One of the most important problems in Moldova stems from opaque ultimate beneficial ownership of banks, which boils down to not knowing definitively who controls banks. This allows individuals or groups to gain control of large banks in Moldova while evading proper supervisory control, said Armine Khachatryan, Resident Representative of the International Monetary Fund (IMF) in Moldova, who answered questions from journalists on the financial sector, fiscal policy, and the real economy, IPN reports.
“The risk – which materialized in the cases of Banca de Economii, Banca Sociala and Unibank – is that these banks are then run to the private gain of shareholders, without proper checks and balances, and put customers and public finances at risk. Another important problem is political and judicial interference with supervision and regulation of banks. For instance, actions taken by the National Bank of Moldova (NBM) to block shareholders that were acting in concert in a number of banks have been subsequently challenged in courts and suspended,” said the IMF Resident Representative.
According to her, despite the large number of suspicious transactions over the last two years, the National Commission for Financial Market (NCFM), responsible for overseeing registration and transfers of shares in listed banks, has not initiated investigations or raised concerns. Equally, no significant actions were taken by NBM and Financial Intelligence Unit of National Anti-Corruption Center against bank shareholders and managers who violated anti-money laundering regulations.
“Weak governance in the banking sector is a reflection of a complex set of issues, including shortcomings in commercial banks’ risk management mechanisms, deficiencies in the judicial process and legal framework, and the lack of operational independence of bank regulators. The lack of transparency of the ultimate beneficial owners of banks prevents the supervisor from establishing a key precondition for a sound and well-governed banking sector – the fit and proper nature of bank owners and managers,” stated Armine Khachatryan.
The official also said that responsibility for a well-functioning supervision framework does not rest with the NBM alone. Good bank governance requires effective legal, regulatory and institutional foundations – which are not strong in Moldova. From a big picture point of view, in Moldova the banking sector as a whole has been unable to deliver on its key role of financial intermediation – channeling savings to productive investment and contributing to growth. Specifically, the cost to society of the fraud that has already taken place has been very high – leading to high interest rates, a loss of reserves, a rise in public debt and interest expenditure, and a loss of confidence of external creditors.
