Twinning Project Fiche - National Bank of Moldova
Glossary - shown at end of Fiche after Logical Framework Matrix (LFM) [pp 32-33]
1. Basic information
1.1 Programme:
ENPI – 2012/023-421 "Framework Programme in support of the
current and new agreements between the European Union and the
Republic of Moldova"
1.2 Twinning Number:
1.3 Title:
MD14/ENP/FI/16
Strengthening the NBM's capacity in the field of banking
regulation and supervision in the context of EU requirements
1.4 Sector:
Finance - Banking
1.5 Beneficiary country:
Republic of Moldova
2. OBJECTIVES
2.1 Overall Objective(s)
To consolidate the framework for prudential supervision of Moldovan banks equivalent to
that existing in the EU, ensuring the proper functioning and operation of a sustainable and
competitive banking sector.
2.2 Purpose of the Project
Strengthening the NBM’s capacity in the field of banking regulation and supervision in the
context of EU requirements (Directive 2013/36/EU and Regulation 575/2013) will be the
core objective of the proposed twinning assistance project. The primary purpose of the
Project is to support the National Bank of Moldova (NBM) in the gradual harmonisation with
the EU Directive on capital requirements (CRD), incorporating Basel III rules for capital
measurement and capital standards in the National Bank's prudential regulations.
2.3 Contribution to the EU-Republic of Moldova Partnership and Co-operation
Agreement, the European Neighbourhood Policy Action Plan, and the ENP National
Indicative Programme for Moldova
According to the Chapter “Financial Services” of the draft Association Agreement between
the Republic of Moldova and the European Union, the Republic of Moldova will carry out
approximation of its legislation to the EU acts and international instruments referred to in the
Annex to the Chapter that specifies, inter alia, Directive 2002/87/EC, 2006/48/EC and
2006/49/EC which later have been repealed (Directives 2006/48/EC and 2006/49/EC) and
amended (Directive 2002/87/EC) through the Directive 2013/36/EU of the European
Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions
and the prudential supervision of credit institutions and investment firms. Accordingly the
legislation approximation will be conducted following the provision of the Directive
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2013/36/EU. The mentioned Annex also specifies the Regulation no. 575/2013 of the
European Parliament and of the Council of 26 June 2013 on prudential requirements for
credit institutions and investment firms and amending Regulation (EU) No 648/2012.
At the same time according to section 8.1 Financial Services of the Government Action Plan
for implementing the Recommendations of the European Commission for the future
negotiations of the DCFTA between the Republic of Moldova and the European Union (as of
December 14, 2010), the NBM shall initiate the amendment of the legislation and its
normative acts in the context of implementation of Basel III requirements.
Meanwhile, pending finalisation of the above agreements, the Project will contribute to the
fulfilment of RM’s obligations stipulated in the Partnership and Cooperation Agreement (“the
PCA”) between the European Union and the Republic of Moldova, which was signed on 28th
November 1994 and entered into force in 1998. According to the EU /Moldova European
Neighbourhood Policy (ENP) - Action Plan adopted in February 2005, “Financial Services”
are identified as key areas to be addressed.
3. DESCRIPTION of Twinning Project
3.1 Background conditions and justification
Regulation
According to the Law on the National Bank of Moldova (LNBM), the National Bank is the
body that regulates and supervises the activities of licensed financial institutions1, including
banks2. To this end, the National Bank is empowered to issue necessary regulations and take
appropriate measures to exercise the powers and duties arising from legislation, through
licensing financial institutions and the development of standards for monitoring them, request
information necessary to exercise its powers to carry out through its inspectors and controls
on financial institutions in order to eliminate detected nonconformities, and implement
remedial measures and sanctions provided by law on financial institutions.
The legal framework under which the National Bank regulates banking activity is determined
by the Law on Financial Institutions (LFI). The Act determines the applicable requirements
of the National Bank for bank licensing process, organization and management, operations,
reporting and inspections, application of remedial measures, sanctions and interventions, and
liquidation of banks.
Banking Regulation and Supervision Department ('BSRD') is responsible for licensing,
supervision and regulation of financial institutions, examining banks both off-site and on-site,
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financial institution - a legal person engaged in the business of accepting deposits or their equivalents, that are
not transferable by different payment instruments and that uses such funds in whole or in part to grant credits or
to make investments on its own account and risk. (Art.2 of the Law on National Bank of Moldova and Art.3 of
the Law on Financial Institutions).
