Phoenix with the Arab capital

Phoenix with the Arab capital

InfoMarket comments

Changes are expected in the Moldovan banking system. Moreover, it is not so much connected with the sensational issues around the number of commercial banks, but with the appearance of the new players at the market.

In mid-October, the government finally sold 21,019% stake in EuroCreditBank. The transaction was carried out at the face value- 2.27 million shares with face value of 10 lei were sold for 22.7 million lei ($1.6 million).

It happened on the last day of the auction held by the Public property Agency at the Ministry of economy on the sale of the state assets to be privatized.

It is interesting that the permission on acquisition of a major stake in EuroCreditBank, the buyer was able to get only at the day before the last day of trading.

In general, it is difficult to count how many attempts by the state to sell these shares. 21,019% in this bank, or 59,3561% are owned by another shareholder and are not very attractive from the point of view of influence on the decisions of this Bank. In addition, around the main shareholder - Marianne Zissis are focused the other shareholders that fully supports her policy more than 72% of the control over the bank activities. That's why nobody wanted to invest not getting any real control.

Nevertheless, the buyer was found! More than half a year the citizens of Iraq gathered documents, translating them from Arabic into the official language, acting in accordance with current legislation. A lot of time was spent by the national Bank to review these documents and check the purity of the origin of capital. The other would give up, but after going through all the bureaucratic circles, with a team of competent lawyers, a citizen of Iraq at last received a permit to purchase a large stake in EuroCreditBank.

After the transaction at the Stock exchange the national Commission for financial market announced his name - the new shareholder of the Bank became Mahmud Mohammed Shakir Mahmud. This name does not say much. Little was also known about James Zissis, Greek investor, who 12 years ago bought PetrolBank, renamed it into EuroCreditBank and thereby gave it a second life.

In general, the history of this financial institution is very interesting and even instructive. The Bank was established in 1992 and is one of the oldest at the market. By early 2000, the Bank has gained a reputation of a "big monetary fund" in the banking system. PetrolBank was known as a financial institution, in which foreign exchange transactions (both cash and non-cash) were rather large.

There were three types of licenses - A, B and C. The first is the most simple, allowing to work only with leis; the second - most popular - were added to the types of activities for all types of currency transactions; the third - most prestigious gave the right to work with the state securities and serve treasury account.

In December 2001, the National Bank revokes Petrolbank’s license-b leaving it the right to work only with lei. So it was forbidden to work with currency. Another year, the bank was sued by the regulator, while continuing to perform currency transactions, but a year later, the last decision of the court did affirm the decision of the National Bank and Petrolbank had to stop currency transactions.

In December 2002, in situation when Petrolbank lost the currency license, and its shareholders have refused to increase the capital to the required minimum, BusinessBanca suggested Petrolbank to unite.

The documents were filed in the NBM, however, it returned them, indicating that until Petrolbank resolves issues with affiliation in the composition of shareholders, and a resolution on the merger won’t be issued.

While the problems with the documents were resolved, BusinessBanca actually provided Petrolbank with a credit line and the accession process began de facto. However, in February 2002, the shareholders of the two banks had quarreled due to the fact that Petrolbank did not return a certain amount in the stipulated time frame.

It became clear that the merger will not take place and Petrolbank carried out a new share issue for 10,87 million lei to increase capital to the minimum required for the license type B - then it was 64 million lei.

Thus, after the revocation of the license type B, Petrolbank for two and a half months, according to the agreement on the accession to BusinessBanca, credited the latter, parallel solving own problems, slowly selling assets, to be able to meet its obligations. It won time and announced a new share issue, which then carried out, and in April became EuroCreditBank.

In 2002 basic control over the Bank was acquired by the Greek investor James Zissis. Following the NBM requirements - not only to the size of the capital EuroCreditBank receives a license type B with the change of the shareholders and management, and entered the market of the hard fight for the client. (By the way, ironically, BusinessBanca after a few years was liquidated).

The national Bank has always closely followed the activities of the Bank and, as was it is said in the manual, it seems that regulator is looking for the slightest excuse to close the bank. But close supervision led to the fact that the Bank has become one of the most liquid financial institutions of Moldova - not the biggest, not the most profitable but the most liquid. This, however, did not help it.

From January 1, 2013 came into force new minimum requirements to the capital of the commercial Bank- 200 million lei. Over the past 10 years the situation with the licensing has changed - no longer exists three categories of licenses, but there are requirements for key indicators, the failure of which may lead to the sanctions against the bank.

At the beginning of the last year regulatory capital of EuroCreditBank Bank did not reach 200 million lei by about 17 percent, or 33 million lei. The problem was not to carry out an additional share issue there is money, it is the problem in the high liquidity of the Bank: “why “pump” it with new money, if it has already a lot of free tools and all indicators are rolling?

All businessmen, and not only them, understand that free money should work. The banking market has long been experiencing excess liquidity despite the fact that the norm of liquidity determined by the national Bank is 20% and it can’t fall below it and the higher it is, the less the bank may freely dispose it and conduct its business. Therefore, under normal conditions, banks are trying to adhere to the liquidity ratio of 22-30%: as it is less dangerous. Liquidity in the banking system as of 31 January 2013 is 34.8% (EuroCreditBank – 35,1%). The capital adequacy ratio divided by the risk in the banking system amounted to 24.3 per cent, EuroCreditBank- 86.8%. This means that the amount of money at the market is much higher than the demand for it and in this Bank its number in proportion to demand is excessive. In other words, the amount of money in this Bank at the beginning of 2013 was much more than enough, therefore, to “pump” the bank with the additional 30 million lei had no economic and commercial sense. TRC with   such liquidity and super-capital adequacy is in fact the frozen money, not bringing to the owner any additional income.

