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Moldova’s Financial Sector Stability Review Reveals Key Strengths and Vulnerabilities

Overview

Chisinau, Moldova - The International Monetary Fund (IMF) has released a comprehensive review of Moldova’s financial sector, highlighting both the sector’s strengths and vulnerabilities.

Banking Sector

  • Commercial banks remain the dominant players in the Moldovan financial system, accounting for 90% of total assets.
  • Foreign banks have increasingly played a significant role, with their share growing from around one quarter in 2009 to nearly 90% at end-2020.
  • The banking sector is characterized by moderate concentration, with the largest two banks holding over half of assets and deposits.

Savings and Credit Associations

  • Savings and credit associations (SCAs) are another important segment of the financial system, with Category B SCAs accounting for around 1% of total credit institutions’ assets.
  • Category A SCAs are growing rapidly.
  • Non-bank credit organizations (NBCOs) also play a significant role, with their assets equal to around 10% of total bank assets.

Insurance Sector

  • The insurance sector is relatively underdeveloped, with product range and penetration rates being low by European standards.
  • Licensed non-bank investment companies have limited business due to the underdevelopment of capital markets and investment services.

Macrofinancial Vulnerabilities

  • Real-financial linkages: exposures to credit and solvency risk despite strong capitalization among commercial banks.
  • Fiscal-financial linkages: vulnerabilities arise from high loan concentration in commercial banks’ lending to a few large borrowers, creating significant name concentration risk.
  • External-financial linkages: rapid credit growth before the pandemic raises concerns about loan origination standards and rising credit risk from overleveraged borrowers.
  • Intra-financial sector linkages: weaknesses in the NBCO/SCA sector’s loan origination standards and rising credit risk from overleveraged borrowers.

Recommendations

  • Strengthen supervisory capacity.
  • Improve risk management practices in the banking sector.
  • Enhance the regulatory framework for insurance companies.
  • Address macrofinancial vulnerabilities by strengthening crisis preparedness and response mechanisms.

Conclusion

“The Moldovan financial sector has shown resilience during the pandemic, but it is essential to address the identified vulnerabilities to ensure long-term stability and sustainability,” said IMF Mission Chief, [Name].

The full report can be accessed on the IMF website.