Annual Report 2017
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Annual Report 2017 National Bank of Moldova 1 Grigore Vieru Avenue MD-2005, Chis, inau˘ Tel.: (373 22) 822 606 Fax: (373 22) 220 591 web: http://bnm.md ISBN 978-9975-4353-2-1 ISBN 978-9975-3211-7-4 © National Bank of Moldova, 2018 Note The report was compiled using the latest statistical data held by the National Bank of Moldova, the National Bureau of Statistics, the Ministry of Economy and the Ministry of Finance. Also, were used data provided by international organizations and central banks of neighboring countries. Computation of some statisitcal data was conducted by the National Bank of Moldova. All rights reserved. No part of this publication may be reproduced, and the use of data in studies is allowed with the proper specification of the source. Contents Foreword by the Governor of the National Bank of Moldova (NBM)8 1 External environment 12 1.1 Global economy, financial and commodity markets....................... 12 1.2 Evolution of important economies.................................. 14 1.3 Evolution of the neighbouring countries’ economies and the main trading partners.. 15 2 Economy of the Republic of Moldova 16 2.1 Real sector................................................. 16 2.2 Evolution of inflation........................................... 23 2.3 Public sector and tax policy...................................... 28 2.4 International accounts of the Republic of Moldova in 2017 (provisional data)...... 30 3 Monetary Policy of the National Bank of Moldova 38 3.1 Monetary policy objective....................................... 38 3.2 Monetary policy decisions....................................... 38 3.3 Monetary policy achievements during 2017............................ 39 3.4 Monetary and foreign exchange conditions............................ 42 3.5 Monetary market............................................. 47 3.6 Forex market................................................ 53 4 Banking supervision 62 4.1 Evolution of the banking sector.................................... 62 4.2 The NBM supervisory activity..................................... 70 4.3 Banking sector risks’ assessment.................................. 74 4.4 Fighting money laundering and terrorist financing........................ 75 4 5 Payment System 77 5.1 Payment systems regulation and supervision........................... 77 5.2 Licensing, regulation and supervision of payment services providers and of electronic money issuers............................................... 77 5.3 Automated interbank payment system............................... 78 5.4 State securities book-entry system................................. 79 5.5 Cashless payment tools......................................... 79 6 Cash operations 83 6.1 Evolution of currency (banknotes and coins in circulation).................. 83 6.2 Cash issuing, withdrawal and processing.............................. 84 6.3 National currency counterfeiting................................... 86 6.4 Issuance of jubilee and commemorative coins and banknotes................ 86 7 Activity related to modification of the legal and regulatory framework 87 7.1 Prudential regulation, regulation of accounting evidence in banks............. 87 7.2 Foreign Exchange Operations Regulation.............................. 90 8 External activity of the NBM 92 8.1 International Collaboration of the Republic of Moldova..................... 92 9 Internal activity of NBM 101 9.1 Corporate Governance of the National Bank........................... 101 9.2 The strategic plan of the National Bank of Moldova....................... 105 9.3 Management and organization.................................... 106 9.4 Internal audit................................................ 107 9.5 Information technology......................................... 107 9.6 Human resources management.................................... 108 10Analysis of the financial situation for 2017 111 10.1General considerations......................................... 111 10.2Available profit for distribution.................................... 111 10.3Capital and reserves........................................... 