X„
Monthly Market Report
The annual inflation rate in the euro area was 1.9% in June 2021, decreasing from May (2.0%).
In Romania, the volume of retail trade turnover increased in May 2021 by 18.3% as gross series and FSA No by 22.0% as a seasonally adjusted series compared to May 2020 7/07.26.2021 The seasonally adjusted unemployment rate in Romania was 5.5% in May 2021, down by 0.2 pp from the previous month (5.7%), according to data published by NIS.
The value of the total assets of the privatelyPage 1 /managed 27 pension funds reached EUR 17.14 billion at the end of June 2021, registering an annual rate of growth of 28%.
World Macroeconomic Outlook
According to data published by Eurostat, in the first quarter of 2021, the seasonally adjusted GDP decreased by 0.3% in the euro area and by 0.1% in the EU compared to the previous quarter, as a result of containment measures imposed by states. These developments took place after the euro area and EU economies recorded the largest contractions in the second quarter of 2020 (-11.5% in the euro area and -11.1% in the EU), followed by robust economic recovery in the third quarter of 2020 (+12.6% in the euro area and +11.7% in the EU). Compared to the same period of the previous year, seasonally adjusted GDP fell by 1.3% in the euro area and by 1.2% in the EU in the first quarter of 2021.
Romania’s GDP increased by 2.9% in the first quarter of 2021 as compared to the fourth quarter of 2020. Compared to the same period of the previous year, the gross domestic product recorded a decrease by 0.2% for the gross series and an increase of 0.1% for the seasonally adjusted series. The National Commission for Strategy and Prognosis revised up the economic growth forecast for 2021, to 5% (from 4.3% according to the preliminary winter forecast of NCSP), amid increasing activity in industry (+5,8%), agriculture (+14.8%), constructions (+6,1%) and services (+3.9%) compared to 2020. GDP development in 2019-2022 European Commission IMF Q1 Q2 Q3 Q4 Q2 Q3 Q4 Country 2019 Q1 2020 2020 Q1 2021 2019 2019 2019 2019 2020 2020 2020 2021f 2022f 2021f 2022f
Euro area 1.5 1.3 1.4 1.0 1.3 -3.3 -14.6 -4.1 -4.7 -6.5 -1.3 4.8 4.5 4.4 3.8 Germany 1.1 0.1 0.8 0.4 0.6 -2.2 -11.2 -3.8 -3.3 -4.8 -3.1 3.6 4.6 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 -4.3 6.2 6.3 6.4 4.7 France 2.1 2.2 2.0 1.0 1.8 -5.5 -18.4 -3.5 -4.6 -7.9 1.2 6.0 4.2 5.8 4.2 Italy 0.3 0.4 0.5 -0.1 0.3 -5.8 -18.1 -5.2 -6.5 -8.9 -0.8 5.0 4.2 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 -1.8 4.6 4.1 4.4 4.4 Croatia 3.9 2.4 2.7 2.6 2.9 0.8 -14.6 -10.1 -6.9 -8.0 -0.9 5.4 5.9 4.7 5.0 Hungary 5.3 4.9 4.2 4.2 4.6 2.1 -13.3 -5.2 -3.9 -5.0 -1.6 6.3 5.0 4.3 5.9 Poland 5.5 4.9 4.6 4.0 4.7 2.0 -7.9 -2.0 -2.7 -2.7 -1.4 4.8 5.2 3.5 4.5 Romania 5.2 4.2 3.4 3.7 4.1 2.8 -10.0 -5.5 -2.0 -3.9 0.1 7.4 4.9 6.0 4.8
Source: Eurostat, percentage change compared with the same quarter of the previous year - seasonally adjusted data, European Commission, Summer 2021 Economic Forecast, World Economic Outlook – April 2021, IMF
Page 2 / 27
World Macroeconomic Outlook
The annual inflation rate in the euro area was 1.9% in June 2021, decreasing from May (2.0%), while at EU level annual inflation was 2.2%, decreasing from 2.3% in the previous month. Portugal (-0.6%), Malta (0.2%) and Greece (0.6%) had the lowest inflation rates, while Hungary (5.3%), Poland (4,1%) and Estonia (3.7%) recorded the highest rates.
In Romania, the annual inflation rate (CPI) was 3.94% in June 2021, up compared to the previous month (+3.75%). The most significant contribution to the annual inflation rate came from the increasing prices of non-food goods (+5.71%), followed by services (+2,66%) and food goods (+2,17%).
The volume of construction works increased in Romania by 6.1% as gross series, and by 7.0% as seasonally adjusted series in May 2021 compared to the similar period of the previous year. The most significant increase was registered by the volume of new construction works (+14.7%), while the most significant decreases were registered by the volume of current maintenance and repair works (-8.9%) and by the volume of capital repair works (-7.6%). By construction type, the gross series shows increases in the volume of residential buildings (+40.6%). Engineering construction works (-4.4%) and non-residential buildings (-1.3%) decreased.
