Peculiarities of BANKING ORGANIZATION 1.

Banking system in Moldova Moldova has maintained an efficient, two-levelled banking system since 1993, consisting of the National Bank of Moldova (NBM) and commercial banks. The Moldovan banking sector is considered to be one of the strongest among the CIS-7countries. The National Bank of Moldova was established in 1991, and modelled according to the Central Bank of Romania. It is an autonomous legal entity, subordinated only to the country's parliament. The functions of the central bank are: The Formation of monetary and foreign exchange policy, as guided by the Bank's own economic analysis; To act as banker and fiscal agent of the Republic of Moldova; To license, supervise and regulate the activity of financial institutions. Banking supervision in Moldova is completely in line with Basle Committee standards; To act as banker to the banks, providing them with credit facilities; To supervise and facilitate the payments system; To be the sole issuer of currency; To hold and manage foreign exchange reserves; To settle the country's balance of payments. The NBM regulates and supervises banking practices throughout Moldova, and defines national monetary management and exchange policies. Increasingly, the NBM is relying less on exercising direct controls and instead using indirect methods based upon market mechanisms. The regulatory system was developed with technical assistance from the IMF and USAID. Its main norms are in accordance with, or concerning capital adequacy and loan provisions even stricter than Basle prudential norms. Some of the most striking requirements are: financial reporting according to IAS, in force since January 1998; capital adequacy ratios which make 12%, and loan provisioning on a gross loan basis without taking into consideration loan collateral. The later is stricter than IAS norms, because of the difficulties of valuing and realizing collateral in an emerging market. The regulation on risk-based capital adequacy establishes minimum capital requirements for all 14 commercial banks licensed in Moldova. The requirements are 200 000 000 MD. Banks can operate in domestic currency, conduct international operations and can make activities on capital markets. Nowadays there are 14 commercial banks in Moldova: Banca Comercial "COMERBANK" S.A. Banca Comercial "BANCA SOCIAL" S.A. Banca Comercial "VICTORIABANK" S.A. Banca comercial "MOLDOVA - AGROINDBANK" S.A. Banca Comercial "Moldindconbank" S.A. Societatea pe Aciuni Banca de Economii Banca Comercial "EuroCreditBank" S.A. Banca Comercial "UNIBANK" S.A. "Banca de Finane i Comer" S.A. Banca Comercial "ENERGBANK" S.A. Banca Comercial "ProCredit Bank" S.A. Banca Comercial Romn Chiinu S.A Banca Comercial "EXIMBANK - Gruppo Veneto Banca" S.A. Banca Comercial "MOBIASBANC - Groupe Societe Generale" S.A. Although the banking system has been opened to foreign competition, the foreign presence in the Moldovan banking system is still low as compared to other countries in the region with only four subsidiaries of foreign banks active in the country, Banca Comerciala Romana (a full
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subsidiary of the Romanian bank), Unibank (fully owned by Petrocommerce, Russia), Mobiasbanca (fully owned by Groupe Societe Generale, France) and Eximbank (fully owned by Gruppo Veneto Banca, Italy). Banking opportunities are scarce, which prompt most banks to avoid specialization. Corporate banking is the main source of revenues, whereas retail banking plays primarily a funding role. The involvement of banks in financial service such as capital markets, leasing, factoring, or insurance is low. Weak IT systems act as a constraint for developing the range and improving the quality of services available. The top tire private banks have been able to gain some advantage over the ex-state banks in this area. Moldovas commercial banks are still not fully being utilized. As in other developing countries, tax evasion and the lack of trust in the banking system are partly to blame. The riskiness of loans in Moldova -- exacerbated by the continued poor financial situation of many enterprises and a still unclear legal framework -- particularly regarding bankruptcy law -- adds a significant premium to lending rates charged by commercial banks. 2. Licensing banks The National Bank has the exclusive right for the issuing of bank licenses (as provided in Articles 5, 11 and 44 of the Law on the National Bank of Moldova and Article 4 of the Law on Financial Institutions). No one shall engage in the financial activities listed in Article 26 of the Law on Financial Institutions without a license issued by the National Bank. A foreign bank that wishes to establish a subsidiary on the territory of Moldova must receive a license from the National Bank. Bank may engage in the limit of its license for financial activities that are in the accordance with art. 26 of the Law on Financial Institutions: Article 26. Financial activities allowed to banks (1) Banks may perform the following activities within the issued authorisation: a) receiving deposits (in the form of demand or time deposits etc.) bearing interest or not; b) extending credit (consumer and mortgage credit, factoring, with or without recourse, financing of commercial transactions, issue of warranties and collateral etc.); c) borrowing funds, buying and selling for their own account or for account of customers (excluding underwriting) of: - money market instruments (checks, bills of exchange and certificate of deposit etc.); - futures and options relating to debt securities or interest rates; - interest rate instruments; - debt securities; d) providing payment and collection services; e) issuing and administering means of payment (payment cards, travellers checks and bankersdrafts etc.); f) money (including foreign currency) broking; g) financial leasing; h) providing credit reference services; i) providing services as a financial agent or consultant not including services described in subparagraphs (a) and (b); j) dealing in foreign currencies, including contracts for the future sale of foreign currencies; k) providing trust services (investment and administration of funds received in trust), safekeeping and administration of securities and other valuables etc.; l) providing services as an investment portfolio manager or investment adviser; m) underwriting and distribution of debt and equity securities and dealing in equity securities; n) such other financial activities as approved by the National Bank.