2
bank – a financial institution engaged in the business of accepting from natural or legal persons deposits or
their equivalents, that are transferable by way of different payment instruments, and that uses such funds in
whole or in part to grant credits or to make investments on its own account and risk (Art.2 of the Law on
National Bank of Moldova and Art.3 of the Law on Financial Institutions).
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developing regulations, recommendations and other legislation to regulate banking activities
as basic requirements that are set out in the Financial Institutions Act, the Law on preventing
and combating money laundering and terrorist financing, and taking into account generally
accepted international standards for effective banking supervision.
As at December 31, 2013, the National Bank had 470 employees, of whom 50 are working de
facto in the Department of Banking Regulation and Supervision (DBRS).
Financial Sector
As at December 31, 2013, the banking sector of Moldova included 14 commercial banks, of
which 4 are branches of foreign banks and financial groups ("BC Eximbank - Gruppo Veneto
Banca", "BCR Chisinau SA", "BC MOBIASBANCĂ - Groupe Société Generale SA" and
"ProCredit Bank SA").
Currently, commercial banks in Moldova comply only with the provisions of Basel I, which
are relatively uncomplicated by comparison with the provisions of Basel II and Basel III.
During 2013, the banking system recorded the following developments and trends. Tier I
capital increased by 14.6%, while the banks on the whole complied with the minimum
amount set by the regulations of the National Bank of Moldova (MDL200 million ≈ EUR
11.1 million).
Assets in accordance with International Financial Reporting Standards (IFRS) rose by 31.0%.
The gross loan portfolio (according to prudential reports) increased by 20.6% during 2013. It
is worth mentioning that public confidence is still maintained in the banking sector. Deposits
increased by 30.5% and amounted to MDL 51,889.9 million at end 2013.
The share of non-performing loans to total loans decreased by 2.9 percentage points and was
11.6% on December 31, 2013. The share of the net non-performing loans3 in the total
regulatory capital decreased by 9.3 percentage points, representing 16.6% at December 31,
2013 . The ratio of loan loss provisions to total loans was 9.7% at December 31, 2013 which
decreased by 1.0 percentage points compared with the results registered at the end of 2012.
It's worth to mention that the calculated provisions for all assets and conditional liabilities on
banking sector amounted to MDL 5,218.4 million at December 31, 2013 when the provisions
for the incurred losses and depreciations was amounted to MDL 2,392.9 million, and so the
recorded difference was MDL 2,825.5 million.
As at December 31, 2013 the banking sector profit for the year amounted to MDL 1,020.2
million. Compared to the same period of the previous year the profit increased by MDL 585.6
million (134.8%). The growth in profit was due to the decrease in non-interest expenses of
MDL 549.9 million (15.9 %) and by the increase in interest income, which amounted to MDL
348.6 million (7.9 %).
3
The net non-performing loans = the amount coming under classification of non-performing loans
minus loan loss provisions related to it
3
For 2013 the registered return on assets4 and return on capital5 of the licensed banks was of
1.6% and consequently of 9.4%, showing an increase of 0.8 percentage points and
consequently 5.1 percentage points compared with previous year results.
During 2013 the absolute value of the interest bearing assets increased by MDL 16,599.8
million or 34.9 % and amounted to MDL 64,128.1 million at December 31, 2013. Compared
with the end of 2012, their share of the sector's total assets increased by 2.5 percentage
points, and so, representing 84.2% at December 31, 2013. The significant share of these in
the total assets of the banking sector show the banks’ ability to generate future revenue.
Surveillance Activities
National Bank has taken a number of measures aimed at strengthening the national banking
sector. To this end, the National Bank continued efforts to improve the quality of supervision
and regulation of the Moldovan banking system.
Currently, supervision and regulation of the National Bank is largely in line with the Basel
Committee principles and aligned with the best practices in the field, including
implementation of relevant aspects of the Basel Committee and EU Directives related to
European regulation of credit institutions.
Implementing the latest elements of banking supervision refers to the transition to accounting
and reporting under International Financial Reporting Standards (IFRS) and application of
FINREP reporting framework.
In this context, providing a single framework for the application of IFRS reporting by banks,
the FINREP reporting standards developed by the European Banking Authority were
implemented. Thus, to conform with the new reporting model, banks are submitting financial
reports to the National Bank containing basic information and some additional reports with
further information and details of the indicators which are based on IFRS.
A leading indicator underpinning the strengthening of the banking sector is the banks' capital.
Thus in order to ensure their stability and soundness, the requirement for risk-weighted
capital adequacy ratio was increased, effective mid-2012. This resulted in raising bank capital
and thus enhancing their capacity to absorb any losses from financial activities.