Turnover from market services provided mainly to enterprises increased in Romania in May 2021 compared to the same period of the previous year by 29.9% as gross series and by 30.9% as seasonally adjusted series. The highest increase was registered by the activities in film production, video, television programs, broadcasting and transmission of programs (+58.4%), followed by transport activities (+39.0%), other services provided mainly to enterprises (+28.8%), information services and information technology (+26.1%) and by the communications activities (+9.5%).
In Romania, the industrial production increased by 28.9% as gross series and by 30.3% as seasonally adjusted series in May 2021 compared to May 2020. The most significant increases were recorded by the manufacturing industry (+32.9%), production and supply of electricity and heat, gas, hot water and air conditioning (+14.9%) and by the extractive industry (+8.5%)
Retail trade (seasonally adjusted series) increased by 4.6% both in the euro area and in the European Union in May 2021 compared to the previous month. Compared to the same period of the previous year, retail trade (seasonally adjusted series) increased by 9.0% in the euro area and by 9.2% in the EU in May 2021. In Romania, the volume of retail trade turnover increased in May 2021 by 18.3% as gross series and by 22.0% as a seasonally adjusted series compared to May 2020. The increase in the volume of retail trade turnover was due to the increases in the retail trade of automotive fuel in specialized stores (+32.4%) followed by the retail trade of sales of non-food products (+27.5%) and the sales of food, beverages and tobacco (+2.4%).
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The size of the banking vs. non-banking financial sector
The assets of the Romanian banking and non-banking financial markets (% of GDP) 70.00% 60.53% 58.59% 58.64% 56.18% 57.51% 60.00% 53.62% 51.09% 50.41% 50.00%
40.00%
30.00%
20.00% 14.30% 11.69% 11.74% 12.21% 12.24% 11.53% 12.59% 13.57% 10.00%
0.00% 2014 2015 2016 2017 2018 2019 2020 T1-2021
Banking financial system (% of GDP) Non-banking financial system* (% of GDP)
*IFNs are not included Evolution of nonbanking system's assets (% of GDP)
10.00% 7.84% 8.00% 7.40% 5.89% 6.10% 5.80% 5.43% 5.07% 6.00% 4.84% 5.21% 4.32% 4.15% 4.40% 4.18% 3.64% 3.92% 4.00% 3.01% 2.79% 2.30% 2.47% 2.32% 2.16% 2.10% 2.25% 2.28% 2.00%
0.00% 2014 2015 2016 2017 2018 2019 2020 T1-2021
Collective Investment Undertakings Private Pension Funds Insurance Companies
Source: NBR, NIS,FSA
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Current trends and headlights on Romanian markets
Evolution of local stock indices 30.00%
25.00% Romanian stock indices evolution in 2021 (30.12.2020 = 100) 20.00% Date BET BET-BK BET-FI BET-NG BET-TR 15.00% 7/20/2021 20.95% 22.27% 20.76% 12.02% 25.23% 10.00% 5.00%
0.00% Date BET-XT BET-XT-TR BETPlus ROTX -5.00% 7/20/2021 20.07% 24.10% 21.03% 21.59%
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
1/9/2020 3/3/2020 4/8/2020 6/1/2020 7/7/2020 1/3/2021 2/8/2021 4/3/2021 5/9/2021 7/2/2021
1/27/2020 2/14/2020 3/21/2020 4/26/2020 5/14/2020 6/19/2020 7/25/2020 8/12/2020 8/30/2020 9/17/2020 10/5/2020 1/21/2021 2/26/2021 3/16/2021 4/21/2021 5/27/2021 6/14/2021 7/20/2021
11/10/2020 11/28/2020 12/16/2020 10/23/2020
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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 7.9%, Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 down 0.2 pp compared to April 2021, while the EU unemployment rate was 7.3% in May 2021, down 0.1 pp in the previous month. Italy 134.4 136.0 137.4 136.7 134.6 137.8 149.5 154.5 155.8 France 98.1 99.2 99.1 100.0 98.1 101.3 113.9 116.4 116.3 The seasonally adjusted unemployment rate in Romania was 5.5% in Spain 97.4 98.4 98.4 97.5 95.5 99.1 110.2 114.0 120.0 May 2021, down by 0.2 pp from the previous month (5.7%), according Euro zone 85.8 86.3 86.1 85.8 84.0 86.2 95 97.3 98.1 EU 79.5 79.9 79.7 79.2 77.6 79.4 87.7 89.8 90.8 to data published by NIS. Hungary 69.1 68.4 67.2 67.2 65.5 65.8 70.3 73.9 80.4 Germany 61.8 61.6 61.1 61.0 59.7 60.9 67.3 70.0 69.8 At local level, the unemployment rate among men (5.6%) is higher than Poland 48.8 48.9 47.7 47 45.7 47.6 54.8 56.6 57.6 the unemployment rate for women (5.3%). Romania 34.7 33.8 33.8 35.2 35.3 37.4 40.7 43.1 47.3 Bulgaria 22.3 20.9 20.3 20.5 20.2 20.1 21.3 25.3 25.0
