On 28 November the
International Monetary Fund published a memorandum summarizing “the discussions
held between the IMF mission and the Moldovan authorities in Chişinău during November 7-21, 2012 .” Below can be found some excerpts regarding
the banking system. (Emphasis as per
original.) Of some interest is the IMF’s
present insistence on the need for banks to avoid new non-performing loans and to
collect on existing ones, and on the need for the government to facilitate the
sale of public property. In particular,
the IMF’s present desire to have Moldovan banks reduce their exposure to
non-performing loans is in interesting juxtaposition with the IMF’s desire – expressed
just one month previously (see earlier article in this column) – to have the
share of credit (debt) to GDP in Moldova increase from 38% (end-2011) to
80-85%: “While remaining mindful of credit’s effects on inflation and the
current account deficit, the authorities and staff concurred that credit growth
can exceed nominal GDP growth by a few percentage points to facilitate steady
convergence toward credit’s estimated equilibrium level of 80-85 percent of GDP
from 38 percent at end-2011.”
[...]
6. While most banks
remain sound, declining asset quality and the troubles of the majority
state-owned Banca de Economii (BEM) are symptomatic of emerging risks.
The nonperforming loans (NPL) ratio has increased from 11 to 14½ percent in the
first nine months of 2012 while the system-wide capital adequacy ratio declined
somewhat. BEM’s capital has dropped close to a critical level in September,
requiring urgent action, and a few small banks’ large exposures have worsened
their financial conditions. Nonetheless, the core of the banking sector remains
well capitalized and liquid.
[...]
C. Financial Sector Policy
13.
The mission urges the authorities to overcome delays with improving the
transparency of the banking system. Adoption of the legal amendments
seeking full transparency and disclosure of ultimate controllers in banks (delayed
structural benchmark) is imperative in the face of emerging financial
sector risks and recent non-transparent bank takeover attempts. In this
context, the mission welcomes the authorities’ agreement to secure
Parliamentary adoption of these legal amendments by end-2012 as a prior
action, and to apply the new requirements to existing shareholders in
the course of 2013-14 with a limited transition period.
14.
The mission is deeply concerned over the precarious situation at BEM,
which requires the authorities’ urgent and undivided attention. Over
the past three years the bank has engaged in dubious lending practices
notwithstanding repeated warnings by the NBM. Recent efforts to strengthen the
bank’s performance have not brought meaningful results yet. Capital buffers
continue to dwindle, the shareholders’ action plan is not fully adequate and
its implementation has been slow, and the Financial Stability Committee (FSC)
has not been sufficiently engaged in assessing the situation and its
implications for the whole financial system. Against this background, the
mission and the Government (representing the majority shareholder the state)
agree that the following course of action is needed to facilitate the bank’s
turnaround:
·
BEM’s
action plan should be strengthened in the areas of raising profitability,
selling foreclosed collateral, and collecting overdue loans. Decisive
cost-cutting measures—including closure of unprofitable branches and staff
optimization—should also be considered.
·
Line
ministries should be tasked to work with the public enterprises under their
control to resolve all nonperforming loans to BEM—either through repayment or
transfer of collateral.
·
Members
of the FSC should work closely with the bank to investigate the largest problem
loans, especially those issued in the past three years, and facilitate their
collection.
·
The
FSC should meet on a regular basis to review progress with the implementation
of these and other necessary measures.
In
addition, the mission recommends that the Public Property Agency consider and
approve, in line with applicable procedures, the BEM’s request for the
sale-and-leaseback of tangible assets in compliance with Article 18 of Law
No.121 and Articles 5 to 8 of Government Decision No.480. Opportunities for the
sale-and-leaseback of BEM’s tangible assets should be actively explored by
identifying and initiating contractual negotiations with leasing companies.
The
mission also recommends that the NBM continue to monitor closely the financial
condition of BEM as well as the implementation of the remedial measures imposed
on the bank and the action plan adopted by BEM shareholders. It was agreed that
the NBM will conduct an on-site audit of BEM based on end-2012 indicators and
will communicate its results to IMF staff by mid-February 2013. Furthermore, by
end-December 2012, the NBM plans to finalize a contingency plan to be applied
in case of further worsening of the situation at the bank.
15.
Alongside, the authorities and the mission agree that monitoring and
mitigation of financial sector risks in other banks should be strengthened.
In particular, on-site supervision should seek to ensure adequate provisioning
in banks with rising NPLs and timely unwinding of large exposures to connected
borrowers identified in NBM’s off-site analysis of banks’ portfolios. The NBM
should closely monitor the sectoral and bank distribution of credit with the
view of assessing whether pockets of vulnerability may be emerging. Among other
actions:
·
The
mission welcomes the NBM’s decision to abstain from raising the minimum capital
adequacy ratio beyond 16 percent.
·
The
mission recommends that the authorities move quickly to clarify and simplify
the procedure for the use and sale of public property by joint stock companies,
notably in the financial sector. To this end, we urge the authorities to
develop and adopt legal amendments by end-February 2013 to remove the concept
of “unused assets” under Law No.121 and Government Decision 480 to allow the
sale or lease of any private property in the public domain, which is
anticipated under the law, with a straightforward approval from the relevant
authorized body. Other amendments to the Law on Joint Stock Companies, the Law
on Financial Institutions and related Government decisions or regulations may
be necessary to facilitate disposal of assets by financial companies, and will
be developed in consultation with IMF staff by end-February 2013 as well.
[...]
Source: Aide-Mémoire of the
IMF Mission to the Republic of Moldova (2012-11-28)
Mark Pleas
[contact]