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No bank must engage in financial activities that exceed those specifically authorized by its license. The amount of Minimum Capital shall be established for Tier One Capital in the amount of 200 million lei. Banks shall be organized according to the framework regarding joint-stock companies. The banks Council shall meet the provisions stipulated in Articles 18 and 19 of the Law on Financial Institutions: Article 18. Administrative and control structure of banks (1) Each bank shall be managed by the general meting of shareholders, the Board of Directors, the executive body and the Audit Committee. The Board of Directors is the administrative authority of the bank that shall carry out supervision functions and shall establish and ensure the bank policy operation. Attributions of the Board of Directors shall be specified in the charter and internal regulations of the bank. (2) Each bank shall be overseen by an Audit Committee, as responsible for control of the banks activity. Article 19. Board of Directors (1) The Board of Directors of a bank shall have an uneven number of not less than three members. Board members shall be appointed by the general meeting of shareholders of the bank for a period of not more than four years. Board members may be reappointed for subsequent periods of four years. The general meeting of shareholders of a bank may establish remuneration for Board membership. The majority of Board members shall be persons not affiliated to the bank, except for affiliation determined by membership in bank Board. (2) A person shall not be eligible to become a member of the Board of Directors of a bank, or shall by decision of the general meeting of shareholders of the bank be relieved of his membership on the Board of Directors of the bank, in the event that: (2) A person shall not be eligible to become a member of the Board of Directors of a bank, or shall by decision of the general meeting of shareholders of the bank be relieved of his membership on the Board of Directors of the bank, in the event that: a) he is or would be a member of the Board of Directors of two or more other banks of the Republic of Moldova; b) he has been deprived of the right to sit on the Board of Directors; c) he serves, or he served during the preceding twelve months period on the Administrative Council of the National Bank; d) he has been subject to an insolvency proceeding and not discharged from payment of past debts. (3) The Board of Directors of a bank and its members can not delegate their responsibilities to others. All administrators shall meet the requirements stipulated in the Regulation on Requirements towards Bank Administrators. Application for a license for financial activities shall be submitted by the founders of the bank in writing to the Governor of the National Bank . The application and the set of documents shall be submitted to the National Bank of Moldova in the State language of the Republic of Moldova and in case the application and the set of documents are compiled in a foreign language, the documents shall be submitted in original together with the translation into the state language of the Republic of Moldova, notarised/legally attested. The solicitor shall appoint two contact persons located in Chisinau for the period of application examination by indicating the following data: name, place of work, position occupied, contact address, telephone/fax. The request shall be attached the list of documents: 1. Minutes of the founding shareholders meeting on establishment of the bank, in which all names of all present shareholders and of all persons invited to the meeting shall be listed (for
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legal entities, the position of the persons attending shall be stated). The agenda of the meeting shall contain the information on: a. establishment of the bank b. the expected amount of paid-in capital of the bank, and number of shares expected to be issued; c. approval of charter and by-laws of the bank d. election of the Board of Directors e. election of the Audit Committee of the bank f. election of the executive body of the bank. In case when at the general assembly of shareholders, the shareholder is represented by a representative based on mandate, or by the nominal shareholder based on contract, the minutes of the general assembly of shareholders shall indicate the following: the name (or first and last name) of the absent shareholder, the total number of shares with voting rights held by the absent shareholder, the name (or first and last name), the legal address (home address) and the number, date of issue (closing) of the mandate (contract) of the shareholder representative (nominal shareholder). 