Source: Eurostat Unemployment rate (May 2021) The government debt-to-GDP ratio in the euro area was 98.1% in the fourth quarter of Czechia 2020, increasing compared to the level recorded in the fourth quarter of 2019 (84.0%). Germany There is significant heterogeneity in debt level, the share of public debt in GDP ranging from 18.2% (Estonia) to 205.6% (Greece). Poland
Romania is among the EU member states with a low level of indebtedness (47.3%), below Romania 5.5 the indebtedness of the EU member states of 90.8% of GDP. Bulgaria According to the NBR, the direct investments of non-residents in Romania (FDI) recorded a value of EUR 2.4 billion in January-May 2021 (compared with EUR 758 million in the EU 7.3 same period of the previous year). France On the other hand, the current account of the balance of payments registered a deficit Euro Zone 7.9 of EUR 5.9 billion in the first five months of 2021, compared to EUR 3.2 billion in the same period of the previous year. Spain The evolution of the current account was accompanied by an increase in total external 0.0 5.0 10.0 15.0 20.0 debt by EUR 1.06 billion in January – May 2021 to EUR 127 billion. Source: Eurostat
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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) 80.0 7.00
60.0 6.00
40.0 5.00
20.0 4.00
0.0 3.00
2.00 -20.0 1.00 -40.0
0.00
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20 Jun-21
Oct-19 Oct-20
Apr-20 Apr-21
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-21 May-21 Industrial production Construction works May-20 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 3.0 130. 120. 1,000 1.0 110. 0 (1.0) 100. -1,000 90. (3.0) -2,000 80. (5.0) 70. -3,000 60. -4,000 (7.0) 50.
-5,000 (9.0) 40.
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20 Jun-21
Oct-19 Oct-20
Apr-20 Apr-21
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-21
May-20 May-21 Goods and services Primary income EU Romania Poland Hungary Germany Secondary income Current Account (% Q-GDP) Source: NBR, FSA calculations Source: Eurostat Page 7 / 27
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 increased by 2.4% in June 2021 as compared with the previous month, reaching an average value of 2.67%, while Germany 5 – year bond yields remained negative, at very low levels (average value of -0.59% in June 2021). Government bond yields spread of Romania (10Y, LC) Romania CDS quotations remained relatively unchanged in 4.00 June 2021 compared with the previous month, at an average 3.50 3.00 value of 95.1 bp. French CDS quotations decreased by 2.8% to 2.50 an average value of 9.88 bp. 2.00 At the end of December 2020, there is a decrease in the spread 1.50 1.00 between Romanian and German government bonds (10Y), but 0.50 it starts to be on an upward trend starting with January 2021. 0.00 pp In the first part of July 2021 it increased slightly which can also be interpreted as a worsening in investors' confidence in Romania - Germany Poland - Germany Romania's country rating. Source: Datastream, FSA’s calculations
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Market risk: evolution of local and international stock indices at the end of June 2021
International and local stock indices yields
International indices 1 M 3 M 6 M The european indices have recorded mixed developments (1M). EA (EUROSTOXX) 0.81% 4.60% 13.68% The most significant increase was recorded by CAC 40 index FR (CAC 40) 0.94% 7.26% 17.23% (FR: +0.94%), while the most significant decrease was recorded by DE (DAX) 0.71% 3.48% 13.21% IT (FTSE MIB) -0.27% 1.84% 12.90% IBEX index (ES: -3.58%). GR (ASE) -1.11% 2.29% 9.38% The main American and Asian indices showed mixed IE (ISEQ) -0.70% 1.12% 10.82% ES (IBEX) -3.58% 2.81% 9.26% developments. Therefore, the most significant increase was UK (FTSE 100) 0.21% 4.82% 8.93% registered by NIFTY 50 index (IN: +0.89%), while the most US (DJIA) -0.08% 4.61% 12.73% significant decrease was recorded by SSEA index (SHG: -0.68%). IN (NIFTY 50) 0.89% 7.02% 12.44% SHG (SSEA) -0.68% 4.34% 3.40% JPN (N225) -0.24% -1.33% 4.91%