Basel I regulations
The National Bank of Moldova enforces certain requirements related to the structure and
amount of the capital that the banks have to maintain in order to perform their financial
activity. The normative acts set up requirements related to: Tier I Capital, the risk weighted
capital related to credit risk and the structure of the Total Regulatory Capital representing the
sum of Tier I Capital and Tier II Capital, diminished by their share in the capital of other
banks in the Republic of Moldova.
4
5
Return on assets = Annualized net income/ average of assets
Return on capital = Annualized net income/ average of equity capital
4
As of 31 December 2013 the total assets in the banking sector amounted to MDL76,184.0
mil. lei (approx. EUR4,239.6 mil.) and the total Tier I Capital represented MDL7,919.3 mil.
lei (approx. EUR440.7 mil.).
Given the Republic of Moldova’s commitments within the future Association Agreement to
be signed with the European Union, the approximation of the Moldovan legislation to the EU
acts and Basel III international guidance should be carried out within 3 years after signing,
including Directive 2013/36/EU of the European Parliament and of the Council of 26 June
2013 on access to the activity of credit institutions and the prudential supervision of credit
institutions and investment firms, amending Directive 2002/87/EC and repealing Directives
2006/48/EC and 2006/49/EC and the Regulation no. 575/2013 of the European Parliament
and of the Council of 26 June 2013 on prudential requirements for credit institutions and
investment firms and amending Regulation (EU) No 648/2012.
In this regard, in order to consolidate the local banking sector and increase the banks'
capacity to absorb any losses from the risks related to their banking activity, as well as to
fulfil their functions during the transition period to Basel III, the NBM has already tightened
the Tier I Capital requirements. Therefore, the minimum paid-up ("social") capital
requirement for banks was set at MDL100 million, while for Tier I Capital it was set at
MDL200 million (approx. EUR12.3 million).
The average of risk-weighted capital adequacy in the banking system is further maintained at
a high level amounting to 23.4%, exceeding the minimum regulatory level of 16% effective
since 30 June 2012. The minimum level of risk-weighted capital adequacy ratio was raised to
this high level (from 12%) by the decision of the National Bank Council on 20 December
2011.
The level of current liquidity according to the NBM's principle II (the minimum ratio of
liquid assets / total assets of 20 percent) historically exceeds 30% and on December 31, 2013
amounted to 33.8%. The level of long term liquidity according to the NBM's principle I
(assets with a maturity of more than two years shall not exceed the funds with a potential
withdrawal period longer than two years) accounted for 0.7, also comfortably within limits.
In order to supervise licensed banks for compliance with the capital requirements, certain
financial reports are required. Thus, on a monthly basis banks submit to the NBM reports on
total regulatory capital calculation and reports on risk-weighted capital adequacy assessment.
When calculating the risk-weighted capital adequacy ratio the assets and off-balance sheet
items are considered, which fall into specific risk weight categories (four risk categories 0%,
20%, 50%, 100%).
Recently banks have started to submit FINREP (based on IFRS) reports (which disclose
additional information and details related to indices based on the primary data) in stages, with
effect from 1st January 2012, in order to ensure a common reporting framework while
applying International Financial Reporting Standards.
Since Moldovan regulations are currently based on the Basel I Capital Accord; consequently
there is no capital requirement for banks against market risk (such as foreign exchange risk
and interest rate risk), nor operational risk requirement.
Basel II regulations and transition to Basel III
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Basel II aimed to create a solid foundation for the prudential regulation of capital, supervision
and market discipline and greater risk management and financial stability. A key objective of
Basel II was to encourage improved risk management through the use of three basic pillars.
NBM aims to improve risk management under Pillar 1 through the selected approach within
the Twinning project.
The DBRS will be equipping itself to assess the suitability for each of the banks which it
supervises to apply basic, ‘standard’ risk-weighting models or internal ratings based:
foundation internal ratings based (FIRB) or advanced internal ratings based (AIRB) riskweighting models. Mastering the complexities of these methodologies and gaining
confidence in dealing with banks' managements is likely to be a reasonably lengthy process.
For instance, even some of the larger banks in Poland and Czech Republic were only
receiving approval to move to FIRB and to AIRB in 2013, a number of years after adopting
Basel II in 2008.
