The low volume of loans to GDP shows that the financial system is buzzing

The financial market (banks and microfinance sector) of the Republic of Moldova is going through a turbulent period. The banks experienced a continuous fall after the bank robbery in 2014 and this lasted until 2017, and the microfinance sector experienced an ascent, explained in the show “15 minutes of economic realism”, IDIS Viitorul economist, Veaceslav Ioniță.

The total volume of loans

The total volume of loans

Granted according to the estimates at the end of May will be 46 million USD, a record amount after the banking crisis. The largest volume of loans offered by the financial sector was reached in 2014 when they amounted to 50.5 billion USD (excluding doubtful loans).

“Although the Republic of Moldova shows an increase in the volume of loans, however, relative to GDP, this indicator is very small and represents only 22.5%. The highest indicator was in 2014 when the share of credits reported to GDP reached the quota of 40%.

The low level of loans to GDP is the inability of the economy to assimilate the money. Thus, unprecedented pressure is placed on the banking system and is manifested by the volume of deposits related to loans. Currently, the surplus of money is 28.3 billion USD. Until 2014, the ratio of loans to deposits was similar, after the bank robbery, the volume of deposits exceeded that of loans. As a result, the NBM is forced to sterilize 42.5% of the banks’ money, ”said Ioniță.

According to the economist

According to the economist

Banks have begun to recover the market from the microfinance sector. Throughout 2014, the volume of loans offered by banks decreased continuously while those offered by the non-bank sector increased.

If at the end of 2013 the balance of the loans was 42.2 billion USD then in 2017 it reached 33.5 billion USD. Regarding the loans offered by the non-banking sector, if in 2013 the loans granted amounted to 3.4 billion USD then at the end of 2018 the figure reached 9.1 billion USD.

Throughout this period, microfinance companies have succeeded in setting aside banks. The explanation is that banks were focused on companies, and microfinance companies reoriented to individuals. Currently, we are assisting the recovery of individuals by banks. We will arrive very soon when each second lion given will be granted to individuals.

As a result of the concentration of banks

And microfinance companies on individuals, the indebtedness indicator appears, which is at a rather low level compared to the states in the region. In the first five months, individuals borrowed 1.5 billion USD and reached a quota of 19 billion USD, and at the end of the year a record of at least 21 billion USD will be recorded twice more. far from three now.

In conclusion, Ioniță says that the financial market of the Republic of Moldova is recovering. The volume of loans will approach the historical maximum, and the increase is based mostly on individuals, whose share for the first time exceeded the level of 40% in the total volume of loans.

At the same time, the low volume of loans related to GDP shows that the financial system cannot perform the functions of financing the economy and this is determined by both the fragile economy and the weak governance in banks. This is seen through the surplus of liquidity – 28.3 billion USD. The NBM must continue the reforms in the banking system and help banks reform their governance and lending processes to reduce the large volume of deposits towards loans.

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