 0.7000 0.3000 0.2993 90.00% 80% 0.2950 80.00% 0.5929 0.6000 70% 0.2900 70.00% 60% 0.5000 0.4383 0.2850 60.00% 50% 0.4000 0.2800 50.00% 40% 0.3000 30% 0.2750 40.00% 0.2000 0.2721 20% 0.2700 30.00% 0.1000 10% 0.2650 20.00%
0% - 0.2600 10.00%
91.45% 97.74% 78.88% 90.89% 96.82% Private pension funds Investment funds Total (private pension funds 81.23% and investment funds) 0.2550 0.00% BRD - GROUPE SOCIETE GENERALE SA BANCA COMERCIALĂ ROMÂNĂ SA UNICREDIT BANK SA HHI 31/12/2020 31/12/2019 CR3 CR5 CR7 HHI Concentration risk of private pension funds (by total assets at 3/31/2021) According to the main indicators used by the Competition Council, the 100.00% 0.2500 0.2451 concentration risk in the non-life insurance market is medium to high 80.00% 0.2400 level, while the life insurance market concentration degree is still high. 0.2300 The situation is similar in the case of private pension funds market (Pillar 60.00% 0.2200 II and Pillar III), but explainable by objective reasons related to their 40.00% 0.2114 operating mechanism and the current state of the market. 0.2100 Also on the capital market, the concentration degree is medium to high 20.00%
0.2000 for OEIFs (although the number of investment funds is high) and for the
70.31% 89.21% 72.02% 87.79% 95.47% 100.00% 0.00% 0.1900 intermediaries on the BSE due to the fact that top market participants Pillar II Pillar III CR3 CR5 CR7 HHI sum up a significant share of the total assets.
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Specific developments in the private pension funds sector: Mandatory pension funds (2nd Pillar)
Total assets (EUR), number of participants and return rates Rate of return for mandatory pension funds Participants 7.0000% Total Assets Rate of return Mandatory pension fund (persons) 31 March 2021 (EUR) March 2021 March 2021 6.0000% ARIPI* 1,455,098,388 796,410 6.46% AZT VIITORUL TAU 3,512,898,369 1,618,361 0.00% 5.0000% BCR 1,117,694,540 699,224 6.47% BRD 640,404,732 483,680 0.00% 4.0000% METROPOLITAN LIFE 2,264,986,868 1,072,743 6.09% NN 5,676,100,939 2,045,244 6.00% 3.0000% VITAL 1,624,476,862 962,496 6.29% Total 16,291,660,697 7,678,158 n/a 2.0000%
New participants (persons) in 2nd Evolution of gross contributions Pillar 1.0000%
0.0000% 200 45 180 44 -1.0000% 160 43
140 42 -2.0000% 120 41 100 40 -3.0000% 80 39 14,653 60 38 40 37 persons ARIPI 20 36 AZT VIITORUL TAU BCR 0 35 BRD
METROPOLITAN LIFE
iul.-20
ian.-21
mai-20
iun.-20
oct.-20
feb.-20 feb.-21
apr.-20
dec.-20
aug.-20
nov.-20
mar.-20 mar.-21 sept.-20 NN Gross contributions (Mil. EUR) VITAL Minimal rate of return for high risk private pension funds Average contribution per participant with Minimal rate of return for medium risk mandatory private pension funds contributions (EUR) Weighted average rate of return for mandatory private pension funds Source: FSA
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Specific developments in the private pension funds sector: Mandatory pension funds (2nd Pillar)
Mandatory pension fund’s portfolio at 31 March 2021 (EUR) Assets category Assets value (EUR) % Total assets Government bonds 10,583,383,215 64.96% Equity 3,875,038,194 23.79% Corporate bonds 588,253,317 3.61% Investment funds 513,425,240 3.15% Bank deposits 339,077,065 2.08% Supranational bonds 332,548,050 2.04% Municipal bonds 38,988,169 0.24% Metal funds 21,702,849 0.13% Derivatives (180,909) -0.0011% Other assets (574,494) -0.0035%
Country exposure of mandatory pension fund’s assets Currency exposure of mandatory pension fund’s assets
US, 1.60% USD, 1.30% Other currencies, LU, 1.82% 0.08%
Other countries, Exposure by country RO, 89.72% Exposure value (%total assets) RON, 88.29% EUR, 10.34% 6.86%
84% 86% 88% 90% 92% 94% 96% 98% 100% 82% 84% 86% 88% 90% 92% 94% 96% 98% 100%
Source: FSA Total assets of the privately managed pension funds reached EUR 16.29 billion at the end of March 2021, registering an annual rate of growth of 33%. At the end of March 2021, the privately managed pension funds’ investments were generally made locally, in a percentage of 90%, a large majority being denominated in lei. Most Romanian instruments are represented by government securities and shares listed on the Bucharest Stock Exchange.
