(Bloomberg) -- Rocked by a $1 billion fraud four years ago and plagued by money-laundering scandals since then, Moldova’s financial industry may finally be turning a corner.
The former Soviet republic of 3.6 million people has secured the first foreign investment into its banks in more than a decade. Banca Transilvania SA, the second-biggest lender in neighboring Romania, this month bought about 40 percent of Victoriabank BC, Moldova’s third-biggest by assets. The European Bank for Reconstruction and Development, a minority owner of both lenders, says the deal can spur an upswing in Moldova.
“One of the aims was to create what might be a watershed moment” for the banking industry, Henry Russell, the London-based EBRD’s director for financial institutions in Moldova, Ukraine, Belarus and the western Balkans, said in a phone interview. The investment, as well as new rules within the banking sector, mean that “opportunities are there for foreign investors to come in, compete and make a profit.”
The deal is a show of confidence in Moldova’s once-teetering banks and comes despite a tumultuous political and economic backdrop. The 2014 fraud, equal to about an eighth of economic output, prompted mass protests, the liquidation of the three lenders involved and a $400 million International Monetary Fund bailout. Financial scandals have worsened Moldova’s reputation: one report concluded the country was used to help launder $20 billion from Russia on its way to the European Union.
Ex-Prime Minister Vlad Filat is serving a nine-year prison sentence for the fraud, and the central bank has the country’s biggest lenders -- including Victoriabank -- under monitoring. A battle for control of Victoriabank has been taking place between the EBRD and a shareholder group hiding behind offshore jurisdictions.
The Banca Transilvania deal, whose wasn’t disclosed, is a positive signal, though issues remain. Politics is precariously balanced between a pro-EU parliament and a Russian-backed president. While the IMF predicts the economy will grow 3.7 percent this year, banks’ bad debts have risen.
Victoriabank may emerge stronger, benefiting from a new central bank governor who’s imposing stricter transparency rules and the regulator’s ongoing scrutiny, which has limited its credit growth. The EBRD is hoping it can lead the way.
©2018 Bloomberg L.P.
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