Sound, Stable Financial SectorUnderpinning Economic Growth
Moldova’s financial sector is evolving rapidly, according to Veaceslav Negruta, Minister of Finance. He explains, “We are communicating to the Moldovan people that the government is focusing on EU integration and on creating more opportunities for domestic and foreign investors in Moldova.”
Veaceslav Negruta, Minister of Finance
“As for our financial sector, we did not allow foreign banks in Moldova in 2009 and now we have changed all that. Investors are increasing their capital in our banking system. We are also moving forward in the privatisation process, including privatisation of Moldtelecom, and now we have only one bank which is 56% state owned. Société Générale has entered the market, and increased competition has boosted the quality of the banking sector for all.”
The Ministry of Finance is doing its part to enhance Moldova’s attractions for foreign investors. “We have good legislation and we provide information to help investors make good choices. In addition, Moldova’s zero percent tax on reinvested profits is a very good incentive for investors,” Veaceslav Negruta points out.
The government has also abolished a number of laws which impeded export activities in Moldova. Minister Negruta notes, “Any company involved in imports and exports is doing much better now.” He adds that special tax benefits are available to investors in information technology, a sector which is now growing particularly strongly.
Adding to Moldova’s investment appeal is that it has considerably improved its financial sector transparency.The EBRD, the IMF and the World Bank have all demonstrated their confidence in Moldovaby launching major programmes there in whichtransparency is guaranteed, and this openness has benefited the sector overall. In addition to financial support from the IMF geared to helping the government maintain macroeconomic stability and a country partnership programme with the WorldBank, Moldova has received support from the EBRD which specifically targets the financial sector.
EBRD programme boosting financial sector
In 2008, the EBRD launched a framework facility for Moldova budgeted at €70 million through which the EBRD’s partner financial institutions in Moldova benefitfrom a full range of financial products from the EBRD,including mortgage financing, credit lines for small andmedium sized enterprises, consumer finance, energy efficiency credit lines, leasing finance, guarantee facilities,syndicated loans, subordinated debt and equity Finance & Banking Moldova investments. The framework also aims to increase banks’ operational efficiency and competitiveness.
As the support from international funding organisations reflects, since 1993 Moldova has maintained an efficient, stable, two tiered banking system based on the National Bank of Moldova (the country’s central bank) and commercial banks. The Moldovan banking sector has long been considered to be one of the strongest among former Soviet economies.
The National Bank of Moldova,established in 1991, is autonomous and independent, and has an excellent track record increating a world class monetary and foreign exchange policy, regulating financial institutions, supervising the financial sector in line with Basel Committee standards, providing credit to banks, facilitating payment systems, issuing currency, holding and managing foreign exchange reserves, and settling the country’s balance of payments.
Increasingly, the National Bank of Moldova is relying less on exercising direct controls and instead on utilising indirect methods based upon market mechanisms. TheNational Bank of Moldova’s regulatory system was developed with technical assistance from the IMF and the USAID, and its main norms are in line with, or – concerning capital adequacy and loan provisions– even stricter than Basel prudential norms.
The National Bank of Moldova’s regulation on risk based capital adequacy establishes minimum capital requirements for all commercial banks licensed in Moldova. The National Bank of Moldova’s regulations stipulate that all banks in Moldova must have increased theircapital to MDL 100 million (€5.91million) by the end of 2010, MDL 150 million (€8.86 million) by the end ofthis year, and MDL 200 million (€11.8million) by the end of 2012.
Strong recovery from crisis
The National Bank of Moldova’s efficient supervision of the financial sector is one reason Moldova’s economy is rapidly recovering from the global crisis. Prices of state securities rose by around 155% in the first nine months of 2010 compared to the same period in 2009, and Moldovan banks’ total credit portfolio rose by around 10% in 2010 compared to 2% in 2008.
Igor Munteanu, Moldova’s Ambassador to the US and Canada, recently pointed out, “In 2010, the Moldovan economy registered anannual growth rate of 6.3%, to the surprise of international financial institutions, which confirmed the positive signs of the post crisis economic recovery in our country.
Around 55% of Moldova’s exports went to the EU last year, and the trend is growing this year, with the prolongation of the Autonomous Trade Preferences regime to Moldova until 2015, when we hope it will be replaced by a full free trade agreement with the EU.” As Minister of Finance Veaceslav Negruta observes, “Investors in Moldova can benefit not only Moldova but also themselves.”