Details and Risks of Moldova’s Banking System Self-Funding under External Control

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Cristian RUSSU
Now virtually in the hands of foreign partners, the banking system is more and more actively used to siphon money out of the country
Towards the end of the year, amidst mainly negative newsflow about the country's economy, the National Bank reported a record increase in profits of all 11 Moldovan banks. For instance, in January-November 2022 their net profit totaled over 3.5 billion lei, a 65% increase year-on-year, with four banks - Maib, Moldindconbank, Victoriabank and OTP Bank - enjoying the lion's share of that profit. Interestingly, the 2021 profit figures were reached by the banks back in August, so such news was not a surprise but obviously pleased foreign investors. True, the same cannot be said about the citizens who will have to pay for this pleasure. Read more below. How banks owners changed Our banking market has always been a mixture of local businesses and purely foreign projects. It is true that, for the time being, the latter had a small share and did not play a significant role, and the largest assets belonged to domestic businessmen. However, the situation has changed dramatically over the past three years: various estimates suggest that about 80% of the banking sector has turned into the property of foreign investors. And in most cases this has been done with the direct involvement of government agencies, the National Bank and other bodies, with scandals and lawsuits. Maib, the former Moldova Agroinbank, became the profit leader among all banks. Until 2015, its main shareholders were Moldovan individuals and legal entities who owned shares, sometimes through offshore companies. According to unofficial information, about 40% of shares belonged to Veaceslav Platon. But in early 2016, they were blocked in order to force Platon to give up his shareholding. When this did not happen, the National Bank re-issued the shares, with the government as an intermediary in their sale to the Consortium HEIM Partners Limited. The latter includes the European Bank for Reconstruction and Development and several offshore companies from the United States. By the way, the 41% stake was then sold for only 23 million euros. After his release from jail, Platon tried to get his shares back and threatened the IPO plans of the new shareholders. However, by early this year, the former bank owner stopped with his public complaints. Most probably, this is the reason for the extremely tolerant attitude of international partners and the Moldovan authorities who did not put Platon on the sanctions list along with Ilan Sor and Vlad Plahotniuc. Moldindconbank is the country's second largest bank in terms of profit. The government used similar measures to change its ownership. In March 2019, 64% of the shares were sold to the Bulgarian DoverieUnited-Holding. In this case, there is talk that Vlad Plahotniuc and his affiliates gained control of the bank before the elections. Next is Victoriabank (72% of shares are owned by VB Investment holding, with the Romanian bank Banca Transilvania and the same EBRD as ultimate beneficiaries) and Mobiasbanca, which is now owned by OTP BankGroup, Hungary's largest bank. Another financial market player that still nominally has the previous Moldovan owners is Fincombank. But the main shareholders are the Western Nls Enterprise Fund from the USA. A major part of shares used to belong to the family of former president Vladimir Voronin, but in 2019 the National Bank suspended his family's rights to those shares ordering to sell them, and then cancelled them using the already described scheme with Moldova Agroindbank and Moldindconbank (i.e. issued additional shares to sell them to others). The same thing happened with Energbank. In 2019, the National Bank put it under external control and obliged its shareholders to sell their shares, but before they did, it cancelled them resolding to the microcredit organization IuteCredit. Three other banks in Moldova also belong to foreign investors: Eximbank (Intesa Sanpaolo Bank of Italy), ProCredit Bank (ProCredit Holding of Germany) and BCR (the only bank with foreign capital that has not changed owners - it is still owned by the Romanian BancaComercială Română). Best working conditions from the state The record profits of the banks, of course, are not due to the revival of business activity in the country, as statistics show an increase in overdue and non-performing loans, as well as a decline in retail deposits. The fact is that the authorities gave banks enough opportunities to make profits even in the current hard times, including earning on the exchange rate and the refinancing rate. But the main source of their income was the state itself, which borrows from banks at a record interest rate – up to 22%. As a result, in the budget for 2023, almost one fifth of the expenses are allocated just to repay debts of interest on them. Just to compare: if in 2020, 1.71 billion lei was spent on debt servicing, and in 2021 – 1.94 billion, this year – 2.85 billion. That is an increase of almost 50%, and next year, this figure will double, reaching 5.41 billion. The government already plans to take credits from commercial banks next year, more than 3 billion lei, to cover the huge budget deficit. It is difficult to imagine this at the time when commercial banks belonged to Voronin, Platon and even Plahotniuc, because mass-media and experts would immediately raise a clamor about collusion of the state with oligarchs in their interests. Now the commercial banks of the country are owned by foreign funds, offshore companies, and it is absolutely unclear whom to blame for these machinations. There are also questions to the main regulator. As it is known, the NBM president, Octavian Armasu, served as Finance Minister during the Plahotniuc regime, but so far neither the government nor the parliament are in a hurry to renew the NBM's leadership. This only confirms that the national regulator is not subordinated to the local authorities at all. By the way, when the PAS activists had the initiative to withdraw the MPs from NBM and update the supervisory board, it was called off quickly. Apparently, the authors were reminded that it was better not to interfere. In spring, amid the wild inflation, the ruling party deputies and the Prime Minister had questions to Armasu, but the Head of the National Bank was adamant that the adopted requirements of the monetary policy were followed. Moreover, later on the government even discussed ideas to further expand the independence of the NBM. The regulator's refusal to use foreign currency reserves, which by the end of the year amounted to a record $4.5 billion, can also be considered indicative behavior. The National Bank sends newly received loans, including those to cover the budget deficit, to its currency reserves – in fact, back to Western banks, but at a much lower interest rate than they were received. At the expense of ordinary citizens It is known that interbank fees for payments by bank cards in Moldova are among the highest, about 2%, and bank charges in Moldova are considerably higher than in other CIS countries. Yet, many Moldovan citizens got used to keeping their savings in banks so that they could earn some interest. Starting from 2021 the Government decided to slip into their pockets introducing a norm that the income of the population from interest accrued on bank deposits, deposits in credit and savings organizations as well as from corporate securities will be subject to a 3% tax. Despite this, the total volume of deposits in the banking system has even increased this year, although not a single bank offered a deposit rate even close to the rate of inflation. The secret is simple: the growth was mainly due to deposits of legal entities, which thus put off investments and development plans until better times. Meanwhile, the deposits of individuals are indeed declining due to uncertainties and increased current costs. The downward trend will only get stronger next year – after all, in 2023, the tax rate on deposits will rise already to 7%. Another unpleasant piece of news for the population was the increase in the rate of mortgage loans under the state program PrimaCasa from next year (by 2%, in total - more than 14% per annum). Under foreign control We have repeatedly spoken about the fact that our country is moving at an accelerated pace under the external control of Western development partners. The experience of the Baltic states was cited as an example, where the fundamental sectors of the economy, including the banking system, were placed under foreign control. During the recent years, a similar process has been taking place in Moldova, but now it involves not only the commercial banking sector, but also the National Bank of Moldova, which indicates the transition to even greater financial dependence and deprivation of the last vestiges of sovereignty. The bottom line is as follows: while the economic crisis and record inflation are raging in the country, the banks owned by the Western capital are getting record profits, and new fees are being imposed on our citizens.