Deposit base of Moldovan banks shrinks by 30%

Deposit base of Moldovan banks shrinks by 30%
By Iulian Ernst in Bucharest March 22, 2016

The stock of deposits held by Moldovan banks plunged by 27% y/y to MDL50.7bn (€2.3bn, or 42% of GDP) at the end of February, according to the central bank. In euros, the deposit base shrank by 30% and the decline was even sharper in real terms, considering the 10.3% y/y headline inflation.

The decline in bank deposits was partly caused by customers' lack of confidence in the banking system, after the central bank liquidated the three banks involved in the siphoning off of some $1bn. Deposits of the three banks now under liquidation procedures were transferred to other banks and in principle the procedure should have not impacted the overall stock of deposits - but this certainly impacted customers' confidence.

Banks’ assets contracted by 32% y/y to MDL69.7bn at the end of February. This is roughly the share held by the three banks in the country's banking system. The deposits to assets ratio increased by 3pp to 73%.

The stock of loans and other claims on banks’ balance sheets contracted by 36% y/y to MDL35.7bn and consequently the loan-to-deposit ratio eased by 7pp to 70% at the end of February. The structure of the loans at the end of February, by currency and debtor, has not yet been revealed in detail.

Part of the narrowing in the deposit base was caused by the elimination of the term deposits lent among banks at no interest rate, as part of the fraudulent operations among the three banks that were liquidated in autumn 2015.

At the end of February 2015, such no-interest interbank term deposits (MDL11.8bn) accounted for 17% of the total deposit base. This is more or less the volume of deposits siphoned abroad under the fraudulent mechanism, and later replaced by the central bank with government-guaranteed emergency loans.

The decline of genuine term deposits, namely those for which banks pay interest, was only 13% y/y at the end of February.

Term deposits were MDL32.2bn at the end of February, while the sight deposits were MDL18.4bn. Out of the total term deposits, 88% were household deposits and only 12% were corporate deposits. By currency, 51% of the term deposits were foreign currency deposits, despite the 22.6% y/y decline in their volume measured in local currency. Local currency deposits remained roughly constant in nominal terms, meaning that they declined by some 4% y/y in euros or more abruptly by some 10% in real terms.