It is also necessary to enhance knowledge in the context of Pillars 2 and 3 oriented towards
banks' risk management policy and the market discipline that complements the minimum
capital requirements in Pillar 1. By adopting an approach via Internal Capital Adequacy
Assessment Plans (ICAAP) and Supervisory Review and Evaluation Process* (SREP),
therefore, DBRS will focus on the role of the supervisor to assess the internal policies of the
banks' capital adequacy and liquidity* risk management. Note*: the European Banking
Authority (EBA) is developing its guidelines for supervisors re liquidity and funding risk
assessment with a discussion paper in December 2013 (EBA/DP/2013/04).
In this context, selected experts within the project jointly with the supervision authority will
assess the impact of quantitative and qualitative requirements following the implementation
of Basel III by the banks. Banks have their specific activities, so implementation will be
unique for each bank and its respective risk profile. This framework involves a level of risk
sensitive to each bank, one is not applicable to all. Basel II included a variety of approaches
with several options available for selection by banks, subject to approval from BRSD, NBM.
National Bank will be able to select the elements of the approaches permitted by agreement.
Following the above, implementation of Basel III, formerly Basel II, principles will require
evaluating banks' financial ratios, accordingly relevant training of supervision staff, taking
into account current best EU practice. Supervisors need to understand the concepts,
methodology and risks identified under Basel III, formerly under Basel II, and have a sound
understanding of capital adequacy assessment and the process of quantifying it.
Given that Basel III, incorporating former Basel II principles, is a more complex framework
than Basel I, it requires NBM to provide a more flexible framework to establish capital
requirements appropriate for the risk profile of banks, creating conditions suitable for the
stability of the financial system. The best method of implementation of Basel III, formerly
Basel II, will be in a phased approach to prepare legislation in force and Bank staff; as well as
the commercial banks supervised by BRSD, NBM.
Accordingly the National Bank plans to move to Basel III system, and to receive Twinning
assistance.
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Basel III regulations
The provisions of Basel III build on and enhance the risk-based approach of Basel II. The
main thrust is to increase the level of banks’ loss-absorbing capital in relation to the risks in
their business models.
In response to several weaknesses in the Basel-II regime revealed by the ongoing global
financial crisis since 2008-09, the Basel Committee on Banking Supervision (BCBS) devised
new measures to strengthen the global financial system, published as Basel-III in 2010, as
subsequently amended. The composition of capital is improved: more loss-absorbing
common equity (paid-up capital and reserves, share premium and retained earnings) and
other Tier 1. Tier 2 debt capital such as subordinated debt and hybrid will be reduced and
those instruments which no longer qualify will be eliminated gradually. Those in place prior
to end 2014 have a transitional period of validity known as ‘grand-fathering’.
Capital Adequacy Ratio (CAR)
Capital of higher quality and quantity is to be held, mainly common equity capital (CET-1).
This consists of paid-in capital and accumulated reserves. Gradual increases with annual stepups, are summarised in the matrix in the appendix. Additional capital buffers are required:
[a] mandatory capital conservation buffer of 2.5% concerning dividend distributions; and
[b] discretionary counter-cyclical buffer - intended to reduce pro-cyclical movements
The measurement of risk-weighted assets (RWA) - or equivalent in the case of operational
risk - is complex and some more prescriptive measures are introduced into the Regulations
595, which are directly applicable to MS, rather than to be transposed, as the Directive into
respective MS' legal frameworks.
A leverage ratio - a maximum gearing or leverage ratio regardless of risk-weighting,
requiring minimum capital initially of 3% of total assets.
Liquidity - two measures are involved but implementation of the second has currently been
postponed due to difficulty in reaching agreement between all the members of the G20.
LCR - Liquidity Coverage Ratio - The Basel Committee announced final revisions to and
confirmed the implementation of the ‘liquidity coverage ratio’ (LCR), which will be phased
in between 2015 and 2019. Previously 100% compliance was required from 2015, whereas
the revised minimum LCR requirement will be phased in, starting at 60% in 2015 and
increasing by 10% each year to reach full 100% in 2019.
The definition of ‘high quality liquid assets’ (HQLA) has been widened and ‘level 2’ assets
now include a new ‘2B’ subcategory. The definitions of net cash outflows have been relaxed
and the Basel Committee will continue to examine the role of central bank facilities.
NSFR – Net Stable Funding Ratio - The Basel Committee issued proposed revisions to the
Basel framework's Net Stable Funding Ratio (NSFR), following endorsement by the
Committee's governing body, the Group of Central Bank Governors and Heads of
Supervision (GHOS) on 14 January 2014.
