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Moldova’s Banking Sector Struggles with Compliance Regulations
By Rosinca Panis, December 13, 2018
Despite efforts to reform risk management and compliance regulations in Moldova after the 2015 financial crisis, banks continue to face challenges in adhering to regulatory requirements.
Poor Risk Management and Non-Compliance
According to a recent study on Risk Management & Compliance in Emerging Markets banking sector, Moldovan banks are still struggling with poor risk management and non-compliance with regulations. The country’s banking system is based on universal banking, with 11 banks operating in the country, including four subsidiaries of foreign banks and financial groups.
Challenges in Debt Collection
The population’s low credit rating and high corporate default rate make debt collection unpredictable, making it challenging for banks to maintain profitability.
Analysis of Regulatory Reforms
The study analyzed data from 2004 to June 2018 and found that despite regulatory reforms implemented after the 2015 crisis, some banks are still weak in enforcing existing regulations. The study revealed that over 14 years, the banking sector violated regulations only during the 2015 crisis, with some banks failing to implement recent regulations.
Comparison with Romania
The study also compared Moldova’s compliance indicators with those of Romania, a close peer country. While Romania has a more advanced economy and governance system, Moldova surprisingly had better rankings in some operational and compliance indicators.
Recommendations for Improvement
The study concluded that while regulatory reforms have contributed to strengthening trust in Moldovan banks, elaborating regulations on risk management frameworks is not sufficient without good corporate governance practices. The study recommended that banks focus on:
- Developing effective Board Committees
- Improving transparency in hiring and promotion practices
- Maintaining sufficient liquidity indicators and risk-weighted capital adequacy ratios
Conclusion
Overall, the study suggests that while progress has been made in strengthening risk management and compliance practices, more work needs to be done to ensure sustainable profitability and stability in Moldova’s banking sector.