Patience Pays: Romania’s Banking Champion Emerges

We first bought Banca Transilvania shares in February 2018. It has delivered an annual average return of 21% over that 8-year holding period.¹ 

Banca Transilvania was founded in 1994 in Cluj-Napoca by 46 local entrepreneurs with just $2 million in capital. It listed on the Bucharest Stock Exchange in 1997 and spent two decades building a national franchise. Inflection came in 2015–16 when the bank acquired Volksbank Romania from its Austrian parent, vaulting into second place by assets.

The acquisition of Bancpost in 2017–18 pushed it into market leadership. When we first bought in via the Platinum European Fund, Banca Transilvania had 16% of Romania’s banking assets.

What set Banca Transilvania apart was not just its acquisition strategy but its discipline.

Each acquisition was absorbed without the balance sheet deterioration that typically characterises bank M&A. Return on equity was healthy. Cost efficiency improved. This is a management team that thinks like owners and that’s one reason we have held this stock so long.

Emerging Europe 

Platinum is a bottom-up stock picker but much of the investment rationale behind this holding relies on economic reform in Eastern Europe.

The region changed markedly after the Global Financial Crisis. Policymakers addressed the high debt and weak competitiveness plaguing these economies. As a result, Eastern Europe had all the structural characteristics we look for in emerging markets — cheap labour, market opportunities and an educated workforce.

Through membership of the EU, Romania imported strong, independent institutions and external legal oversight. Nobel Prize winning economists Daron Acemoglu and James A. Robinson argue the quality of institutions is crucial to national prosperity. Most emerging markets don’t ‘emerge’ because institutions are too weak to prevent elites from subverting the rule of law. EU membership substantially reduced that risk.²

As the GFC faded, Romanian consumers were in excellent shape. Unemployment was at record lows, wages rising 5–10% a year and most households owned their homes after receiving title when Communism ended. That meant minimal mortgage debt and significant untapped spending power.

Given these fundamentals, Romanian banks stood out to us. Romania’s credit-to-GDP ratio remained well below 30%, compared with 90–130% in developed Europe. The banking market had room to grow and we thought the market leader – Banca Transilvania – could capture a disproportionate share of that growth. So far, we’ve been correct.