The NSFR is a key component of the Basel III reforms to promote a more resilient banking
sector. It will require that banks maintain a stable funding profile in relation to their on- and
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off-balance sheet activities. A robust funding structure makes it less likely that disruptions to
a bank's regular funding sources will erode its liquidity position in a way that would increase
the risk of its failure and, potentially, lead to broader systemic stress. In particular, the NSFR
limits over-reliance on short-term wholesale funding, encourages better assessment of
funding risk across all on- and off-balance sheet items, and promotes funding stability.
Proposals regarding the NSFR were first published in 2009, and the measure was included in
the December 2010 Basel III agreement. At that time, the Committee put in place a rigorous
process to review the standard and its implications for financial market functioning and the
economy. The main revisions to the NSFR seek to reduce cliff effects within the
measurement of funding stability, improve its alignment with the Liquidity Coverage Ratio
(LCR), and alter its calibration to focus greater attention on short-term, potentially volatile
funding sources.
The Net Stable Funding Ratio is an integral part of the Basel III framework; the changes
proposed will help to identify less stable funding structures and encourage the banks to
develop more robust funding profiles without unduly hampering them in their traditional role
of maturity transformation.
NBM's BRSD is starting from the Basel I regime, rather than Basel II, so the task of adapting
and approximate to Basel III within a seriously tight time-frame is the more challenging.
Clearly it would be undesirable to incur more risks by undertaking any course of action
without proper prior consideration and evaluation. Regular testing of scenarios, in the
context of Basel III requirements, based on available existing data, should be undertaken as
frequently as proposed changes may render appropriate. (The EBA publishes annual Basel III
monitoring reports, following the original quantitative impact study in 2010 on end 2009
data, of which the most recently published was in September 2013 on December 2012 data).
Consequences / implementation of Basel III regulations
Implementation of EU requirements involves great challenges for both the central bank and
for commercial banks. This will become a new guide for assessing and evaluating the
financial stability of the domestic banking system and will require a considerable amount of
regulations, training, guidance, support and resources.
First the National Bank must devise a sound strategy to determine the method that will be
used to approximate and implement EU banking regulation (incorporating Basel III
requirements) and inform management of the commercial banks. One of the problems arising
from the review of the legal and regulatory changes may occur in the implementation of the
three pillars introduced under Basel II and enhanced under Basel III. Therefore, selected
experts within the project jointly with the supervision authority will assess whether the
regulatory framework of capital chosen provides an effective basic infrastructure that
promotes a safe and sound banking system to finance the Moldovan economy.
Construction and development of domestic resources is key to the vigorous surveillance
infrastructure and successful implementation of EU requirements. It is essential that the
National Bank develops a strategy for resources development and staff preparation in line
with the methods adopted by the MS' central banks and training of NBM staff to enable them
to engage in the framework of risk-based supervision.
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Thus, some supervisors will focus on the development of concepts, strategies and
methodologies related to risks associated with EU requirements. These supervisors will need
to develop capabilities to use quantitative data and analysis, and knowledge of evaluation
processes and measurement of capital.
For employees of the National Bank who will then be responsible for the implementation and
monitoring of selected approach within the Twinning project, it will be necessary to identify
and address needs to be updated in the reporting and information technology systems. In
some cases, only Bank staff capabilities will need to be updated. This will also involve new
ways of attracting, updating and retaining qualified personnel.
In order to align the domestic banking sector with EU directives, the commercial banks
supervised by NBM will have to bear the bulk of the cost of staff training, procurement and
development of information systems and consultation in the transition process. In this
context, the Twinning Project will support the efforts of the National Bank regarding
approximation of national legislation with the European Union directives.
CRD-IV, comprises the Capital Requirements Directive (CRD) which must be implemented
through respective national laws and the larger Capital Requirements Regulation (CRR)
which is directly applicable to all financial firms across the EU. This includes enhanced
requirements for quality and quantity of capital, new macro-prudential standards including a
countercyclical capital buffer and capital buffers for systemically important institutions, new
rules for counterparty risk, as well as new leverage and liquidity requirements.
In addition to implementation of Basel III principles and recommendations, CRD-IV also
makes changes beyond Basel III to enhance rules on corporate governance, including
remuneration and to improve risk management and oversight at board level; diversity in
board composition; enhanced transparency; also to reduce reliance on external credit ratings
by requiring that all banks investment decisions are based not only on ratings but on their
own internal credit opinions, and that banks develop internal ratings.
CRR introduces a single rule book, a uniform set of prudential regulations throughout the EU.
