IMF AND NBM THINK ALONG SIMILAR LINES

All of the IMF missions that paid a visit to Chisinau in 2001 reiterated their “contentment” with the policies pursued by the national bank of Moldova. NBM’s President Leonid Talmaci cites one simple reason why the IMF has not been at loggerheads with the national bank of Moldova for quite a time now: “What this fact does tell me is that smart people are broadly on the same plane of thought. And this is so because the right conclusion is but one.”

He does comprehend, perhaps better than anyone else, the importance of Moldova’s fulfilling as best as it can all of the IMF’s requirements incorporated into its memorandum with the country. If the country’s leadership does live up to that, the World Bank’s more benign attitude is soon to follow, which may in turn translate into $40 million for the Tarlev government under the Second Structural Adjustment Loan.

As things stand, part of the money that the government stands to get will have to go to repay its debt to the national bank, which earlier made available $11 million for the cabinet to pay off its external debts when times were hard.

Even though financial stringency is an everyday reality that the ministry of finance has to cope with, the national bank is running like a Swiss watch. The fact that the NBM has already drafted its monetary and credit policy for 2002 – which is not due until late December – could perhaps testify to that.

Says Leonid Talmaci, NBM’s President:

We had to be perfectly prepared for what lied ahead when the government got down to drafting the state budget for 2002. The draft budget incorporated basic macroeconomic scenarios that go to the core of what the national bank is about. Primarily, it is about the exchange rate, which is forecast to linger at 13.5MDL per USD1 in late 2002. It also has to do with inflation, which we plan to tame at 10 percent next year. Overall, these two indices have a deep impact on the budget forecasts and on the country’s GDP in particular. GDP is forecast at 22.4 billion lei in 2002.

* As far as our knowledge is concerned, this appears to be the first time in Moldova’s recent history that the budget for next year had been well at the stage of completion as early as September. Local and foreign businesses thus have two invaluable guidelines for what they can expect next year: the exchange rate of 13.5MDL:$1, a 10 percent rate of inflation and an average yield of 17 percent on treasury bills.

Says Leonid Talmaci:

I would like to stress the fact that these two forecasts are invaluable for the banking sector as well. Moldovan bankers are thus clearly prompted towards a much more modest pricing of their deposits and loans. This is exactly what the national bank expects to happen next year. This is a clear signal, if you wish, of what kind of loan policies commercial banks should pursue. Is it any different from the banks’ perspective if they price their loans at 30 percent and deposits at 20 percent or if they attach a price tag of 20 percent to loans and 10 percent to deposits? The upshot is 10 percent in earnings anyway.

* Obviously, the latter scenario does make a difference for the economy at large. It would translate into greatly improved lending rates, GDP growth and higher public consumption patterns; which in turn leads to yet another spell of GDP growth.

Besides, Mr Talmaci’s policy of 20–10 yields 10 just as assuredly as 30-20 does, significantly widens overall access to bank loans and boosts borrower incentives. This, in turn, would mean that businesses, in particular farmers, would be far more eager to borrow and have much less difficulty in repaying loans.

As it is now, however, the banking sector is a pale shadow of those solid and upbeat scenarios. Commercial banks charge an exorbitant 30 percent on their loans with inflation averaging 10 percent. There is no need for a sophisticated analysis to see that a hopelessly low consumer purchasing power, coupled with the current money mass, leave commercial banks stranded, with a very thin customer base on their foreseeable horizon. Therefore, banks are running the risk of never getting the 30 percent they want to charge.

Says Leonid Talmaci:

It is not our plan to ease the compulsory reserve requirement of 8 percent. Commercial banks have the right to hold 2 percent of their reserves in vault cash. Therefore, reserve requirements are more like 6 rather than 8 percent. We will not rush to lower that. Instead, we will wait and see how rigorously commercial banks discharge these requirements and will then act accordingly.

B&F ("Banks and Profit" Magazine): What about bank capitalization? Can we assuredly claim that the NBM pushed the brake, for now at least?

Leonid Talmaci: You could say that. However, the long-term objective is merger nevertheless. In November I plan to meet leaders of Moldova’s commercial banks to expound the benefits of bank merger. We have long progressed past the “pocket-money” banks. We should now forge ahead. You know well enough that it was “fashionable” to maintain “personal” banks and currency exchange booth, in much the same manner as it is fashionable to have “vogue” purses. Fashionable does not mean good, though. Shareholders need to earn sound returns.

Question: Some banks still have trouble fulfilling the long overdue capital adequacy requirements. What is the national bank going to do about that? Have you moderated somewhat your previously unbending stance on the 32, 64 and 96 million needed to maintain the A, B and C licenses, respectively?

Answer: Let me tell you that we’ve never really stopped working towards that end. Your question seems to hint at why the national bank has not downgraded Fincombank from B to A level. Well, this is because we had a fully-fledged, clearly defined strategy for the bank’s future in front of us. It is the bank’s merger with ICB-Moldova, a subsidiary of the Greek bank, that underlies the whole thing. Had it not been for the sound development strategy, we would have long revoked Fincombank’s B license, with few considerations to the contrary. As it is, however, the bank seems to be operating on a new plane with a clear strategic thinking that will enable it to resolve the capital adequacy problem. The national bank is prepared to collaborate with all banks that have a sound development strategy. But these strategies, however, should be realistic, because we are not particularly willing to let the matter drag on into nowhere. We have set specific deadlines and if those deadlines are not met, it will be time for harsh moves on the part of the national bank.

Q: The IMF is trying to get the Moldovan government to have the Savings Bank go private. What is overall perspective on the issue?

A: You see, the national bank is not the privatization department. We have nothing to do with the Savings bank’s woes or windfalls whatsoever. What we are concerned with is for the bank to be efficient. We are primarily concerned with how well the Savings Bank, along with all other banks, copes with international standards. Now the issue of the bank’s ownership rests with its shareholders, not the national bank. We have nothing to do with that, absolutely nothing at all.

Q: All right, but considering that the row over appointing new Chairman of the Savings Bank has been more or less settled now, can we at least ask what your opinion of the new management is?

A: Owners do not really ask us to inculcate on them how their banks should be managed. I have strong reservations about that and always guard banks’ owners against ever doing that. Why? Simply because we are concerned with different things: whether or not shareholders’ decisions are in line with Moldovan laws and NBM’s regulations. We have never tampered with banks’ management issues, nor do we plan to. This is well beyond our range of authority.

Now coming back to the prospect of transferring the Savings Bank into private ownership, I think the key concern here is that the cash-strapped government is simply unable to come up with a sustainable development strategy for the bank.