Components of the financial system of Moldova, despite the challenges of 2022, are stable and sustainable and are ready to continue to ensure normal operation of the national economy – the NBM.
This is stated in the Report of the National Bank of Moldova on Financial Stability for the year 2022. The document notes that the year 2022 was marked by many economic and financial problems. The global economic recovery was slowed down by unfavorable geopolitical factors, as well as by the inflationary crisis, which affected most countries of the world. The conditions of financial stability began to deteriorate as early as the fourth quarter of 2021, accelerating significantly in early 2022 with the outbreak of the war in Ukraine. However, Moldova's financial system showed resilience and continued to fulfill its function of financing economic activity. The reforms implemented in the banking sector once again demonstrated their effectiveness, and banks remained well capitalized and profitable, managing adequately the increased risks. The NBM points out that the increase in bank profits in 2022 was largely due to monetary market conditions. As a result of the accelerated tightening of monetary policy, banks adjusted their lending rates more slowly than their deposit rates, reducing their net interest margins. Adverse macroeconomic conditions, rising inflation and market rates led to deterioration in the quality of bank borrowers. The annual growth rate of new loans decreased due to a decline in lending to households, which was affected by both a strong tightening of lending standards and a decline in demand from individuals. At the same time, companies showed a growing demand for financing in 2022, which led to an increase in bank lending to economic agents, compared to previous years. The average default rate in 2022 was lower compared to 2021 for both the corporate and residential portfolios, and the highest rates in 2022 were recorded in Q4. The most unfavorable quality dynamics were recorded for loans to manufacturing industry, agriculture, other loans, and consumer loans. In response to systemic risks identified in the context of macroeconomic instability and uncertainty, the National Bank of Moldova implemented instruments to limit consumer indebtedness by creating a responsible lending system for banks. Also, in order to increase the banks' resistance to possible losses due to difficulties in repayment of loans by individuals, the NBM increased the systemic risk capital amortization rate by 2 p.p. for banking operations with resident individuals. The non-banking lending sector strengthened its position in the financial sector by expanding the traditional non-banking loan portfolio, due to an increase in the volume of loans issued to individuals. At the same time, the negative impact of the armed conflict in Ukraine was immediately felt by an increase in the number of requests for withdrawal of bank deposits, with the sharpest decline recorded for retail deposits in the first month after the start of the war in Ukraine. As noted by the National Bank, this phenomenon was short-lived, and the liquidity available to banks allowed them to meet the requests received. The external shocks faced by Moldova in this period, especially the shock caused by a sharp increase in gas, fuel and electricity prices, as well as the increase in prices in the chain, which determined a galloping growth of inflation, up to the level of 33.9% (annual rate), affected the financial stability in many sectors. There was a significant decline in economic activity, and the national public budget and external sector indicators deteriorated. In this difficult environment, the financial system has withstood and adapted to the shocks. "Despite the challenges of 2022, the components of the financial system are stable and resilient and ready to continue to ensure the normal functioning of the national economy," the NBM report stresses. // 16.06.2023 – InfoMarket
