The national banking system should more efficiently use liquidity, said Dumitru Vicol, associate analyst of the Institute for European Policies and Reforms (IPRE) , strategist on emerging markets in London, and IPRE vice director Stanislav Giletski. In an analytical note, the authors note that in Moldova, as in other countries of the region, three is an abundance of liquidity. An explanation is the combination of the rigorous acceptance criteria and the lack of demand for solid loans. Furthermore, the lack of alternatives for saving outside bank depots also contributes to this structural problem, said the experts, being quoted by IPN.
Excessive liquidity represents the banking system resources above the mandatory reserves that are not used. This indicator is crucial for determining the banking system’s capacity to lend to the real sector and public sector. The credit impulse, which is a reference point for the annual rise in loans provided to the private sector per GDP, for Moldova was slightly under 0 in the fourth quarter of 2020.
The reforms done by the National Bank of Moldova offered the resilience needed by the banking system during the pandemic. These enabled the banking system to go through the pandemic crisis more efficiently than other sectors of the economy. The balance of the total loans in February 2021 was by 13% higher than in January 2020. Similarly, the loans provided to the SMEs were by 17.6% higher than at the start of 2020.
Based on the analysis, the authors recommend reducing the norm of mandatory reserves as these fuel the banking system with liquidity, promoting more actively the Loan Guarantee Fund of the ODIMM, instituting a minimum ratio of loans provided to the private sector to deposits, for example at 70%, and punishing the banks that do not meet this condition by a negative mandatory reserves remuneration rate.
Among other suggestions are to introduce a bank loan refinance line and to make definitive purchases of state securities on the secondary market, as the central bank’s regulations allow for such transactions.