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Current evolutions in optional private pension funds (3rd Pillar)
Total assets (EUR), number of participants and return rates Rate of return for voluntary pension funds
Total assets (EUR), Participants (persons) Rate of return AZT VIVACE Voluntary pension fund 31 March 2021 March 2021 March 2021 12.00% AEGON ESENTIAL 2,068,758 3,888 8.9934% NN ACTIV AZT MODERATO 65,528,131 40,031 8.8587% AZT VIVACE 24,472,699 20,292 10.0010% 10.00% AEGON ESENTIAL BCR PLUS 111,427,891 139,443 8.1177% BRD MEDIO 33,872,176 34,117 6.8531% GENERALI STABIL 6,204,676 5,466 8.4811% 8.00% AZT MODERATO NN ACTIV 73,276,884 55,978 8.7582%
NN OPTIM 269,340,005 202,879 7.4850% BCR PLUS PENSIA MEA 20,279,606 17,742 6.6568% 6.00% RAIFFEISEN ACUMULARE 23,942,729 14,924 8.5032% BRD MEDIO Total 630,413,554 534,760 n/a 4.00% Evolution of gross contributions New participants in 3rd Pillar 9,000,000 35.00 7,000 NN OPTIM 8,000,000 30.00 2.00% 6,000 PENSIA MEA 7,000,000 25.00 6,000,000 5,000 0.00% RAIFFEISEN 5,000,000 20.00 ACUMULARE 4,000 4,000,000 15.00 STABIL 3,000,000 3,000 -2.00% 10.00 2,000,000 Weighted rate of return 5.00 2,000 1,000,000 for all high risk -4.00% voluntary pension funds - 0.00 1,000 Minimal rate of return for high risk voluntary pension funds - -6.00% Gross contributions (EUR) Weighted rate of return
for all medium risk
iul.-20
ian.-21 ian.-20
mai-20 nov.-20
nov.-19 voluntary funds mar.-21
Average contribution per participant with contributions mar.-20 sept.-20 (EUR) Source: FSA
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Current evolutions in optional private pension funds (3rd Pillar)
Optional pension fund’s portfolio at 31 March 2021 (EUR)
Assets category Assets value (EUR) % Total assets Government Bonds 381,242,216 60.47% Equity 171,362,890 27.18% Corporate Bonds 21,944,450 3.48% Investment Funds 18,958,494 3.01% Supranational Bonds 15,660,654 2.48% Bank Deposits 13,799,708 2.19% Municipal Bonds 4,893,605 0.78% Metal funds 2,205,396 0.35% Oher assets 346,142 0.05% Source: FSA Country exposure of optional fund’s assets Currency exposure of optional fund’s assets Other currencies, 0.13% HU, 1.50%
Other countries, Country exposure RO, 90.58% LU, 2.12% % total assets RON, 87.82% EUR, 11.14% USD, 0.91% 5.81%
84% 86% 88% 90% 92% 94% 96% 98% 100% 80% 85% 90% 95% 100% Source: FSA Source: FSA Total assets of the voluntary pension funds, at the end of March 2021, was EUR 630 million, registering an annual rate of growth of 30%. At the end of March 2021, the voluntary pension funds’ investments were generally made locally, in a percentage of 91%, a large majority being denominated in lei.
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Specific developments in the investment funds sector
Evolution of net assets of open-end investment funds Open-end investment funds’ market share by Fund Type and Net Asset (March 2020 – March 2021) (March 2021)
4,800 4,400
4,000 EUR Million EUR 3,600 3,200 2,800 2,400 2,000 1,600 1,200 800 400 - Bonds and Fixed Income Instruments Other funds Multi-Active Absolute yield Equity
Source: AAF According to data published by AAF, the net assets of open-end investment funds (OeIF) reached a value of EUR 4.32 billion in March 2021, an increase of approximately 2% compared to the previous month. Net assets of all categories of investment funds increased in March 2021 compared to the previous month. In March 2021, open-end bond and fixed income instruments funds hold the largest share in total net assets of OeIF (around 68%2), while the "other funds" category has a market share of approximately 19%.