The new rules remove a large number of national options and discretions from the CRD and
only permit Member States to apply stricter requirements on limited grounds. A useful FAQ
guide (39 pages) Memo/13/690 has been published on CRD-IV and CRR.
3.2 Related activities (other international and national initiatives)
This Twinning Fiche has been prepared at the same time and in parallel with that for the
National Commission for Financial Markets (NCFM), also to be financed by the EU. The
project should develop and consolidate the NCFM's operational and institutional capacities in
the field of prudential regulation and supervision of non-banking financial market. The
overall objective is development and implementation of the Risk Based Supervision System
for the non-banking financial market participants, including the capital market, insurance,
leasing, pension funds and micro-finance based on the forecasting and evaluation of the risks
and preventable consequences of some unfavourable events. The purpose of the project is to
develop and maintain an appropriate and effective regulatory and supervisory framework in
accordance with EU Directives and best practices.
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The mandatory results from implementing the measures proposed are to strengthen the
operational and institutional capacities of the NCFM and regulation and supervision of:1. the capital market and investment funds
2. insurance companies
3. savings and credit associations and pension funds.
Activities are designed to
 strengthen NCFM’s capacity to reduce market abuse manipulation and insider trading.
 review onsite and off-site inspection methodology
Co-operation between the two projects wherever feasible is highly desirable. However the
requirement for NBM to implement CRD IV within a 3-year period, whereas NCFM has a
longer time-frame for its approximation, severely hampers overlap between the two projects.
The International Monetary Fund (IMF) has periodically conducted financial sector
assessment programs (FSAP). Previous broad but detailed assessments by combined teams
from the IMF and the World Bank (IBRD) of the financial sector of the Republic of Moldova
have been published in 2008 and 2004.
The last FSAP included an assessment of the level of compliance which had been achieved
by the supervision department of the National Bank with principles for effective banking
supervision in the Basel Core Principles (BCP) Methodology - (October 2006). Another
FSAP main mission is currently in progress, following a scoping mission in Q1 2014.
The Moldovan authorities have been working to implement the recommendations contained
in the last assessment to increase the degree of compliance with the Basel Core Principles.
The Twinning project will contribute to strengthening the institutional capacity of the
National Bank, in particular gradual compliance with Basel II/III objectives.
Relations between the National Bank and the International Monetary Fund have been
maintained over many years and focused on strengthening the legal framework for the
resolution of problem banks, examining and improving the legal framework for the
ownership structure of financial markets and the development of a legal framework for crisis
preparedness and prevention.
Over several years, the National Bank has also received support from the Department of the
Treasury of the United States on certain aspects of banking regulation and supervision. A
broad ranging programme of assistance is aimed at improving regulations in the context of
surveillance and off-site supervision, classification of assets, the implementation of
international financial reporting standards and corporate governance re systemically
important financial institutions, as well as the design of early warning systems. Additionally,
US Treasury experts are advising NBM on Anti-Money Laundering measures and on the
development of NBM’s periodic Financial Stability Reports.
National Bank works closely with supervisors in other countries, including EU Member
States in the context of the authorization and supervision of banks' activities. National Bank's
staff are participating in training courses and workshops organised by central banks in EU
Member States on various topics related to banking supervision and regulation, and for
preventing and combating money laundering and terrorist financing.
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3.3 Results
The overall objective of the Twinning project is to enhance the NBM’s institutional capacity
in order to strengthen the banks prudential regulatory framework that will lead to a sound and
competitive banking sector. In this context, developing a comprehensive Twinning Fiche for
this project in order to implement the EU requirements in the local banking sector is crucial
for the National Bank of Moldova.
The key points of Basel II, retained by Basel III are as follows:
1) Basel III remains risk-based and retains the fundamental 3 Pillars from Basel II:
 Pillar 1 consists of quantitative requirements (notably, the amount of capital a
bank should hold in relation to its risk-weighted assets).
 Pillar 2 sets out requirements for the governance and risk management of
banks, as well as for the effective supervision of banks' risk management.
 Pillar 3 focuses on disclosure and transparency ('market discipline')
requirements.
2) The bank’s governance and risk management must match its risk profile.
3) An effective risk management system is the fundamental key to sound governance.
4) Internal models used for Basel III must be embedded into the bank, including strategic
decision-making process
5) A risk management function, if not already in existence, needs to be established.
