Bank crisis, reforms and opportunities in Moldova
Sergiu Cioclea National Bank of Moldova EBRD Annual Meeting Cyprus – May 9-11, 2017
Moldovan bank crisis overview
Phase I: 2004-2013 – Mismanagement of the State-owned Banca de Economii (Savings Bank, 11% market share). Bad credits. Weak corporate governance.
Phase II: 2012-2014 – Privatization of Banca de Economii. Acceleration of the deterioration. Large-scale fraud, involving two other Moldovan banks. Total hole: cca. $1bn
Phase III: 2014 – Authorities alert. Preparation for the intervention. Blanket guarantee decided by the Government, given low legal guaranteed deposit level (cca. $450 at the time)
Phase IV: Nov. 2014 – Collapse of three banks, days after elections.
Phase V: Dec. 2014-2015 – Special administration; insolvent banks’ liquidation. Deposits fully reimbursed or transferred to other banks.
Moldovan ‘‘theft of the century’’
3 banks, incl. Banca de Economii (27% of market share in total) owned by the same group
The 3 banks coordinated to increase liquidity and facilitate massive increase in lending
Complex network of firms receiving loans acting in concert
Use of collateral from foreign banks to facilitate lending
Funds passed to UK firms with Latvian accounts (cca. $3bn flows)
Loan portfolio sold to a UK partnership – Fortuna United LP
Total funds dissipated – USD600mn
The 3 banks collapsed with loan exposure of $1bn (12% of GDP)ee
NBM emergency response
Dec. 2014 - Special administration in the 3 illiquid banks
Emergency loans granted to the 3 illiquid banks (guaranteed by the Government)
Reserve requirements in local currency increased from 14% to 35%
Reference base rate hike from 3.5% to 19.5%
Interventions in the FX market to prevent panic / defend local currency
Oct. 2015 - Liquidation of the 3 failed banks
Oct. 2016 - Emergency loans swap into Govt. debt, to recapitalise NBM
Reasons behind the bank crisis
Lack of shareholding transparency / Incapable or fraud shareholders
Non-performing loans / Related-party lending / Deficient risk management
Shortfalls in cooperation between State agencies and regulators
Weak corporate governance / lack of managers’ independency vis-à-vis shareholders
Imperfect legal and regulatory framework / prudential supervisory
Weak sanctioning and enforcement regime
Political interference / complicity (?) – On-going investigation
Special supervision measures by NBM
Mid-2015 - the 3 largest banks (cca. 64% assets) put under special supervision by NBM
Full diagnostic reviews by external auditors (UBO, AML, related-parties, etc.)
Management reshuffles / corporate governance bodies reinforced
Remedy plans prepared and being implemented (risk management, internal control)
Loan portfolio reclassification and additional reserves/provisions created
NBM supervision of all material decisions / NBM observers participation in Boards
Special supervision to be lifted only after completion of remedy plans (planned by the end of 2017)
Full reviews of the 3 largest banks being finalised by H1, 2017. In other banks - by the end of 2017.
Removal of non-transparent UBOs
Actions vis-à-vis MAIB – the largest bank (27% market share)
43% of shares blocked in March 2016 and put for sale on stock exchange
On-going due-diligence by financial investors
Actions vis-à-vis MICB –2nd largest bank (20% market share)
64% of shares blocked in October 2016 and forced for sale (on-going)
NBM imposed temporary administrators on the basis of new Bank Recovery & Resolution Law
Independent asset-quality review and share valuation by KPMG
Discussions with reputable strategic investors. Due-diligence to start.
Victoriabank (3rd largest bank) – on-going review / UBOs sanctioned
UBO review and controls in all licensed banks by end-2017.
New laws and regulation
Changes to the Banking Law (approved in Apr. 2016 and Oct. 2016)
Sanctions for shareholders (up to 100% of their shares) and beyond
Sanctions for managers (up to 100 monthly revenues / 10-year professional ban)
Tougher rules re: related-parties lending (presumption, deduction from capital)
New Bank Recovery & Resolution Law (approved in Oct. 2016)
Provides for a regime of early intervention (by imposing temporary administrators)
Provides for new resolution tools (bridge-bank, P&A, bail-in)
Favours private solutions vs. Government last-resort intervention and early measures
Creation of a Single Central Depository (approved in April 2017) to protect against raider attacks
New Banking Law (Basel III principles) – drafted, planned to be approved by end-2017
New laws being prepared re: AML & CTF, non-banking financial institutions, etc.