2 There was a change in Open end investment funds’ classification Page 22 / 26
Specific developments in the investment funds sector
Evolution of underwritings and redemptions of Open-end Investment Funds Evolution of net capital flows of Open-end Investment Funds (million EUR) (million EUR)
Mar-21 38 Mar-21 Feb-21 78 Feb-21 Jan-21 118 Jan-21 Dec-20 118 Dec-20 Nov-20 12 Nov-20 Oct-20 43 Oct-20 Sep-20
9 Sep-20 Aug-20
-21 Aug-20 Jul-20
-4 Jul-20 Jun-20
66 May-20 Jun-20
-6 Apr-20 May-20 Mar-20 Apr-20 -97 (1,000) (800) (600) (400) (200) - 200 -910 Mar-20 Million EUR
(1,000.00) (800.00) (600.00) (400.00) (200.00) - 200.00 Absolute yield Equity Million EUR Multi-Active Bonds and Fixed Income Instruments Other funds Net sales Redemptions Underwritings Source: AAF In March 2021, local open-end investment funds recorded net inflows of EUR 38 million. Net inflows of bonds and fixed income instruments funds amounted to EUR 15 million, while the equity funds recorded net inflows of EUR 12 million.
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Specific developments in the insurance market in Romania
Evolution of the insurance market (31th of December 2020) Gross written premiums (total) MTPL gross written premiums 3 1.00 14 0.90 3 2.36 12 2.30 0.80 Eur Billions Eur 2.18
2.07 2.08 Millions EUr 0.70 10 2 0.60
8 Millions of contracts of Millions 2 0.50 6 0.40
1 0.30 4 0.20 2 1 0.10 - - 0 2015 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 GWP for MTPL No. of contracts Non-life insurance Life insurance Source: FSA Share of main insurance classes by GWP Gross claims paid 1,600
1,400
221 219 Eur Eur Millions 1,200 220
1,000 214 156 800
600 1,207 1,204 1,057 875 400 793
200
0 2016 2017 2018 2019 2020 Non-life insurance Life insurance Source: FSA
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Specific developments in the insurance market in Romania
Total eligible own funds to meet the SCR and total eligible own funds to meet the Ratio of eligible own funds to SCR and Ratio of eligible own funds to MCR MCR 5.00 1.40 4.50 1.20
4.00 Eur Billions 3.50 1.00
3.00 0.80 2.50 2.00 0.60
1.50 0.40 1.00 0.20 0.50 0.00 - 2017 2018 2019 2020 2016 2017 2018 2019 2020
Eligible own funds to meet the MCR Eligible own funds to meet the SCR Ratio of eligible own funds to SCR Ratio of eligible own funds to MCR Total assets and total liabilities 6.00 4.92 5.00 4.42 4.64 4.15 4.28 3.69 4.00 3.52 Eur Billions Eur 3.18 3.19 3.38 3.00 2.00 1.00 - 2016 2017 2018 2019 2020 Total assets Total liabilities Source: FSA, provisional data On 31th of December 2020, eligible own funds to meet the SCR were mainly composed of unrestricted Tier 1 (92%). In terms of own fund items, there were no significant changes in the last five years.
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Press releases and publications of European and international financial institutions in March 2021
ESMA 3 March: ESMA proposes improvements to Transparency Directive after Wirecard case.
17 March: ESMA publishes Trends, Risks and Vulnerabilities Report of 2021.
24 March: ESMA consults on simplified supervisory fees for trade repositories.
24 March: ESMA assesse the compliance with UCITS liquidity rules and highlights areas for vigilance.
26 March: ESMA consults on the framework for the EU Money Market Funds.
26 March: ESMA advises on framework for data reporting service providers.
29 March: ESMA advises the EC on the application of sanctions under MiFID II/MiFIR. EIOPA 1 March: EIOPA launches a European-wide comparative study on non-life underwriting risk in internal models.
26 March: EIOPA consults on revised Guidelines on the use of the Legal Entity Identifier. ESAs 17 March: ESAs consult on taxonomy-related product disclosures.
26 March: ESAs publish Joint Opinion on jurisdictional scope under the Securitisation Regulation. IOSCO 5 March: IOSCO reviews implementation of liquidity risk Management recommendations and market participants´ responses to COVID-19 induced market stresses.
24 March: IOSCO issues a statement on going concern assessments and disclosures during the COVID-19 pandemic. ECB 11 March: ECB keeps its monetary policy unchanged.
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