The parliamentary elections of February this year marked the end of a full cycle in the country's economic, social and political development. At the same time, this corresponds virtually with the expiry of the country's strategic development framework set out in the ‘Moldova 2020’ Strategy, but also with the approval of some new goals for the next 10 years. With regard to the financial system, recent events have shown that it is a key sector not only in terms of contribution to the financing of the economy but also in terms of national stability and security. Thus, irrespective of the political ‘color’ that will prevail in the next government, the financial system should remain a key element of the Government Plan, with priorities based both on the implementation of the reforms achieved so far and on the crystallization of new directions of development and upgrade.
Current trends in the financial system are largely driven by the reforms applied to the banking sector after the 2014-2015 crisis. Initiated in the form of stabilization measures aimed, inter alia, at resuming cooperation with the main external partners, they continued with reviewing and adjusting the legislation. Most of the actions were assumed by the Government under a Memorandum with IMF, placing a particular focus on the transparency of bank shareholders and strengthening of the corporate governance mechanism. The transition to Basel III regulatory and supervisory standards was also initiated in accordance with the timetable negotiated under the EU Association Agreement and involves the implementation of new capital adequacy requirements, transactions with related parties, risk assessment and management, sanctions regime, etc. Eventually, the reforms included other sectors such as non-bank lending organizations or the insurance sector, but they could not reach the intensity of the sectors listed above.
The current conditions of the financial system provide the right time for further reforms towards development and upgrade. Thus, unlike 10 years ago, most of the system is controlled by banks or foreign financial groups. Shareholders with reputation and experience on a regional and even international level entered the market, such as Banca Transilvania at BC Victoriabank, the European Bank for Reconstruction and Development at BC Moldova Agroindbank or Intesa Sanpaolo at BC Eximbank. At the same time, banks' financial position has also improved, whereby they became much better capitalized, liquid enough, and remained profitable. Moreover, macroeconomic conditions show a stable situation, with inflation within the limits of the targeted corridor and low interest rates on loans. However, besides these positive trends, there is also a number of difficulties that have their roots in the banking crisis as well. Granting guarantees for crediting the banks that were eventually liquidated is one of the main causes that led to an excess of liquidity in the monetary market, a situation that involves costly interventions for the NBM. Moreover, these interventions have a double effect because they significantly diminish the interest of banks that is already low to credit the real economy. Additionally, reviewed lending policies and low public confidence in the banking institutions have created premises for rapid growth of the microfinance and leasing sector. The uncontrolled growth of this segment without strengthening the consumer protection framework can lead to over-indebtedness of the population, with contagion risks to the banking sector.
Based on the identified constraints, the current issue of the Financial Monitor comes up with a number of policy recommendations on the directions of development of the national financial system. Firstly, they aim to strengthen the capacity of financial institutions to meet the demands and expectations of the business environment, government, or households in mobilizing the capital. It also focuses on eradicating the informal economy by increasing financial inclusion, improving payment systems and enhancing the financial skills of the population. Last but not least, we believe that the financial system should become a sound source of protection for consumers of financial services, a stability factor for public finances and generator of credibility for the international environment.
The directions for upgrading the financial system should be anchored in the strategic vision of the country’s and society’s development for the next decade as set out in the "Moldova 2030" Strategy. Thus, in order to become a society adapted to changes, uncertainties and challenges, the Republic of Moldova needs to adopt a well-correlated policy framework for a long-term systemic approach to sustainable development. As a result, the financial system is a key policy sector that can support the national economy and contribute to the development of society, and this study proposes five goals and a number of actions to be undertaken in this respect. They are even part of the first pillar of the "Moldova 2030" Strategy, oriented towards a sustainable and inclusive economy.
Thus, in order to contribute to the first three specific goals of the "Moldova 2030" NDS: (i) increasing incomes from sustainable sources and reducing economic inequalities; (ii) increasing access of people to physical infrastructure, public utilities and living conditions, and (iii) improving working conditions and reducing informal employment, decision-makers should focus on the following goals and actions:
1. Maintain the stability of the financial system
- maintain stability by preventing over-indebtedness of the population
- improve the supervision mechanism of the non-banking financial system
- develop the deposit guarantee mechanism
2. Ensure the integrity of the financial system
- build credibility externally
- assess citizenship-by-investment programs and capital amnesty
- exclude interaction with off-shore areas
3. Develop long-term maturity resources
- reform the pension system
- develop the Government securities market
- make the intermediation mechanism more efficient
4. Involve the financial system in the eradication of the informal economy
- increase the financial inclusion of the population
- promote electronic payments and diminishing the use of cash in the economy
- encourage initiatives to develop financial instruments through technologies
5. Increase the level of financial education and protection of the consumers of financial services
- increase the level of financial education among the population
- improve the protection measures for the consumers of financial services
- supervise and regulate the trading platforms for financial instruments.