GOVERNMENT PROPOSES AMENDMENTS TO LAW ON NBM ABOUT PROFIT DISTRIBUTION

The Government proposed a legislative initiative on introducing amendments to the Law on the National Bank of Moldova, which concern the order of profit distribution.

The initiative is due to the authorities’ desire to mitigate the pressure on the budget, whose funds are used to cover the state debt to the NBM, which currently slightly exceeds 11 billion lei.

In 2014-2015, the NBM issued credits to three problematic banks – Banca de Economii, Banca Sociala and Unibank under the guarantee of Leanca and Gaburici governments for supporting the banks liquidity and preserving the financial stability in conditions of stealing of US$1 billion from the country banking system.

Later, the Ministry of Finance issued bonds, worth the total sum of credits, with the maturity of 25 years and the interest rate of 5%, transmitting them to the NBM balance. Annually, the bond issuer is redeeming papers worth 700 million lei, repaying over 500 million lei in the form of interest rates on the outstanding stock.

The authorities propose to lower the burden on the budget due to the NBM profit, which should annually be distributed and directed to the budget.

The Government’s amendments to the Law on the NBM propose three variants of profit distribution.

In case the NBM capital does not exceed 4% of its liabilities as of the end of the year, the entire profit goes to raising of the bank capitalization. If the bank capital accounts for 4% to 10%, then 50% of the profit are directed to the budget, while the rest 50% - to replenishment of the bank authorized capital.

The third variant implies that the entire bank profit should be given to the budget in condition that the NBM capital exceeds 10% of its liabilities.

The legislative initiative also includes an amendment to the Law on public papers. The Government proposed to exclude the provision that obliges Ministry of Finance to buy bonds, issued for ensuring government guarantees, from the NBM at the sum of the NBM profit, directed to the budget.

Until now, the provision was functioning according to which the MoF had no right to administrate the NBM profit at its discretion, completely directing it to buying of government bonds from the bank.