I have said this before so it is not new: there is no or very little competition amongst the banks in Romania. There are 42 banks but it does not feel like it.
One example is the fees and commissions one has to pay for either getting a loan or even to have a current account. Those fees are similar for all banks. The same goes for fees applied to withdrawals from other banks’s ATM or sometimes from own bank. Furthermore, price of loans is again almost identical from one bank to the next (i.e. interest rate paid together with all fees).
What’s happening here? In perfect competition there is an equilibrium price where if one of the markets agents would increase the price than it would lose all business or if it would lower the price would take all business available but would not be able to accommodate it. Thus firms are price takers and not price setters.
Let’s assume that the Romanian banking sector is a case of perfect competition. Theory says than that we would have to look for the following characteristics*: large number of small firms, identical products sold by all firms, perfect resource mobility (freedom of entry and exit out of the industry) and perfect knowledge of prices and technology.
Most of those can be found in the local market except I would say the last two. But first let’s look at the first two. For a small economy like ours, 4 million employed, 42 licensed banks it seems enough. And the products used are still very simple and identical from one bank to another (a loan is a loan, a deposit is a deposit, a FX transaction is just that).
However the last two are harder to identify in Romania. While in theory there is perfect resource mobility there is a barrier to exit (i.e. it is hard to go bankrupt) and to entry is really hard (there are few examples of banks that could not get the license in the last few years). And finally (the purpose of my company (sic!) ) there is in my view asymmetric information regarding prices and technology. This is the case for access of such information of banks themselves or from consumers to banks.
But is there a market structure that fits the Romanian banking sector? Theoretically I think it does fit the characteristics of an Oligopoly. In this structure there is a big barrier to entry and the firms here are price setters.
This last characteristic I think makes the difference. While in perfect competition firms are price takers here firms are price setters. And the best example for the Romanian bankers is what I found in this article in ZF today: “To withdraw more than 5000 Euro from your own account you need to let the bank know two days in advance” . And if someone does not comply than you ask them for a fee/commission. I could have not found a better example of price setting in a business. And what is interesting is that this conditions transfer from one bank to the next. No single bank comes out saying that you can come to us and if you have a current account than you can access your money at your own interest.
Finally, I hope that these conditions for euro withdrawals do not hide something else: lack of euro funds on the local market and the seeds of the next liquidity crisis.
*Should you want to read more about Microeconomics, here is a great book.