BSE indices 1 M 3 M 6 M BET 3.87% 6.11% 21.08% 4.67% 8.14% 24.10% BET-BK The BSE stock indices have recorded positive developments (1M), 8.79% 8.43% 22.37% BET-FI except for BET-NG index (-0.57%). Therefore, the most significant -0.57% -2.35% 13.20% BET-NG increase was registered by BET-FI index (+8.79), followed by BET- 5.04% 9.40% 24.90% BET-TR XT-TR index (+5.62%). BET-XT 4.49% 6.17% 20.68% BET-XT-TR 5.62% 9.23% 24.22% BETPlus 3.76% 6.16% 21.17% ROTX 0.86% 6.67% 21.76%
Source: Datastream, FSA’s calculations Note: 1M=06/30/2021 vs. 05/31/2021; 3M=06/30/2021 vs. 03/31/2021; 6M=06/30/2021 vs. 12/31/2020
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Market risk: volatility of Romanian government bond yields and the EURRON currency rate
Term structure of EUR/RON forward rate 5.1
5.05
5
4.95
4.9
4.85
4.8
4.75
4.7 1 week 1 month 2 months 3 months 6 months 9 months 12 months 6/30/2021 5/31/2021 6/30/2020 Source: Refinitiv, FSA’s calculations Real effective exchange rate (REER; 2014=100) Estimate (>100) 140 We forecast that the depreciation trend will continue but its volatility will remain 130 low, as the Romanian Central Bank maintained the monetary interest rate to 120 1.25% in May 2021 to manage the crisis and interbank liquidity, to avoid any 110 speculative attack on the currency. 100 With inflation rising above the European average, the exchange rate started to 90 depreciate in the first quarter and reached 4.92 eur/ron. The exchange rate
80 remained stable in the second quarter with a low volatility (1%). The term structure of the forward rate for the EURRON exchange rate with maturities between one week and twelve months shows the market expectations. There are expectations of EURRON appreciation for all maturities with respect to Polonia China Romania Zona euro USA the previous month (RON depreciation). Source: BIS, FSA’s calculations
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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.
Starting January 2021, the spillover trended downward mainly due to the vaccination program across European countries. The program eased the market uncertainty and generated a climate of exuberance on most European stock markets which exhibited a very fast growing trend. In July the contagion started to grow slowly.
Source: Refinitiv, FSA’s calculations
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Liquidity indicators on Romanian Stock Exchanges
The BSE Trading Activity (all the Segments) during June 2021 Top of intermediaries during June 2021
Value Week/month No. of transactions Volume Traded Value % from Total EUR % Total 02-04 June 2021 13,772 71,337,639 18,515,614 8.56% Rank Intermediary name EUR (month Value Total 07-11 June 2021 25,501 154,533,825 95,985,563 44.39% level) (month level) Total 14-18 June 2021 24,807 97,556,813 42,409,226 19.61% 1 SWISS CAPITAL S.A. 155,538,405 38.92 Total 22-25 June 2021 16,698 131,338,469 32,591,903 15.07% Total 28-30 June 2021 14,001 59,656,708 26,750,910 12.37% 2 BT CAPITAL PARTNERS 50,418,280 12.62 Total June 2021 94,779 514,423,454 216,253,216 100.00% 3 BANCA COMERCIALA ROMANA 36,055,554 9.02
Source: BNR, BSE data, FSA’s calculations; monthly average exchange rate for June 2021 = 4.9236 LEI/EUR 4 SSIF BRK FINANCIAL GROUP S.A. 34,435,203 8.62 The BSE’s Most Traded Companies during June 2021 (Only the Main Segment) 5 TRADEVILLE 29,610,766 7.41 Symbol Value (EUR) % Value (EUR) % Value (EUR) % TTS 8,015,384 6.12% 0 0.00% 66,509,169 33.39% 6 WOOD & COMPANY FINANCIAL SERVICES, a.s. PRAGA 26,866,646 6.72 SNP 18,653,784 14.24% 428,548 4.41% 19,082,333 9.58% 7 RAIFFEISEN CENTROBANK AG 16,734,151 4.19 TLV 17,605,982 13.44% 0 0.00% 17,605,982 8.84% 8 IFB FINWEST 11,733,944 2.94 FP 13,741,777 10.49% 0 0.00% 13,741,777 6.90% SNN 8,595,146 6.56% 3,038,021 