Herbert Stepic: Moldindconbank as a model of financial transparency and performance in the region
You have been in charge of international banks for many years, and for several months You are the head of the Board of Directors of Moldindconbank. What made You accept this position?
Herbert Stepic: Central and Eastern Europe is a region with great potential for development, this is what I have been convinced ever since the Fall of the Iron Curtain. The then starting Transformation Process means accelerated growth. This induced me to open Banks in 15 countries of CEE among which Romania, Hungary, Poland, Russia e.g., during my years of activity as executive chairman of Raiffeisen International and later Raiffeisenbank International. For more than two decades, we have promoted the attractiveness of this region for investors. At the same time, we and other western banks were responsible for the know-how transfer of modern banking techniques to the region.
Unfortunately, the Republic of Moldova has been left out of the process of large banking groups expanding to Eastern Europe. The reasons for this decision were manifold, the rule of law, and transparency of shareholders, prevailing corruption and the complicated political situation. All this resulted in a much slower pace of transformation, which finally culminated in huge bank fraud, at a magnitude risking the country’s economics, affecting the people's living standards and tarnishing the banks' credibility. Unfortunately, the Republic of Moldova has come to the attention of the international banking community more as a result of this fraud, and not for the potential the market offers. Since 2016, most of the negative effects have been eliminated through the successful efforts of the National Bank of Moldova and the authorities. As a result, important players on the European banking market have shown interest in investing in local banks.
Presently, a recognizable number of European quality investors - from Bulgaria, Romania, Hungary, but also the EBRD have shown interest in the largest banks of the country. I believe, after having been working in CEE for more than 35 years, to know the specifics of Eastern European countries and their potential. For this reason, I gladly accepted the proposal of the majority shareholders of Moldindconbank - Doverie Invest, to lead the bank's Board. I consider it an opportunity to continue what we started in other countries of the region i.e., to promote quality banking in Moldova. My understanding of quality banking is to increase customer convenience in access to banking services, funding for the needs of individuals and the promotion of small and medium-sized enterprises, amongst many other issues. I am convinced that the present team of Moldindconbank is sufficiently professional and dedicated to these goals. Together we will succeed in realizing these ambitious plans.
How do you appreciate the evolution of Moldindconbank in the last period, but also the prospects of the institution in the coming years?
Herbert Stepic: Moldindconbank is one of the leading banks in the country, due to its important market presence, proven financial strength, its dedicated customer orientation and the, in the meantime, professional team built. MICB holds the second position in the market regarding most financial indicators. It is the leading bank regarding bank cards and payment services and operates closest to the customers due to the largest branch network of the country. This together with the expected boost in the technology will not only increase quality and speed, but also operational efficiency.
Until February 2020, Moldindconbank was under the supervision and early intervention regime of the National Bank of Moldova. This process has been finalized in connection with the achievement of the objectives set, which confirms that things are moving in the right direction. The bank team had to respond effectively to the high challenges posed by the COVID-19 pandemic and was able to manage the rapid changes fast and professionally. Customers had permanent access to Moldindconbank services and products. The numbers also confirms this effort. For three quarters of 2020, the bank made a profit of 280.8 million lei, the loan portfolio reached 7.9 billion lei, and the share of non-performing loans decreased from 11.7% to less of 9%. This result was achieved not withstanding the limiting conditions caused by corona in 2020, when the economy of the Republic of Moldova faced unprecedented challenges.
Now, the main strategy is to maintain and strengthen the market positions achieved and to focus on efficiency. We will transform the bank in all areas of activity, towards the most modern and advanced standards of the industry.
During last year, the Bank has made considerable efforts to implement AML solutions in order to align with the highest international standards in AML prevention. The last stage of the AML transformation mission will be completed in February 2021, so the Bank will become a model of financial transparency, performance and security related to international transfers in the region. Top priority is the application of new information technologies in banking, an element which has developed to become ever more important under the working conditions of COVID-19.
You are also named by the press and the banking community “Puller for investors in the Central and Eastern European region”, a region about which You stated that it still has a great growth potential, and the penetration and development of banks in the region is an element which contributes to this growth process. How do You appreciate the potential of the banking market in the Republic of Moldova?
Herbert Stepic: Referring to the Republic of Moldova, it is a country at the cross roads of East and West at the border of the European Union and CEE. It is here where the trade routes connecting two very large markets are crossing. In order to realize the existing potential, there is a need for a wider opening of the country, a strong need for economic and political stability, as well as an adequate and attractive functional legislative framework for foreign investors. The Republic of Moldova still has a room for improvement regarding these issues. What I find positive presently is that the direction of moving towards the European Union got much more pronounced and seems irrevocable to me. At the same time, Moldova has to keep its crossroad function fully utilizing the geographical advantages between east and west.
Coming closer to the west doesn´t automatically mean to “forget the east” – just the opposite. The importance is a strong rule of law necessitating a strong political backing. Only than Moldova will be able to capitalize on major investments and that includes of course attracting private international capital, including banks and investment funds. It is a process with clear benefits for all parties - the state will benefit from creating new jobs, increasing taxes, and investors will receive benefits from the capital invested in a potentially strong growing economy. However, an important condition for any investor who considers entering or developing the business in the country is the security of his investment, which is guaranteed by the state by ensuring an environment where the rule of law is untouchable. Irrespective of that, the commercial banks in the Republic of Moldova dispose of sufficient sources of financing for viable projects and especially Moldindconbank, holds a very favorable position regarding the availability of capital and liquidity to meet the requirements of individuals as well as legal entities.
What do you think about the Moldovan banking system, in the context of implementing the new requirements Basel III? Is it compliant to world standards?
Herbert Stepic: The arrival of important foreign investors in the banking sector of the Republic of Moldova was possible also due to the most modern rules and regulations, introduced by the National Bank of Moldova. As a result, important changes have taken place in the 4 large banks of the country. Most of these changes are related to compliance issues of shareholders and to “fit and proper” principles, as well as the promotion of the best practices of bank management. These also include the standards of the Basel III agreement. They mainly regulate three areas – the requirements for the bank's capital, the borrowing rate and liquidity. Based on the current situation, the main banks of the Republic of Moldova meet the requirements of Basel III and have sufficient capital and liquidity to promote existing and prospective projects. Here I would like to mention, that the National Bank of Moldova has introduced tougher conditions as compared to the requirements of other European Regulators. Obviously, in addition to a comfort factor, reducing risks and uncertainties, provided by the implementation of Basel III, investors rely very much so on political and economic stability, especially in the regulatory field.
Banks in the Republic of Moldova have so far focused only on the domestic market, including Moldindconbank. Do you think there is potential to enter the regional banking market? If so, when could we witness this process?
Herbert Stepic: Exiting to foreign banking markets is always a challenge, requiring financial and human resources, modern technologies, professional skills and in-depth legal expertise, as well as internationally recognized trust. The regional external expansion of Moldovan Banks and here especially of Moldindconbank, will only be possible after a process of thorough modernization and transformation into a bank with the most modern technologies in banking, in order to be able to compete on foreign markets. Cross border expansion is not ruled out but we must be fully prepared for it. Given that the internal market offers untapped potential, efforts will focus more on the internal market while transforming the bank. One has to first focus on the Home Market and become a market leader before branching out cross border. Mind you, on foreign markets you have to compete with – mostly very competitive- banks in their home market. This you only will be able to do, if you offer something new, better and / or cheaper. For the time being, we have to do our homework quickly and at highest qualitative standards, receiving best marks from our customers on our home turf. Only afterwards, we will look at foreign markets.