This information is derived from the State Department's Office of Investment Affairs, Investment Climate Statement. Any questions on the ICS can be directed to EB-ICS-DL@state.gov
Last Published: 11/2/2017

Capital Markets and Portfolio Investment

Moldova's securities market is underdeveloped. Official National Bank of Moldova (NBM) statistics includes data on portfolio investments, yet there is a lack of sufficient open-source information to fully reflect the trends and relevance of this form of investment in Moldova. NBM data shows that most portfolio investments target banks, while the National Statistics Bureau does not differentiate between foreign direct investment and portfolio investments of less than 10 percent in the equity of a company.

Laws, governmental decisions, NBM regulations, and Stock Exchange regulations provide the framework for capital markets and portfolio investment in Moldova. The government began regulatory reform in this area in 2007 with a view to spurring the development of the weak non-banking financial market. In particular, since 2008 only two bodies – the NBM and the National Commission for Financial Markets – regulate financial and capital markets.

Credit is allocated on market terms with banks being the only reliable source of business financing. The government regulates credit policy via the NBM, auctions through commercial banks, mandatory reserves, credit secured through collateral, open market operations, and T-bill auctions on the primary market. Foreign investors may obtain credit on the local market. Local commercial banks provide mostly short-term, high-interest loans and require large amounts of collateral, reflecting the country's perceived high economic risk. Progress in lending activity suffered a sharp reversal in 2015 in the wake of the late-2014 banking crisis, triggered by a massive bank fraud, which severely weakened the banking system. Extreme monetary tightening by the NBM in the wake of large currency emissions connected to the resulting bank bailouts led to prohibitively high interest rates. As a result, in early 2016, yields on one-year government bonds shot up to 25 percent, with commercial rates following close.

Several large banks were affected by ownership scandals and hostile takeovers that damaged their reputation. Three banks at the center of the scandal were liquidated in October 2015. The banking sector has not yet fully recovered from the fallout of the large banking fraud of 2014, while the Government committed to enhance regulation in the financial and banking sectors.

Large investments can rarely be financed through a single bank and require a bank consortium. Recent years have seen growth in leasing and micro-financing. Raiffeisen Leasing remains the only international leasing company to have opened a representative office in Moldova.

The private sector's access to credit instruments is difficult because of the insufficiency of long-term funding and extremely high interest rates. Financing through local private investment funds is virtually non-existent. A few U.S. investment funds have been active on the Moldovan market, notably NCH Advisors, Western NIS Enterprise Fund, and Emerging Europe Growth Fund, the latter two managed by Horizon Capital equity fund managers.

Furthermore, lack of ownership transparency and poor record on the rule of law represent significant challenges to a potential investor. Weaknesses in the share registry system have contributed to “raider attacks” over the past few years when securities were fraudulently transferred from their rightful owners to others.

Acting as an independent regulatory agency, the National Commission for Financial Markets (NCFM) supervises the securities market, insurance sector and non-bank financing. The NCFM adopted a Corporate Governance Code and passed new regulations intended to simplify the issuance of corporate securities and increase the transparency of transactions on the Moldovan Stock Exchange. In 2011, the government adopted a new strategy for the development of the non-banking financial sector through 2014 that focuses on adopting European standards in financial market regulation and supervision. Amendments were passed in 2011 to the law on joint-stock companies to strengthen minority shareholder rights and improve disclosure obligations for transactions involving conflicts of interest. A new capital markets law adopting European Union regulations came into effect in 2013. It is designed to open up capital markets to foreign investors, strengthen NCFM's powers of independent regulator and sets higher capital requirements on capital market participants. Following several takeover scandals in recent years, the government has passed amendments to strengthen the integrity of shareholder rights.

Money and Banking System

Moldovan banks are the main source of business financing, with non-bank financing, albeit growing, still playing a minor role. The banking system has two tiers: the NBM and 11 commercial banks. The NBM regulates the commercial bank sector and reports to parliament. Foreign bank branches have to register in Moldova and operate under the local banking legislation. Moldova has four foreign banks; among them Societe Generale’s Mobiasbanca and Erste Bank’s BCR are the most well-known.

Foreign investors' share in Moldovan banks' capital is around 81 percent. Yet, questions remain about true bank owners who pass as foreign investors in official statistics. A crisis at three Moldovan banks, two of them being among the country’s top five, in late 2014 called into question the soundness of the banking system, which has yet to recover from the fallout. The banking crisis has had an impact on the whole banking system, causing some foreign banks to call off their correspondent relationship with Moldovan banks.

There is a lack of transparency on ultimate beneficial ownership, large exposures to some clients, significant related-party lending in banks’ portfolios, and resulting high non-performing loans. This has contributed to a small number of individuals concentrating control over most of the banking assets. Both regulating bodies, NCFM and NBM, are seen as having weak enforcement powers, at times undercut by questionable court rulings. In response to this problem, the Moldovan parliament adopted legislation that would strengthen the independence of decision making at the two regulating bodies. In order to strengthen the weak system of tracking shares and shareholders, authorities also put in place a law to set up a central share depository with the help of international financial institutions.

As of December 31, 2016, total bank assets were MDL 72.95 billion (USD 3.66 billion). Moldova's three largest commercial banks account for around 64 percent of the total bank assets, as follows: Moldova Agroindbank: MDL 19.7 billion (USD 991 million); Moldindconbank: MDL 14.49 billion (USD 727 million); and Victoriabank: MDL 12.61 billion (USD 633 million). In a bid to prevent another bank crisis, the NBM instituted the procedure of special monitoring of these top three banks over concerns about the transparency of bank shareholders.

Moldovan legislation does not have a definition of hostile takeovers. There were instances of what was termed "raider attacks" in the banking sector that saw the use of corrupt legal practices to defraud rightful owners of their shares.

Foreign Exchange and Remittances

Foreign Exchange

Moldova accepted Article VIII of the IMF Charter in 1995, which required liberalization of foreign exchange operations. There are no restrictions on the conversion or transfer of funds associated with foreign investment in Moldova. After the payment of taxes, foreign investors are permitted to repatriate residual funds. Residual fund transfers are not subject to any other duties or taxes, and do not require special permission. The country’s central bank uses a floating exchange rate regime and intervenes only to smooth sharp fluctuations.

After a tumultuous period of inflation and devaluation of the 1990s, the local currency has entered a period of relative stability punctuated by periods of volatility and depreciation due to economic shocks of domestic or foreign origins.

Between late 2014 and early 2016, the national currency, the leu (plural lei), depreciated with difficulties in the economic and political environment, along with Russian bans on Moldovan food exports and falling remittances from Russia, which impacted Moldova's balance of payments. A massive banking fraud and a subsequent bailout program further undermined the leu, which depreciated by 36 percent. In 2016, the currency rate stabilized settling for MDL 19.98 to the U.S. dollar at the end of the year.

Remittance Policies

No significant delays in the remittances of investment returns have been reported, while domestic commercial banks have accounts in leading multinational banks. Foreign investors enjoy the right to repatriate their earnings.

The Moldovan leu is the only accepted legal tender in the retail and service sectors in Moldova. The foreign exchange regulation of the NBM allows foreigners and residents to use foreign currencies in some current and capital transactions on the territory of Moldova. Generally, there are no difficulties associated with the exchange of foreign or local currency in Moldova.

Sovereign Wealth Funds

Post is not aware of any sovereign wealth fund run by the government of Moldova.

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