31.30% 11,633,167 5.84% 9 PRIME TRANSACTION 8,127,322 2.03 BRD 9,620,141 7.35% 718,176 7.40% 10,338,317 5.19% 10 GOLDRING 7,850,732 1.96 SNG 9,316,973 7.11% 0 0.00% 9,316,973 4.68% 11 ESTINVEST 5,580,614 1.4 TGN 8,711,871 6.65% 0 0.00% 8,711,871 4.37% TRP 6,913,145 5.28% 0 0.00% 6,913,145 3.47% 12 BRD Groupe Societe Generale 4,899,254 1.23 M 5,064,265 3.87% 1,781,623 18.35% 6,845,888 3.44% 13 Alpha Bank Romania SA 3,808,751 0.95 EVER 802,859 0.61% 2,788,813 28.73% 3,591,672 1.80% 14 INTERFINBROK CORPORATION 2,526,968 0.63 SIF1 2,250,042 1.72% 749,452 7.72% 2,999,494 1.51% DIGI 2,508,033 1.91% 0 0.00% 2,508,033 1.26% 15 CONCORDE SECURITIES LTD 2,177,569 0.54 WINE 2,358,904 1.80% 0 0.00% 2,358,904 1.18% Top 15 Total 99.18 EL 2,188,560 1.67% 0 0.00% 2,188,560 1.10% Top 15 Total 92.56%
Source: BNR, BSE data, FSA’s calculations; monthly average exchange rate for June 2021 = 4.9236 LEI/EUR 40,000 Market Capitalization The market capitalization registered an increase of 23% at the end of June2021 39,000 compared to the end of 2020 and an increase of 5% compared to the end of
38,000 2019. Millions Millions EUR 37,000 In June 2021, the first 3 companies traded on BVB were Transport Trade Services (TTS) with a share of 33.39% of the total value traded in that period, OMV PETROM (SNP: 9.58%) and Banca Transilvania (TLV: 8.84%) Source: BSE data, FSA’s calculations; monthly average exchange rate for June 2021 = 4.9236 LEI/EUR
Page 12 / 27
MSCI: Quantitative Indicators for Emerging Market Status
EM MSCI 1st Criterion: Market cap > 1,830 bn. USD 8
USD 6
4 Billions Billions 2
0 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 Apr-21 May-21 Jun-21
BRD EL SNG SNP TLV MSCI Criterion
4.0 EM MSCI 2nd Criterion: Free float cap > 0.915 bn. USD
USD 3.0
2.0 Billions Billions 1.0
0.0
BRD EL SNG SNP TLV MSCI Criterion
40% EM MSCI 3rd Criterion: ATVR > 15%
20%
0% 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 Apr-21 May-21 Jun-21 BRD EL SNG SNP TLV MSCI Criterion Source: FSA’s calculations, June 2021
Page 13 / 27
MSCI: Quantitative Indicators for Emerging Market Status
BRD - Indicators' variation to MSCI criterion EL - Indicators' variation to MSCI criterion
2.00 30% 0.00 0% usd 1.00 usd -0.50 10% -5%
Billions -1.00
0.00 Billions -1.50 -10%
-1.00 -10%
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20 Jun-21
Oct-20 Oct-19
Apr-20 Apr-21
Feb-21 Sep-19 Feb-20 Sep-20
Dec-20 Dec-19
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-21
May-20 May-21
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20 Jun-21
Oct-19 Oct-20
Apr-21 Apr-20
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-21
May-20 May-21 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 Billions 0.00 0% 0% 0.00
-1.00 -10% -2.00 -10%
Jul-19 Jul-20
Jan-21 Jan-20
Jun-19 Jun-20 Jun-21
Oct-19 Oct-20
Jul-19 Jul-20
Apr-20 Apr-21
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-21
Jan-20 Jan-21
Jun-19 Jun-20 Jun-21
May-20 May-21
Oct-19 Oct-20
Apr-20 Apr-21
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-21
May-20 May-21 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 (June 2021) 3.00 20%
usd 2.00 10% Company Cap. bln. USD Free float bln. USD ATVR %
Billions 1.00 0% BRD 0,60 -0,29 -1,46%
0.00 -10% EL -1,25 -0,73 -3,64%
SNG 0,76 -0,24 -1,36%
Jul-19 Jul-20
Jan-20 Jan-21
Jun-19 Jun-20 Jun-21
Oct-19 Oct-20
Apr-20 Apr-21
Sep-19 Feb-20 Sep-20 Feb-21
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-21 May-21 May-20 SNP 3,40 -0,02 1,04% Market Cap USD Free float Cap USD ATVR % TLV 1,50 1,91 3,56%
Source: FSA’s calculations, June 2021 Page 14 / 27
Risk assessment and the benefit of diversification
The average correlation coefficient for the 25 most liquid companies traded on BSE 0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
perc.75% perc.25% Average correlation
Source: Bloomberg, ASF
At the end of July 2020, the correlations between the daily yields of the 25 most liquid companies from Bucharest Stock Exchange decreased and returned to the level recorded at the beginning of 2020. In June-July 2021 is marked by a decrease in the correlations between the shares.
