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Moldova’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

In 2018, the Moldovan economy has performed in line with previous forecasts. GDP grew by 4.5% over 2017, on a broad basis that practically covered all the basic sectors. After a period of stagnation for a few years, there was, in 2018, a warming up of the investment process. There was a substantial increase of about 9% in Gross Fixed Capital Formation. During the year, the employed population increased, and the unemployment rate reached the lowest level in the last 18 years, reaching 3.45% by the end of 2018. The Consumer Price Index had a downward trajectory from 4.7% at the beginning of the year to 1.2% at the end of 2018.

The banking sector of the Republic of Moldova continued the trend of consolidation of own funds. At the same time, banks maintained a high liquidity and profitability level. The main financial and prudential indicators of banks remain appropriate. The capital reserves accumulated during the past years, facilitating the transition to a new assessment regime of capital sufficiency, the limit set for this indicator is 10%. The solvency level for the entire banking sector is still high (about 28%), with fluctuations from bank to bank to the range of 20% to 66%. The liquidity of banks is well above the regulated limits, reaching about 55% in the short term, i.e., more than half of banks’ exposures are liquid assets.  Indicators of asset quality continue to improve thanks to efforts to resolve the issue of non-performing loans (NPLs) granted in the period prior to the banking crisis. The rate of NPLs is approximately 12.5% and has decreased by 5.8 percentage points compared to the end of 2017.

Law on banks’ activity, which modernised the regulation and supervision standards in the banking sector, came into force on 1 January 2018. The law provided improvements to the corporate governance framework of the banks and their obligation to hold adequate share capital in relation to the assumed risks. The law will contribute to the harmonisation process of the national banking legislation with international principles and standards.

On 30 July 2018, the new Basel III regulations came into force (based on the European CRD IV / CRR framework). The new regulations set the size of capital buffers, which if necessary, will diminish the impact of systemic crises on banks’ capital.

Therefore, according to the reports presented by banks at the end of 2018, the total own funds rate, in the banking sector, was 26.5%. At the same time, the risk-weighted capital adequacy ratio amounted to 31.3%. The transition to Basel III had a 5% impact, which is within the limits of the calculations conducted previously by the NBM.

At the end of 2018, 11 banks licensed by the National Bank of Moldova operated in the Republic of Moldova. In accordance with the banking supervision priorities and the commitments assumed towards the development partners in strengthening the transparency of the shareholders’ structure for the banks, significant changes, related to the acquisition of shares in the capital of certain banks by several reputable international groups, were made in 2018. As a result, more than 70% of bank assets are being managed by international groups with a sound reputation.

After three years of anemic developments, the bank’s intermediation function saw the first positive signs of growth. Against the background of decreasing interest rates, the demand for new loans increased both from individuals and business entities.

The value of the gross loan portfolio increased by 5.9% during 2018. At the same time, the volume of new loans granted in 2018 increased by 17.8%, compared to 2017. The highest increase in 2018 was in consumer loans and real estate loans. One of the factors that triggered this increase was the decrease of the interest rate.

At the same time, the trend of increasing the deposits continued. According to the prudential reports, they increased by 6.0% in the reference period. People reoriented their savings from short-term to long-term deposits.

Non-cash payment instruments continued to develop. The number of bank cards in circulation increased by 11.5% and the number of bank card transactions increased by 24.5%. The number and value of transactions abroad with bank cards issued in the Republic of Moldova increased considerably by 65% and 26.1%, respectively.

The banking sector maintained its profitability, so the profit on the banking system increased by 7.0% in 2018 compared to the same period of the previous year. The return on assets and return on equity were 2.1% and 11.6% respectively, each increasing by 0.2 percentage points, compared to the end of the previous year.

Contributor: Elisaveta Foca info@abm.md

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