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July 05, 2018

IMF published its staff report under the 2018 Article IV consultation with the Republic of Moldova. Tao Zhang, Deputy Managing Director and Acting Chair, stated that it is critical that prudent policies are maintained and reforms continue to advance to complete the repair of the financial sector.. He also mentioned that significant progress is being made in cleaning up the financial sector, notably by securing transparency in systemic banks and amending the framework to remove unfit shareholders. The anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks and regulations should be to realigned with international standards.

The report highlighted that the financial condition of banks is stable. Financial statements indicate that banks remain highly liquid, well capitalized, and profitable. The stock of non-performing loans (NPLs) for the three largest banks, which are not part of foreign banking groups, remained broadly stable. The safety, efficiency, and soundness of securities’ depository is being strengthened. The verification of legal records of shares of banks and insurance companies was completed in March by the National Commission for Financial Markets (NCFM). This was a vital precondition to moving securities’ registration to a new Central Securities Depositary (CSD) from the current 11 private registries. This new framework is designed to guarantee the safety of securities and ensure their transparency, helping develop new financial market instruments. The CSD will become operational in the end of October 2018. The Supervisory Board established by the National Bank of Moldova (NBM) will ensure effective oversight and operations of the CSD.

The report mentioned that to further strengthen risk management frameworks, NBM will publish guidelines for related party risk management by banks. These guidelines will include policies, procedures, and systems for identification of related party transactions and exposures. The updated NBM regulation outlining the terms of on-site inspections will stipulate that the final on-site inspection report and enforcement decision by NBM should be completed within 60 days from finalizing an inspection. The authorities are looking to strengthen the prudential framework for the non-bank financial sector and deepen its oversight. Future reviews will consider issues related to the law on non-bank credit organizations, which should be amended to fully prohibit micro-credit institutions from attracting funds that are deposits or close substitutes. Otherwise, institutions collecting such funding should be supervised as banks.

In the insurance sector, NCFM will ensure strong governance, ownership transparency, and financial strength. Future reviews will also provide an opportunity to review the regulatory framework, in collaboration with international partners, with the intention of aligning it with European standards. The authorities are looking to further strengthen financial safety nets, to complement the Bank Recovery and Resolution Law. Further reforms are needed to support crisis preparedness and management. The authorities also intend to maintain an administrative liquidation framework for financial institutions, in line with the Fund advice. The authorities will align AML/CFT frameworks with international standards. They will amend the legal AML/CFT frameworks to ensure effective application of proportionate and dissuasive sanctions for AML/CFT violations by banks or other reporting entities, in line with the Financial Action Task Force standards.


Related Link: Staff Report

Keywords: Europe, Moldova, Banking, Insurance, Securities, AML/CFT, CSD, Systemic Banks, NPLs, Risk Management, Article IV, IMF

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