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Risk assessment and the benefit of diversification
Adverse economic conditions can trigger steep increases in Response of Romanian capital market to CISS shock using Structural VAR Factors uncertainty. Uncertainty is a response to fluctuations in economic activity. As the European business cycle was strongly correlated 0 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. -20
The CISS indicator is a composite indicator calculated by the -40 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 -60 Romanian market was influenced by uncertainty shocks coming from European 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 -80 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 -100 of a 2% decrease of the Romanian stock markets. The results indicate 1 2 3 4 5 6 7 8 9 10 11 12 a great reduction of risks associated with systemic financial risks.
Source: FSA own calculations
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Concentration risk
Concentration risk of non-life insurance undertakings Concentration risk of life insurance undertakings (by value of GWP at 31 March 2021) (by value of GWP at 31 March 2021) 100.00% 0.16 100.00% 0.20 0.1454 0.1894 0.1395 0.14 0.1835 80.00% 80.00% 0.12 0.15 0.10 60.00% 60.00% 0.08 0.10 40.00% 0.06 40.00% 0.04 0.05 20.00% 20.00%
0.02
78.95% 79.91% 90.19% 64.30% 90.55% 65.27%
53.27% 78.12% 89.46% 55.18% 78.30% 89.03% 0.00% 0.00 0.00% 0.00 3/31/2020 3/31/2021 3/31/2020 3/31/2021 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 in (by net assets – 31 March 2021) June 2021 – Main segment & MTS, all spot instruments) 0.2500 100.00% 0.18 100.00% 0.2289 90.00% 0.1626 0.16 0.2000 80.00% 80.00% 0.14 70.00% 0.1500 0.12 60.00% 0.1416 60.00% 0.10 50.00% 0.1000 40.00% 0.08 40.00% 0.06 30.00% 20.00% 0.0500 0.04 20.00%
0.02
0.00% - 10.00%
77.02% 86.14% Open-end funds Closed-end funds 58.45% 0.00% 0.00 CR3 CR5 CR7 HHI Source: FSA Source: FSA Page 17 / 27
Concentration risk
Concentration risk of depositaries of private pension funds and investment funds The degree of concentration of insurance companies in the MTPL market (by total assets at 3/31/2021) (by gross written premiums at 3/31/2021) 100% 0.8000 0.3200 100.00% 0.7023 0.7000 0.3150 0.3159 90.00% 80% 0.5913 0.6000 0.3100 80.00% 0.3050 70.00% 60% 0.5000 0.4384 0.4000 0.3000 60.00% 40% 0.3000 0.2950 50.00% 0.2000 0.2900 40.00% 20% 0.2864 0.1000 0.2850 30.00% 0% - 0.2800 20.00% Private pension funds Investment funds Total (private pension funds
0.2750 10.00%
93.01% 98.07% 80.68% 91.76% 97.69% and investment funds) 83.00% BRD - GROUPE SOCIETE GENERALE SA RAIFFEISEN BANK SA 0.2700 0.00% BANCA COMERCIALĂ ROMÂNĂ SA UNICREDIT BANK SA 31/3/2021 31/3/2020 HHI CR3 CR5 CR7 HHI Concentration risk of private pension funds (by total assets at 6/30/2021) 100.00% 0.2500 According to the main indicators used by the Competition Council, the 0.2452 concentration risk in the non-life insurance market is medium to high, 80.00% 0.2400 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 II 60.00% and Pillar III), but explainable by objective reasons related to their 0.2200 40.00% operating mechanism and the current state of the market. 0.2115 0.2100 Also on the capital market, the concentration degree is medium to high for
20.00% 0.2000 OEIFs (although the number of investment funds is high) and for the
71.99% 89.22% 100.00% 87.70% 95.36% 70.29% intermediaries on the BSE due to the fact that top market participants sum 0.00% 0.1900 Pillar II Pillar III up a significant share of the total assets. CR3 CR5 CR7 HHI
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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 8.0000% Mandatory pension Total Assets Rate of return (persons) fund 30 June 2021 (EUR) June 2021 June 2021 7.0000% ARIPI* 1,534,798,928 800,159 7.05% AZT VIITORUL TAU 3,699,759,975 1,621,516 6.54% 6.0000% BCR 1,171,667,164 703,042 6.74% BRD 676,542,938 487,874 5.69% 5.0000% METROPOLITAN LIFE 2,373,841,744 1,076,249 6.40% NN 5,976,431,820 2,048,378 6.50% 4.0000% VITAL 1,709,859,308 966,080 6.66% Total 17,142,901,879 7,703,298 n/a 3.0000% New participants (persons) in 2nd Evolution of gross contributions Pillar 2.0000% 200 45
180 44 1.0000%
160 43 0.0000% 140 42 -1.0000% 120 41
100 40 10,319 -2.0000% 80 39
60 38 persons ARIPI 40 37 AZT VIITORUL TAU 20 36 BCR BRD 0 35 METROPOLITAN LIFE
Jul-20 NN
Jan-21
Jun-20 Jun-21
Oct-20
Apr-21
Sep-20 Feb-21
