With the establishment in 2004 of the Moldova Deposit Insurance Fund, for the first time there was enacted a minimum deposit insurance rate in case of bank insolvency. Today this rate is set at 6,000 MDL ($432) for each individual’s deposit, regardless of the currency and the type of account - savings, current account or payroll debit card - payable within 12 days after withdrawal of bank’s license. With the recent intentions of the Parliament to increase this rate, we find this potential intervention as a necessary measure to increase the confidence in the banking sector, but also to minimize the risks for individuals. At the same time, there are multiple approaches related to the minimum level of this rate. According to EXPERT-GRUP estimates, this rate shall be increased, in one or several steps, to the level of circa 50,000 MDL ($3,598), and on the medium and long run - a significantly higher growth is required.
These calculations were made based on the size of country’s economy and therefore its potential monetary flow within the banking sector, but also taking into account the practices of developed countries in the region. The minimum recommended rate of circa 50,000 MDL derives from 12 average salaries in Moldova or 2 times the annual GDP per capita.
This increase, and all the following, mean higher costs for banks, which contribute to the Deposit Insurance Fund. However, the adverse effects of these increases on the banking sector could be reduced by transitional arrangements described below. Still, increasing deposit insurance rate will bear a significant economic impact, by increasing confidence in the banking sector and the credit availability for future development of the economy and in the same time it will a social impact, by ensuring the savings’ safety (eg retirement deposits, college funds ie funds for children's education).
Currently, the average value of a deposit per client in Moldova is not a relevant indicator to determine the minimum deposit insurance rate, since many citizens do not hold enough confidence in the banking sector, so they choose to not open a deposit or they opt for certain risk reduction behaviors, which however distort statistics. As an example, many depositors open savings accounts in EU countries and Russia and when coming to Moldova, they split the deposit amount into several smaller deposits, which are registered on their relatives. Also, instead of depositing a big amount to a single bank, they open several savings accounts in different banks (deposits being guaranteed separately for each individual in each bank separately). Therefore, it is recommended to correlate the minimum deposit insurance rate with the size of Moldovan economy, the regional trends and less with the statistics and numbers provided by the banks.
- Transitional arrangements: it is important to provide the banking sector with a reasonable timeframe for increasing the contributions: (eg. The law can be adopted rapidly, but it can determine gradual stages of its entering into force and a quarterly schedule of minimum deposit insurance rate increase up till the amount indicated);
- Regulate a mechanism of an annual review of this minimum rate, by linking it with a specified amount of average wages or GDP. Gradually, with completion of other measures that will increase the stability of the banking sector in Moldova and reduce its risk, the level of minimum deposit insurance rate shall be reviewed again and gradually increased to a level of 30-50 average wages or 2-9 times the GDP per capita. At the same time, it is crucial for the banking sector in Moldova to be complexly strengthened , since in any country in the world such a fund can offer a guarantee in case of one bank or several banks’ default (but not in the case of a system-wide crisis, as it happened in Iceland during the 2008-2012 financial meltdown);
- On the long run, with the advancement of the EU integration process, an obligation will occur for EU members to adopt minimal deposit insurance rates of EUR 100,000 for its citizens (previous rates of EUR 20,000 in 1994 and EUR 50,000 in 2008). Given the political priorities, gradually taking over European legislation in this area is essential;
- Taking into consideration the potential for capital migration, on the long term, it is important to examine practices in the region (eg Ukraine – the first 200,000 UAH ($15,827) insured, Russia – the first 700,000 rubles ($19,640), Romania – EUR 100,000 ($135,540) - as in most EU countries, except Ireland, where insurance deposit rate is unlimited).
- In most of the countries, individuals’ deposits are guaranteed within this limit. However, in some countries these guarantees were offered also to the businesses and legal persons, in order to support small and medium enterprises (ex. in Romania);
- The minimum deposit insurance rate modification should be complemented by other measures to increase the stability of the banking sector in Moldova, in order to reduce the insolvency risk of the banks. In the medium term, it is important to establish a direct link between the performance of banks and the size of contributions (such that a bank which assumes higher risk behavior in its credit activity, will make a higher percentage contribution than a more prudent bank - with less insolvency risks and lower chances of use of the deposit insurance fund by its depositors);
- Details about the calculations: the MDL 50,000 amount has been established based on the following – 12 average monthly wages in Moldova (12* MDL 4,255 MDL wage forecasted for 2014 = MDL 51,060) or 2x *GDP per capita (the GPD per capita minimal indicator in MDL is used, ie the index in current prices, set in advance for 2013, so MDL 28,067 * 2 = MDL 56,134).
- More information regarding Deposit Insurance Fund of Moldova, contacts and regulations can be found at www.fgdsb.md. The regulation framework also excludes several categories of individuasl (very few of them) which cannot benefit from these guarantees.
- The Deposit Insurance Fund is created from contributions from all the banks, subsidiaries and branches of foreign banks holding the National Bank of Moldova authorization for engaging in financial activities. The contribution of these institutions is made quarterly, percentage correlated with the amount of bank’s deposits.
- In case of bank insolvency, in some cases, one depositor can receive more than the amount insured, but only if the value of assets outstanding after declaring insolvency allows that. However, the minimum deposit insurance rate has to be paid regardless of the post-insolvency situation, or immediately (no later than 12 days from the date of bank license is withdrawn), although the extra amount of this rate can be received by the deponent even after months or years of waiting. For this reason it is important to establish a sufficiently high level of deposit insurance rate that will be quickly paid to the individual in case of insolvency.
„Political Economy and Advocacy”, EXPERT-GRUP