The National Bank of Moldova intends to gradually implement the CRD-IV and related
regulations. The project aims to take the first steps towards creating the preconditions for
implementing the Capital Requirements Directive in Moldova. These preconditions intend to
improve the risk management of Pillar 1 by determining the selected approach within the
Twinning project. It is also necessary to gain knowledge regarding risk management in the
context of Pillar 2 and 3 focused on management policy of the banks, thus emphasizing the
role of the supervisory authority to assess the internal policies of the banks’ capital adequacy
to risk profile (risk management').
In this context, the quantitative and qualitative impact of Basel II implementation on banks
will be evaluated, because the banks have their own specific activities and implementation
will be unique to each bank individually and depending upon their particular risk profile. The
principle of proportionality is important, with internal risk management and supervision
suitable for the risk profile of each bank. For example, a bank which has low or nil exposure
to equity markets would not need an elaborate risk management policy for this activity.
As a result of the factors mentioned above, implementation of Basel II will require banks to
assess their financial indicators, thus making it necessary to train supervisory staff taking into
account the current best EU practices. Supervisors will need to understand each bank's
internal rating system, as well as concepts, methodology and risks according to Basel II, and
a sound understanding of the assessment of capital and its measurement process.
The Twinning Project Fiche should enable the achievement of the following project purposes:
- Gradual implementation of the EU Capital Requirements Directive (CRD-IV) and
amending the prudential regulations of the NBM in the context of Basel II/III.
- Defining requirements and calculating methods for risks under Pillar1 of Basel II/III.
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-
Providing knowledge on the implementation of Pillars 2 and 3 risk oriented
management policy reinforced in banks.
Delivering a comprehensive training programme with regard to Basel II/III
implementation.
Completion of a quantitative and qualitative impact assessment of Basel II/III
implementation on banks. The assessment results should underline and identify the
required actions to be undertaken within the scope of implementing Basel III capital
accord. The assessment should refer to:
1. thorough analysis of the NBM capital regulations;
2. detailed recommendations for amending the legal framework in force and
elaboration of new legal rules related to the risk and capital management
requirements set up within Basel II and Basel III;
3. mechanisms and instruments which might be used within the on-site and offsite supervision of banks, as well as a proper training scheme for the Department
of Banking Regulation and Supervision staff;
The mandatory results to be achieved by the twinning project and their related
measurable indicators are the following:
Component 1: Legal framework, institutional capacity and CRD-IV additional
requirements
Mandatory Result 1 Legal framework updated, institutional capacity upgraded and
additional requirements for CRD-IV compliance assessed
Two areas are involved: NBM’s own procedures - Law on the National Bank of Moldova
(LNBM) and the new requirements for the banks which NBM supervises - Law on Financial
Institutions (LFI) and subordinated regulations.
Indicators
1. Draft regulations are revised, updated and approved by the Council of NBM.
2. Banking legislation and regulations for banks flowing from both LNBM and LFI are
revised and approved.
The result will also be achieved by elaboration of the banking legislation and regulations for
banks. Those results will take the form of new internal procedures and requirements in
certain banks, depending on further investigation carried out by the supervisors, including by
on-site inspections.
Under Mandatory Result 1, the present reporting of liquidity metrics will be modified as
required, to comply with liquidity requirements being introduced by Basel III. This will
imply instituting measurement and reporting systems including for:
 Liquidity Coverage Ratio (LCR)
 Net Stable Funding Ratio (NSFR)
 Maximum leverage or 'gearing' ratio of capital to total assets.
Component 2: framework and capacity developed to supervise Pillar 1: both Standard
approach and Internal Ratings Based (IRB) approaches
12
Mandatory Result 2a: internal methodology and capacity developed and requirements
established to supervise the three risk categories of Pillar 1 under standard method.
Indicators
1. Framework established to supervise the three major risk categories of Pillar 1, initially
applying the selected approach within Twinning project.
2. Internal rules prepared with sufficient explanations and details to be readily useable.
3. Trained a sufficient number of supervisors with adequate knowledge of the field.
4. Basic, standard method with reference to ‘external credit assessment institutions’
(ECAIs) or credit rating agencies (CRAs), supervised by the European Securities and
Markets Authority (ESMA) headquartered in Paris.
Mandatory Result 2b: internal methodology and capacity developed and requirements
established to supervise the three risk categories of Pillar 1 under IRB methods.
Gradually to develop competence in assessing Foundation Internal Ratings Based (FIRB) and
Advanced Internal Ratings Based (AIRB) models submitted by supervised banks for approval
by BRSD and, in the case of foreign controlled banks, jointly by home supervisors of parent
banks. (Note that use of FIRB and AIRB is highly selective, from inspection of Financial
Stability Institute (FSI) of Bank for International Settlements (BIS) survey results of mid2013).