EuroCreditBank is the smallest Bank of Moldova, with a market share of 0.6 percent. The money it has is more than enough for its activity but NBM requires further capital increase.

For many years "race for the capital", which started by NBM was criticized by the commercial banks, they say, this should not be a goal of the national Bank in the fight for stability of the system, despite the fact that the market can not absorb so much money- economical crisis, which Moldova suffers for many years shows that real demand for money is less than that it is available today in the country's banking system. However, though the bankers criticized NBM, they nevertheless increased capital.

Marianna Zissis, which personally owned 59% of EuroCreditBank shares (and her friends from Greece- 13%), suggested another major shareholder of this Bank to increase capital in proportion. Another major shareholder of the Bank, which owned 21,02% stake, was the state. The Finance Ministry then reasonably decided: if the Bank has already excessive liquidity and capital, there is no reason to increase its market share and to increase the capital of the Bank. The state refused then to invest money in the Bank- it had to be about 7 million lei and the budget deficit has more important problems, and the Bank can operate without this funds.

But the national Bank is inexorable: the requirement is the same for all and in April 2013 the regulator adopts sanctions: it prohibits the bank to accept deposits from individuals (including current accounts, with the exception of the transaction cards. In fact, the National Bank resulted in the curtailment of EuroCreditBank Bank activities pushing it from the market.

The National Bank would protect the interests of ordinary investors, based on its own regulations. EuroCreditBank was the most liquid financial institution Moldova with liquidity of 55%; as of late March 2013 the accounts of the Bank amounted to 80 million lei and 24 million lei were placed in STO (which is equivalent to liquid assets). The amount of the deposits of individuals amounted to 96.3 million lei (legal entities 51.6 million lei). Who in Moldova, and in the world, could boast of the ability to return all deposits to the depositors in one day?! Under such liquidity the shareholder loses his money as it could bring him more profit.

Marianna Zissis repeatedly appealed NBM pointing minimum capital for commercial banks in EU is only 5 million Euro (in 2013- 80 million lei), and the National Bank has demanded the Moldovan banks to raise the capital from 150 million lei (which is almost twice more than in the EU), up to 200 million lei (€12.5 million) till January 1, 2013.

But the National Bank remained inexorable: the capital should be increased.

It is known that Mariana Zissis and her team looked for the partner or even a buyer. For the last year and a half interest was shown from a dozen potential investors from Russia, Europe, the Middle East, and Asia. But the most persistent became a citizen of Iraq Mahmod Mohammed Shakir Mahmud.

Let's start with the fact that he acquired a 21% stake in the Bank at the face value, paying 22.7 million lei. While regulatory capital as of early October amounted to 174.5 million lei. So he got 36,7 million lei for 22.7 million lei- so gained 14 million lei of the net profit! Why did it happen? First of all, as it was mentioned above, the state for many years may not sell the package, and the minimum price at which it is sold is nominal. You could pay for the stake more, but it is constrained by the fact that the buyer has to obtain NBM permission on acquisition of shares of banks starting with 1% - it not simply reduces the number of potential buyers, it does not allow them to appear. It turned out that it is put up for sale at the face value - and also sold at the face value. But the buyer is satisfied!

Today the shareholders of the Bank are as follows:

59% - Mariana Zissis

13%- Greek companies which trusts Marianna Zissis

21% - Mahmud Mohammed Shakir Mahmud.

7% - other shareholders.

Equity of the Bank is 108 million lei.

The interesting fact: on November 20 this year ends closed share issue, declared by EuroCreditBank-$ 30 million lei. Previously Mariana Zissis, together with her Greek partners, according to unofficial data, has said that she does not intend to invest in the Bank any more and wants either to find a reliable partner, or to sell her stake to the new owner. Against this background, we can assume that the whole issue of 30 million lei will be purchased by the new shareholder from Iraq.

If this is so, the shareholder structure will look something like this:

46,4% - Marianna Zissis

10.1%- Greek companies, which trust Marianna Zissis

38,2% - Mahmud Mohammed Shakir Mahmud.

5,3% - other shareholders

Thus, the new shareholder from Iraq can get a blocking stake and directly influence the activities of the Bank. Unless, if after some time, he will fully redeem the share of Greek shareholders.

Anyway, EuroCreditBank returned full-fledged player at the banking market of Moldova.

For investors from the Middle East Moldova is a very attractive country for investment, especially in the banking sector. The country has strictly regulated banking legislation, which means that the investment is protected, what you can not say, for example, for investments in Saudi Arabia or the United Arab Emirates - where foreigners are treated like outsiders, even if they are investors. Moldova is located on the border with the EU with the perspective of membership and at the same time traditionally associated with the post-Soviet States.

It is not surprising that people from the Middle East who have money, received in Moldova the opportunity to have their own Bank, control it and develop. Since the main rule of the investor - protect your investment. Despite the skeptics’ opinion, it is possible in the Moldovan banking system.

We started with the fact that the market changes. The investor from Iraq will entail cash flows from his partners, friends and acquaintances, who trust him. Thus, Mahmod Mohammed Shakir Mahmod, as a pioneer from the Middle East, will draw in Moldova new money will be a man who will get acquainted with Moldovan business and public reality.

The history of Eurocreditbank Bank is unique. It is the only bank in the history of the Moldovan banking system, which in 2002 was able to return a revoked license. The history repeats a decade later. Eurocreditbank is like a Phoenix reborn… Twice.