Futures actions and measures
Complete related-party lending audits
The 3 largest banks to be audited by end of August 2017 by external audit firms
Improve legislation re: forced sale of shares to remove non-transparent shareholding
Key to mitigate legal risks for NBM and diminish litigations for upcoming investors
Approve new fit-and-proper administrator regulations
To change management culture
Transfer strategic publicly-listed companies to the newly-created Single Central Depositary
Implement the assets recovery strategy recommended by Kroll and Steptoe & Johnson
MDL exchange rate stabilisation
10
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24
25
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
EURMDL
USDMDL
FX interventions
Bank crisis
-34% vs. USD -18% vs. EUR
Consumer Price Inflation (%)
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Ja
nF
eb
Ma
rA
pr
Ma
yJ
un
Ju
lA
ug
Sep
Oct
No
vD
ecJ
an
Fe
bM
ar
Ap
rM
ay
Ju
nJ
ul
Au
gS
epO
ctN
ov
Dec
Ja
nF
eb
Ma
rA
pr
Ma
yJ
un
Ju
lA
ug
Sep
Oct
No
vD
ecJ
an
Fe
bM
ar
Ap
rM
ay
Ju
nJ
ul
Au
gS
epO
ctN
ov
Dec
Ja
nF
eb
Ma
r
2013 2014 2015 2016 2017
13.4%
2.5%
5.1%
Target: 5%+ 1.5 p.p.
Bank crisis
Monetary conditions normalisation
0123456789
10111213141516171819202122232425 Cca. 25%
9%
7.5%
19.5%
3.5%
Bank crisis 3-M T-bills
Base rate
Moldovan diaspora remittances
91.68
178.38
106.75
79.58
96.15
112.18
81.90
97.08
58.20
92.01
97.13
96.79
74.75
98.05 -7.3
13.9
-30.8
-19.8
-35.9
-37.1
-46.7
-9.1
-16.8
-2.3
-13.4
18.2
28.4
6.6
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
01.2014
02.2014
03.2014
04.2014
05.2014
06.2014
07.2014
08.2014
09.2014
10.2014
11.2014
12.2014
01.2015
02.2015
03.2015
04.2015
05.2015
06.2015
07.2015
08.2015
09.2015
10.2015
11.2015
12.2015
01.2016
02.2016
03.2016
04.2016
05.2016
06.2016
07.2016
08.2016
09.2016
10.2016
11.2016
12.2016
01.2017
02.2017
03.2017
(%) USD, m
Y-O-Y variation, RHS
Fragmented banking landscape (11 banks)
Bank
Assets(mil.MDL)
Loans(mil.MDL)
Netincome(mil.MDL) ROA(%) ROE(%)
BC„MOLDOVA-AGROINDBANK”S.A. 19,744.4 10,774.7 403.5 2.1 13.0
BC„Moldindconbank”S.A. 14,492.7 7,827.7 268.9 1.8 13.4
B.C.„VICTORIABANK”S.A. 12,612.7 4,974.4 220.9 1.8 9.9
BC„MOBIASBANCĂ-GroupeSocieteGenerale”S.A. 9,014.4 4,059.2 325.1 3.9 25.5
B.C.“EXIMBANK-GruppoVenetoBanca”S.A. 5,014.1 1,953.1 8.9 0.2 0.7
B.C.„ProCreditBank”S.A. 3,555.5 2,073.8 33.4 0.9 7.1
„FinComBank”S.A. 2,664.6 1,095.8 56.1 2.2 13.6
B.C.„ENERGBANK”S.A. 2,415.4 875.8 68.1 3.0 13.2
B.C.„COMERŢBANK”S.A. 1,395.7 456.6 35.8 3.2 11.9
BCRChişinăuS.A. 1,395.3 439.9 32.0 2.5 7.4
BC„EuroCreditBank”S.A. 646.5 230.4 14.1 2.4 5.4
Bank Assets Loans Net
income ROA ROE
BC„MOLDOVA-AGROINDBANK”S.A. 1 1 1 7 5
BC„Moldindconbank”S.A. 2 2 3 9 3
B.C.„VICTORIABANK”S.A. 3 3 4 8 7
BC„MOBIASBANCĂ-GroupeSocieteGenerale”S.A. 4 4 2 1 1
B.C.“EXIMBANK-GruppoVenetoBanca”S.A. 5 6 11 11 11
B.C.„ProCreditBank”S.A. 6 5 8 10 9
„FinComBank”S.A. 7 7 6 6 2
B.C.„ENERGBANK”S.A. 8 8 5 3 4
B.C.„COMERŢBANK”S.A. 9 9 7 2 6
BCRChişinăuS.A. 10 10 9 4 8
BC„EuroCreditBank”S.A. 11 11 10 5 10
Mainindicators Banksrankings
Total assets: 72.9 bn MDL
Sergiu Cioclea Governor of National Bank of Moldova 1 Grigore Vieru Avenue, MD-2005 Chisinau, Republic of Moldova www.bnm.md Phone: +373 22 822 606 Email: [email protected]