Moldova’s central bank places third bank under special administration

By bne IntelliNews January 5, 2015

bne IntelliNews -


Moldova has put 30% of its banking sector by assets under central bank administration after a series of large transfers between three banks that have left them short of liquidity and could force the country – Europe’s poorest – to pick up a huge bill.

On December 30 the central bank said that it had put in place special administrative procedures, including external management, at Unibank, the country’s fifth largest bank. On November 29 it took similar measures at Banca de Economii a Moldovei (BEM) and Banca Sociala.

The central bank cited unusually large deals involving Unibank, which has a 9.8% market share by assets, BEM, the country’s third largest bank, and the smaller Banca Sociala, The size of the resources transferred is around MDL17.8bn (€937mn) - more than 10% of the country's GDP.

All three banks are reportedly controlled by Moldovan businessman Ilan Shor, the head of BEM’s managing board, who is linked with Russian banks and investors.

However, their shareholder structures are unclear since ownership disclosure requirements are loose in Moldova for owners that hold stakes of under 5%. Nearly 40% of Unibank is controlled by eight entities registered in Australia, South Africa, UK and Cyprus, each with shares of slightly under 5% - the limit above which shareholders need special endorsement from the monetary authority.

After the fund transfers, Banca Sociala reported on December 25 that its assets expanded by 3.2 times month-on-month to MDL20.44bn at the end of November, according to the central bank’s monthly reports. The bank, previously Moldova’s fifth largest by assets, claims that it has overtaken Agroindbank to become the country’s largest lender. The rise in Banca Sociala’s assets during November almost equalled Agroindbank’s entire asset base.

It is possible that the unusual rise in assets was the result of complex financial operations involving Banca Sociala, BEM and Unibank, all three of which are controlled to various degrees by Shor. There is speculation that the final purpose of the operations is the transfer of resources to foreign - namely Russian - partners.

Moldova’s troubled banking system is plagued by fraud and money laundering, concealed by the lack of transparency and shallow supervision. Legislation restoring the central bank’s powers was recently enacted but enforcement of regulatory requirements remains weak, the International Monetary Fund (IMF) remarked on December 17 at the end of its post-programme monitoring review.

Overall, the banking sector on aggregate is well-capitalised, liquid, and profitable, the Fund added. While the system reported aggregated profit in January-November, capital adequacy dropped by 8.2pp to 14.8%, below the 16% statutory level, at the end of November. Some banks also face major liquidity problems, as revealed by the significant emergency loans provided by the central bank and mentioned by the Fund.

Under special administration, the central bank appoints managers and the banks cease taking deposits and extending loans for a period of nine months.

A broad audit will start within two weeks to uncover the problems in Moldova’s banking system, acting Prime Minister Iurie Leanca has said, according to Unimedia. The audit will be carried out by one of the largest global firms, he added.

In September, BEM was planning to take over Unibank, but the central bank rejected the deal, citing incomplete documentation. The state's stake in BEM was initially diluted to 33.4% in August 2013 and in early 2014, while Russia's VEB Capital consolidated its position to 24.9%. The capital increase was, however, cancelled in court in November 2014 and the state re-gained majority control with 56.13%. However, Shor, who was appointed in spring of 2014 by the Russian investors, remains head of the bank's managing board.

Unofficial sources quoted by News Maker daily estimated at the end of November that the liquidity needs of the three troubled banks amounted to MDL14-15bn, which is some 13% of the country’s GDP or half of the government’s annual budget. According to the IMF, the central bank had already extended emergency loans to BEM and BS equivalent to 3.5% of GDP to help them honour inter-bank liabilities and repay some €33,000 per deposit account, well above the €316 guaranteed by the existing insurance system. A capital injection on this scale would be needed if the three banks were to be financially restructured, but they could also be closed down or sold, sources said.

Nonetheless, finding a private investor under current circumstances is problematic, while closing down the banks would severely hurt depositors. The deposit insurance system in Moldova is underdeveloped and it could cover only a very small part of households’ savings, within the limit of MDL6,000 (€316) per deposit. Less than 10% of households’ deposits were guaranteed by the system at the end of 2013, according to the latest annual report from the country’s deposit guaranteeing body FGDSB.

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