Clare Nuttall in Chisinau -

Moldova’s parliament is considering draft legislation aimed at increasing transparency in the banking sector and preventing hostile takeovers by secretive entities. But with several of the country’s largest banks already controlled by murky offshore owners, it could be too little, too late.

The draft law on financial institutions was drawn up after dramatic changes in the ownership structure of the banking sector in recent years. This culminated in 2013 with the takeovers of both Banca de Economii Moldova and the country's largest bank, Moldovan Agroindbank. Former shareholders in the two banks, as well as those in Victoriabank, claim they were the victim of "raider attacks", or illegal expropriation, with the new owners rumoured to be linked to oligarch Vlad Plahotniuc and his group, bne reported in September 2013. 

Today, around 72% of Moldova’s banking sector by assets is estimated to be foreign-owned. However, with just four international banks present in the country, the majority of this total is offshore-registered outfits with untransparent ownership. Backed by international financial institutions active in Moldova, the National Bank of Moldova (NBM) – which regulates the banking sector but has seen its powers eroded – is pushing for new legislation to increase transparency.

A key clause in the draft law on financial institutions will require all sales of stakes of 1% or more in Moldovan banks to be approved first by the central bank. This follows numerous share transactions in Moldovan banks where offshore-registered companies have purchased blocks of shares that fall just below the current 5% threshold for NBM approval. Other clauses in the draft law will control how banking shares can be used, forbidding owners to pledge shares in banks or put them into the capital of other companies. If adopted in its current form, it will also introduce criminal responsibility for shareholders and banking administrators for breaches of the law. “In terms of supervision and transparency of ownership, there are three major challenges,” the NBM’s first deputy governor, Marin Molosag, tells bne. “First, improving legislation on transparency of share ownership; second, increasing the power of the national bank to take actions; and thirdly the reform of the judicial system.”

The European Bank for Reconstruction and Development (EBRD) has repeatedly raised concerns over the banking system with the Moldovan government. “We believe that the regulation needs to be strengthened, and the national bank needs to be given more power so that it is able to independently exercise judgement on these issues,” EBRD vice president Andras Simor told bne on the sidelines of an investment conference in Chisinau in June.

Unfortunately, the draft legislation is making slow progress through the parliament, with little likelihood of adoption before the November parliamentary elections. Several sources close to the process tell bne that powerful forces appear to be lobbying to delay its adoption.

Fears of instability

While Moldova’s banking sector remains in generally good health – most banks are well capitalised, liquid and profitable – the takeovers have had negative consequences, in particular that banks are channeling money towards companies connected to their new owners, raising concerns about their future financial stability. “The recent change of shareholders in some banks creates not only additional financial risks, but resulted in new obstacles to implementing the mandate of the banks, namely the intermediation of financial flows and redirection of passive money (deposits) to active money (loans). This is another reason why we are paying attention to this issue,” Molosag tells bne.

Within Moldova’s small business community, would-be borrowers have become wary of the banks that have been subject to hostile takeovers. Ridha Tekaia, president of Mobiasbanca, which is owned by France’s Groupe Société Générale, reports movement in business from the affected banks towards those whose ownership structure is transparent. “Consumers have started to be scared and have changed their banking relationships to where they feel more comfortable. International banks are profiting as people escape from non-transparent banks to the real standard banks,” Tekaia says.

International financial institutions active in Moldova such as the European Bank for Reconstruction and Development (EBRD) and the World Bank's International Finance Corporation (IFC) are also piling on the pressure, by working only with the country's transparent banks.

The EBRD’s Simor says that access to finance is “clearly a bottleneck” in Moldova, and that the bank is “very keen” to do more in the country but is now limited in the banks it can work with. “Recently with all the changes in shareholdings, where it is not clear who owns some of the banks, unfortunately we had to cut down on our business and we are only dealing with very few banks now,” Simor says. “The shareholder structure of some banks is just not transparent and that precludes us from working with them... Until changes do take place, unfortunately we are limited in what we can do.”