113 11External communication 115 A Statistical tables 124 List of abbreviations AIPS Automated Interbank Payment System ARSS Automated remote service systems BAAM BIS Asset Management Asset Allocation Module BES Book-Entry System of Securities BIS Bank for International Settlements BSCEE Group of Banking Supervisors from Central and Eastern Europe BSTDB Black Sea Trade and Development Banlk CBN Central Bank of Netherlands CEFTA Central European Free Trade Agreement CHC Construction of housing cooperatives CIS Commonwealth of Independent States CPI Consumer Prices Index CSD Central Securities Depository DNS Designated-Time Net Settlement System DvP Delivery versus Payment EBRD European Bank for Reconstruction and Development ECF Extended Credit Facility EFF Extended Fund Facility by IMF EU European Union EUR European Single Currency FoP Free of Payment FSVC Financial Sevices Volunteer Corps GB Government bond GDP Gross Domestic Product HHI Herfindahl-Hirrschmann index IAD Internal Audit Department ICT Information and communication technology IMF International Monetary Fund IOSCO International Organization of Securities Commisions IPPI Industrial production price index LCR Liquidity Coverage Ratio MDL Moldovan leu NBC National Bank Certificates 6 NBM National Bank of Moldova NBR National Bank of Romania NBS National Bureau of Statistics of the Republic of Moldova NSFR Net Stable Funding Ratio OPEC Organization of the Petroleum Exporting Countries OSCE Organization for Security and Co-operation in Europe REER Real effective exchange rate of the national currency RM Republic of Moldova RTGS Real-Time Gross Settlement System SAA Asset allocation approach SDR Special Drawing Rights (XDR) TRC Total Regulatory Capital USA The United State of America USAID United States Agency for International Development USD U.S. dollar 7 Foreword by the Governor of the National Bank of Moldova (NBM) The activities carried out by the NBM in 2017 were in line with the reforming strategy embraced by the Bank in 2016, among the main goals of which can be listed the stabilisation of monetary conditions, the strengthening of the banking sector and the improvement of the national legislative and regulatory framework. These objectives aim at preventing the recurrence of law violations that resulted in a bank fraud during 2012 -2014 and triggered the financial crisis that followed. A catalyst to the implementation of these reforms is the Agreement signed by the Republic of Moldova with the International Monetary Fund (IMF) on 7 November 2016. In 2017, the NBM, in cooperation with the country’s authorities, successfully fulfilled its commitments made to the IMF, the latter having declared as successful the first and the second reviews of the progresses achieved in programme implementation, the fact that was confirmed in the IMF decisions of 1 May and 20 December 2017. Developments that took place on the international market produced mixed effects on the Moldovan economy and, consequently, on the monetary policy of the NBM. On the one hand, a positive evolution of global economy (+3.7% in 2017) created favourable conditions for economic growth in the Republic of Moldova. In the European Union – the main trading partner of our country – the economic growth reached 2.5% and the historically high unemployment rate has decreased. In the East, after two consecutive years of recession, the economy of the Russian Federation grew by 1.5% in 2017. On the other hand, the increase in global demand was the main cause of the rise in international commodity prices, including food and energy. A faster rise in oil prices was partially driven by the cut in extraction quota approved under the agreement of the Organisation of Petroleum Exporting Countries (OPEC). Against this background, the Republic of Moldova recorded a robust economic growth as well as a temporary increase in domestic consumer prices. • Thus, in 2017, the gross domestic product (GDP) grew by 4.5%, being driven by the increase in domestic consumption and agricultural production output. The economic growth, recorded in the main countries of emigration of Moldovan citizens, increased the volume of remittances, which in turn contributed to the increase in the purchasing power of local consumers. In the second half of the year, a revival of industrial activity and a strong growth of exports were also recorded. • In 2017, the average annual growth rate of consumer price index (CPI) recorded 6.6%, 0.2 p.p. higher than in the previous year. Annual inflation of consumer prices rose from 3% in January to 7.3% in December 2017, being driven by the rises in energy prices, food prices and tariffs for regulated services. However, annual core inflation continued to fluctuate within the inflation target range, recording an average level of 4.8%. At the time of drafting this report, the annual consumer price inflation fell to 3.7%, according to April 2018 statistics. In 2017, as forecasts suggested a steady decline of the inflation rate, the NBM maintained its policy of lowering the base interest rate, yet at a slower pace than in 2016: from 9.0% in early 2017 to 6.5% at the end of the year. At the same time, in order to absorb the liquidity surplus and improve the transmission mechanism of monetary policy, the NBM increased the minimum level of required reserves held in Moldovan lei from 35% to 40%. The minimum level of required reserves held