Moldovan Banking System Dominated by Two Large Foreign- Owned Banks

Overview

Chisinau, Moldova - A recent review of the Moldovan financial sector has revealed that the country’s banking system is heavily dominated by two large foreign-owned banks, which together hold over half of the assets and deposits in the country.

Market Structure

According to data from the National Bank of Moldova, the total number of financial institutions in the country stands at 419, with 11 commercial banks. However, the largest two banks, both of which are foreign-owned, hold a staggering 53% of total assets and 89% of total deposits. In contrast, the bottom four banks hold less than 1% of either category.

Foreign Bank Presence

The review also found that foreign banks have been growing their presence in the Moldovan banking system in recent years. Between 2009 and 2020, the share of foreign-owned banks increased from just over 10% to nearly 90%. Many of these foreign banks come from European countries such as Bulgaria, Romania, and Hungary.

Savings and Credit Associations (SCAs)

Savings and credit associations (SCAs) also play a significant role in the Moldovan financial sector. While they account for only about 1% of total assets, their share has been rapidly expanding over the past decade. Category A SCAs, which are not permitted to take deposits, have doubled their share over the past decade to 5%.

Other Financial Corporations (OFCs)

The review also highlighted the relatively small size of the sector of other financial corporations (OFCs) in Moldova. This sector includes microfinance and leasing companies, as well as insurance companies. While most insurance companies are domestic, two of them are owned by Austrian groups.

Macroeconomic Vulnerabilities

However, the review also identified several macrofinancial vulnerabilities in the Moldovan financial sector:

• Real-financial linkages
• Fiscal-financial linkages
• External-financial linkages
• Intra-financial sector linkages, which expose the sector to credit and solvency risk.

Credit Risk

The review noted that there is a high loan concentration in commercial banks’ lending to only a few relatively large borrowers, exposing them to significant name concentration risk. Additionally, the NBCO/SCA sector saw strong growth in credit before the pandemic, raising questions about loan origination standards and rising credit risk from overleveraged borrowers.

Conclusion

Overall, the review highlighted the need for policymakers to address these vulnerabilities and ensure the stability of the Moldovan financial sector.