Dec-20
Aug-20
Nov-20
Mar-21 May-21 VITAL Gross contributions (Mil. EUR) Minimal rate of return for high risk private pension funds Minimal rate of return for medium risk mandatory private pension funds Average contribution per participant with Weighted average rate of return for mandatory private pension funds contributions (EUR) Source: FSA Page 19 / 27
Specific developments in the private pension funds sector: Mandatory pension funds (2nd Pillar)
Mandatory pension fund’s portfolio at 30 June 2021 (EUR) Assets category Assets value (EUR) % Total assets Government bonds 10,730,668,225 62.60% Equity 4,178,945,276 24.38% Corporate bonds 963,510,861 5.62% Investment funds 546,238,940 3.19% Bank deposits 414,829,273 2.42% Supranational bonds 361,338,484 2.11% Municipal bonds 38,396,283 0.22% Metal funds 22,258,862 0.13% Derivatives (340,986) -0.002% Other assets (112,943,337) -0.66%
Country exposure of mandatory pension fund’s assets Currency exposure of mandatory pension fund’s assets
LU, 1.85% Other currencies, 0.08% US, 2.30% USD, 1.26%
Other countries, RO, 89.12% 6.73% RON, 88.09% EUR, 10.57%
82% 84% 86% 88% 90% 92% 94% 96% 98% 100% 82% 84% 86% 88% 90% 92% 94% 96% 98% 100%
Source: FSA The value of the total assets of the privately managed pension funds reached EUR 17.14 billion at the end of June 2021, registering an annual rate of growth of 28%. At the end of June 2021, the privately managed pension funds’ investments were generally made locally, in a percentage of 89%, 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 Voluntary pension fund 30 June 2021 June 2021 June 2021 AZT VIVACE AEGON ESENTIAL 2,150,403 3,914 7.8390% 12.00% AZT MODERATO 68,199,348 44,325 8.2180% NN ACTIV AZT VIVACE 25,511,314 20,347 9.2464% BCR PLUS 115,234,905 139,737 6.9608% 10.00% AEGON ESENTIAL BRD MEDIO 35,122,871 34,847 6.0676% GENERALI STABIL 6,483,210 5,504 7.9954% NN ACTIV 76,826,738 56,983 7.9126% AZT MODERATO 8.00% NN OPTIM 281,533,727 205,630 6.9195% PENSIA MEA 21,914,794 19,594 6.2101% BCR PLUS RAIFFEISEN ACUMULARE 24,856,255 15,141 7.8789% Total 657,833,565 546,022 n/a 6.00% BRD MEDIO Evolution of gross contributions New participants in 3rd Pillar 9,000,000 35.00 8,000 4.00% NN OPTIM 8,000,000 30.00 7,000 PENSIA MEA 7,000,000 2.00% 25.00 6,000,000 6,000 RAIFFEISEN ACUMULARE 5,000,000 20.00 5,000 0.00% STABIL 4,000,000 15.00 4,000 3,000,000 10.00 -2.00% Weighted rate of return 2,000,000 3,000 for all high risk voluntary pension funds 5.00 1,000,000 Minimal rate of return for 2,000 -4.00% high risk voluntary - 0.00 pension funds Weighted rate of return 1,000 for all medium risk voluntary funds -6.00% Gross contributions (EUR) - Minimal rate of return for all medium risk voluntary Average contribution per participant with contributions pension funds (EUR) Source: FSA
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Current evolutions in optional private pension funds (3rd Pillar)
Optional pension fund’s portfolio at 30 June 2021 (EUR)
Assets category Assets value (EUR) % Total assets Government Bonds 398,594,469 60.59% Equity 180,948,477 27.51% Bank Deposits 21,961,088 3.34% Corporate Bonds 19,195,747 2.92% Investment Funds 17,190,141 2.61% Supranational Bonds 14,158,891 2.15% Municipal Bonds 4,798,650 0.73% Metal funds 1,985,237 0.30% Derivatives 16,826 0.00% Oher assets (1,015,961) -0.15% Source: FSA Country exposure of optional fund’s assets Currency exposure of optional fund’s assets Other currencies, HU, 1.38% 0.24%
Other countries, RON, 87.90% EUR, 11.02% USD, 0.84% RO, 90.96% LU, 1.72% 5.94%
86% 88% 90% 92% 94% 96% 98% 100% 80% 82% 84% 86% 88% 90% 92% 94% 96% 98% 100%
Source: FSA Source: FSA The value of the total assets of the voluntary pension funds, at the end of June 2021, was EUR 658 million, registering an annual rate of growth of 24%. At the end of June 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 (June 2020 – June 2021) (June 2021)
4,800 4,400 4,000 3,600 3,200 2,800 2,400
2,000 Million EUR Million 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 4.52 billion in June 2021, an increase of approximately 2.4% compared to the previous month. Net assets of all categories of investment funds increased in June 2021 compared to the previous month. In June 2021, open-end bond and fixed income instruments funds hold the largest share in total net assets of OeIF (around 66%1), while the "other funds" category has a market share of approximately 19%.