2. The Foundation Contract on the establishment of a bank, providing the type of bank, the amount of the expected paid-in capital, type of shares, identities of all founding shareholders with the amount and percentage of their "declared" ownership interests, responsibilities of the parties for implementation of approved decisions, and bodies responsible for settlement of disputes arising from the applicant will be notified in writing as soon as a complete set of documents is submitted in accordance with requirements. At that time, the application will be registered and accepted for consideration by the National Bank of Moldova. The National Bank has the right to request any additional information if information submitted is not sufficient to take a decision on license provision. Within three months from the application registration date, the National Bank shall grant preliminary approval or refusal of the application and shall notify the applicant about its decision in writing. The decision refusing a license shall include an explanation of the grounds on which the license was refused, in accordance with requirements of Article 7 of the Law on Financial Institutions. Failure to provide sufficient information to the National Bank for decision purpose, and/or revision of false information in license application, shall be also considered grounds for denial of application. In its preliminary approval of a license application, the National Bank shall establish conditions, which must be met by the applicant in order to receive the license. After preliminary approval of an application, the National Bank shall set the following requirements for the bank to receive the license: a) the payment of the bank initial capital that shall not be less than the minimum capital required; b) the hiring of the specialists; c) signing an agreement with an auditing firm; d) the lease or purchase of operations equipment and bank premises. The applicant shall, within one year, comply with the requirements of the National Bank. Otherwise the preliminary approval of the application for a license shall automatically become avoid. The applicant shall submit: written evidence that the enumerated requirements of the National Bank are fulfilled; the calculation of the Total Regulatory Capital as of the last reporting date of the month as well as the registration certificate issued by the State Registration Chamber. After the National Bank is assured that all the requirements are met, it shall issue, within one month; the license, as well as the written approval for holding significant interest by applying shareholders.
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The National Bank of Moldova, within maximum 3 working days from the adoption of the decision on issurance of licence, shall notify the applicant in writing about this fact and its obligation to pay the tax for license issue. The license shall be signed within 3 working days from the date of receiving the document that confirms the payment of tax for licence. 3. Expansion of banks in the territory In order to open a branch, a bank shall meet the following requirements: 1. The bank shall have and maintain Tier I Capital and the Ratio of Tier I Capital to Risk Weighted Assets pursuant to the requirements set forth in the Regulation on Risk-Based Capital Adequacy, 2. The bank shall be in operation for at least one year after receiving the license to carry out financial activities, and shall be examined by examiners of the National Bank of Moldova at least once. 3. The bank shall be in compliance with the provisions of the laws of the Republic of Moldova and the regulations of the National Bank of Moldova. 4. The bank shall not be subject to a formal enforcement action of the National Bank of Moldova. In order to register the branch office at the National Bank of Moldova, the following documents shall be submitted in the State Language of the Republic of Moldova: A. A written application for registration of a branch office signed by the Chairman of the Banks Council must be submitted to the Governor of the National Bank of Moldova. B. An extract from the minutes of the banks administration body at which the decision on the opening of a branch office is taken. C. By-laws on branch office, approved by the Banks Council. D. Documents certifying the ownership or lease rights (rent) over the space designated for a branch. E. Information on the future branch office address. F Information regarding the Head of the Branch, compiled in accordance with the provisions of the Regulation on Requirements for Banks Administrators G Information regarding any changes to the bank's business plan, which would result from the opening of the branch office. H If some changes are made to the by-laws on organizing and functioning of the branch office, the following documents shall be submitted by the bank to the National Bank of Moldova within 15 days from the actual decision: a. The extract from the minutes of the General meeting of shareholders or bank board meeting, where was taken this decision; b. the new regulation on organizing and functioning of the branch office; c. in the case of branch location change - documents certifying the ownership or lease rights (rent) for the space branch. Within 10 days from the date of registration by the State Registration Chamber of the branch office or the changes in the regulation on organization and operation of the branch, the bank presents to the National Bank of Moldova a copy of the decision of the State Registration Chamber, after which the name and the address of the branch office shall be entered into the Register of Banks. Within 30 days from the receipt of a complete written application, the National Bank shall issue the preliminary approval on opening a branch office or the notice of changes in the regulation on organization and operation of branch , or deny the application and shall notify the applicant of its decision in writing.