EBRD to raise stake in Moldovan bank to restore governance

The European Bank for Reconstruction and Development (EBRD) said it has applied for regulatory approval to raise its stake in Moldova’s third-largest bank, Victoriabank, “with the aim of restoring effective corporate governance at the bank and ensuring its continued sound financial performance.”

The Moldovan bank’s supervisory board was suspended by court orders last year in September, after a minority shareholder appealed in court against a decision taken in the general shareholders meeting to oust the bank’s president following weak financial results.

The EBRD said in a statement that the court’s decision had “created a situation where shareholders, including the EBRD, cannot exercise influence over Victoriabank’s corporate governance.”

It therefore said it plans to increase its stake in the bank to up to 50% from the 15.06% it currently owns, depending on “market developments.”

“We are aiming for a significantly larger stake in Victoriabank, which will enable us to restore corporate governance at this systemically important Moldovan bank and to preserve its independent, professional and commercially successful operations,” Henry Russell, EBRD Director for Moldova, Belarus, Ukraine and the Western Balkans in the Financial Institutions Group, said in a statement.

“Transparency and governance problems in the Moldovan banking sector, coupled with a weak judicial system, have negative implications for investment and financial sector stability,” Russell added.

“We will continue to work closely with the Moldovan government and regulators to ensure that only transparent, reputable and sound investors can hold shares in Victoriabank and in the country’s banks in general. The banking sector should benefit the Moldovan economy, not the interests of opaque special interest groups.”

The biggest shareholder in Victoriabank is a little-known Cyprus-registered company, Insidown Ltd, which in a transaction finalised in November last year amassed 38.2% of the bank.

Moldovan media reports suggested last year that a shareholder with interests in the self-proclaimed republic of Transnistria, controlled by Russian separatists since the 1990s, had bought a significant stake in Victoriabank.

Romanian Alpha Bank, part of Greece’s Alpha Bank Group, is the second-largest shareholder of Victoriabank, with 12.5%.

It is not clear what the governance issue at Victoriabank is but the small republic of Moldova, sandwiched between Ukraine and Romania, is rocked by a banking scandal.

The national bank has taken under administration three banks so far, and prosecutors have accused some bankers of money laundering.

Bloomberg reported in September last year that as much as $20 billion had been illicitly transferred between Moldova and the Baltic state of Latvia between 2010 and 2014.

The head of the Moldovan parliamentary committee for economy, Veaceslav Ionita, said quoted by Deutsche Welle that between June 2013 and December 2014, Moldovan banks invested around $900 million – representing more than 10% of the country’s gross domestic product — in Russian banks.

He said the Russian ruble’s collapse will affect these investments and will have negative consequences for the Moldovan currency and economy.