1 There was a change in Open end investment funds’ classification Page 23 / 27
Specific developments in the investment funds sector
Evolution of underwritings and redemptions of Open-end Investment Evolution of net capital flows of Open-end Investment Funds Funds (million EUR) (million EUR)
Jun-21 73 Jun-21
May-21 44 May-21
Apr-21 65 Apr-21
Mar-21 38 Mar-21
Feb-21 78 Feb-21
Jan-21 118 Jan-21 Dec-20 Dec-20 118 Nov-20 Nov-20 12 Oct-20 Oct-20 43 Sep-20 Sep-20 9 Aug-20 Aug-20 -21 Jul-20 Jul-20 -4 Jun-20 Jun-20 66 (50) - 50 100 150 (50.00) - 50.00 100.00 150.00 200.00 Million EUR Million EUR
Net sales Redemptions Underwritings Absolute yield Equity Multi-Active Bonds and Fixed Income Instruments Other funds
Source: AAF In June 2021, local investment funds registered underwritings amounting to approximately EUR 173 million, while the value of redemptions was about EUR 101 million. Thus, in June 2021, the cumulative value of the net inflows of local open-end investment funds was about EUR 73 million.
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Specific developments in the insurance market in Romania
Evolution of the insurance market (31st of March 2021) Gross written premiums (total) MTPL gross written premiums
800 240 3,500,000 700 655 616 230 3,000,000 Millions 573 600 567 543 EUR Millions EUR 2,500,000 EUR EUR 500 220 2,000,000 400 210 1,500,000 300 200 200 1,000,000 100 190 500,000
0 180 - Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Non-life insurance Life insurance GWP for MTPL No. of contracts Source: FSA Share of main insurance classes by GWP Gross claims paid
400 373 383
Non-life insurance 350 331
Life insurance Millions Other 298 Other lines, EUR 300 276 lines, 8.4% 14.90% 250
A8, 200 14.20% A10, C3, 22.1% 150 46.70% 100 C1, 69.5% A3, 50 24.20% 0 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021
Non-life insurance Life insurance
Source: FSA Page 25 / 27
Specific developments in the insurance market in Romania
Total eligible own funds to meet the SCR and total eligible own funds to meet Ratio of eligible own funds to SCR and Ratio of eligible own funds to MCR the MCR 5 1.20 4.5 Billions 1.15
4 EUR EUR 3.5 1.10 3 1.05 2.5 2 1.00 1.5 0.95 1 0.5 0.90 0 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Eligible own funds to meet the SCR Eligible own funds to meet the MCR Ratio of eligible own funds to SCR Ratio of eligible own funds to MCR Total assets and total liabilities 6.00
5.00 Billions
4.00 EUR EUR
3.00
2.00
1.00
- Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021
Total assets Total liabilities Source: FSA, provisional data At the end of the first quarter of 2021, all insurance companies met the SCR and MCR requirements, excepting one insurance company. The FSA carried out several inspection actions at the insurer's head office as well as permanent inspections, based on which were applied, both to the company and its management, several sanctions consisting of fines, being also imposed measures in order to remedy the found deficiencies.
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Press releases and publications of European and international financial institutions in June 2021
ESMA 3 June: ESMA releases its Risk Dashboard for the first quarter of 2021.
7 June: ESMA launches 2021 central counterparties stress test.
EIOPA 4 June: EIOPA issues Guidelines on the supervisory reporting for the Pan-European Personal Pension Product.
15 June: EIOPA publishes first quarterly set of occupational pensions statistics.
17 June: EIOPA presents Report on artificial intelligence governance principles.
22 June: EIOPA releases its discussion paper on the methodological framework for stress-testing IORPs.
EBA 7 June: EBA launches second consultation on its technical standards on the calculation of the EUR 30bn threshold for investment firms.
23 June: EBA publishes its Report on management and supervision of ESG risks for credit institutions and investment firms.
29 June: EBA assesses benefits, challenges and risks of RegTech use in the EU.
ESRB 1 June: ESRB publishes a second Report on macroprudential policy issues arising from the low interest rate environment in the financial system of EU.
IOSCO 28 June: IOSCO presents a Report on issuers’ sustainability-related disclosures.
ECB 10 June: ECB confirms its very accommodative monetary policy stance.
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