Indicators
1. Training Needs Assessment (TNA) carried out.
2. Training Plan developed, discussed and agreed.
3. Prepared and delivered presentation for NBM, on the implementation of Pillar I
regulation.
Component 3: – 'Supervisory Review and Evaluation Process' (SREP) by BRSD of
supervised banks' Internal Capital Adequacy Assessment Plans (ICAAP) under CRDIV.
Mandatory Result 3a:
Developed ICAAP methodology: Developed internal NBM methodology for review and
evaluation of Moldovan banks' ICAAPs in the Supervisory Review and Evaluation
Process ('SREP') under CRD-IV
Indicators:
1.
2.
3.
4.
5.
6.
Implemented risk management policy and theory.
Delivered training for NBM staff on implementation of the internal methodology
Prepared NBM guidance / or an internal manual
Training Needs Assessment carried out; procedure is established and operational
Training Plan developed, discussed and agreed
Delivered presentation to NBM, including senior management, on the internal
methodology for SREP.
Mandatory Result 3b: Implemented internal NBM actual and practical capacity and
experience in the review and evaluation of Moldovan banks' ICAAPs in the Supervisory
Review and Evaluation Process ('SREP').
13
Indicators:
1. Implementation of risk management policy and theory.
2. Training materials provided, including indicatively at least 3 case studies; and
3. Prepared and conducted supervisory review of ICAAP reports, indicatively of seven.
banks, including as priority the three largest, (and the 4 subsidiaries of foreign banks).
4. Supervisory Reviews produced; and findings discussed with relevant banks.
5. Knowledge transferred and training completed.
6. Delivered presentation to NBM including senior management on the general findings
of the supervisory review of the selected banks' ICAAP reports.
Component 4: CRD-IV - publication of information enabling market participants to
assess the risk management process and capital adequacy of each particular bank.
Mandatory result 4: Prepared and issued regulations, guidance and requirements for
commercial banks to publish capital adequacy and risk management reports complying
with CRD-IV requirements.
Activities leading to the achievement of this result would also imply international cooperation and consolidation of capacities, including:
- establishment and finalisation of agreements between home - host country supervisors (in
complex cases, 'colleges of supervisors') regarding parent banks and subsidiaries;
responsibilities and contingency plans in case of urgent serious action requirements; e.g.
which national depositors' compensation / insurance scheme has what amount of liability;
- establishment of individual minimum prudential capital requirement for branches of
international banks from the EU;
- banks which own insurance companies (and other non-bank financial services) - brokerage,
investment management, leasing subsidiaries; establishment of responsibilities with NCFM;
- enhanced co-operation between home-host country supervisors;
- evaluation of quantitative and qualitative impact on banks due to implementing Basel III.
Assessed the impact on banks’ capital adequacy and liquidity and leverage of CRD-IV, based
on components of twinning project as it approaches completion. Timing: towards end of
project; amend legislation and procedures if needed in light of results.
3.4 Activities
The activities mentioned in this Twinning Fiche and the number of allocated working days
per activity are of an indicative nature only and can be adjusted later by agreement between
the partner administrations.
3.4.0 General Activities:
Activity 0.1: Inception, Kick-off Meeting
The first month of the project will be used for kick-off activities as well as establishment of
the Project Office by the Resident Twinning Adviser (RTA) in the premises of the NBM. The
RTA will also hire an Assistant (RTA Assistant) and a permanent interpreter/ translator, both
to be recruited through an appropriate selection procedure.
14
During the inception period, the RTA will organise a kick-off meeting, with the purpose of
providing a first official contact to all stakeholders involved in the project and presenting the
project to the media and the public at large.
The nature of this meeting will be operational, and will be attended by the EU Delegation to
the Republic of Moldova, the PAO representative, the senior management of the National
Bank of Moldova, the Project Leader, the RTA. The Kick-off Meeting will give the
participants the opportunity to receive detailed information about the project objectives,
purposes and implementation plan. Kick-off meeting will also have the purpose of providing
a first official contact to all stakeholders in the project, presenting the project to the media
and the public at large. In order to guarantee wide public information about the start of the
project, the Kick-off Meeting will contain a press briefing and a press conference.
MS:
MS Expertise
RTA, Project Leader (PL)
3 w/d (1 PL mission x 3 days)
Activity 0.2: Project Completion Conference
During the last two months of the project, a Closing Conference will be organised at which
the results of the project will be presented. The aim of this activity is to disseminate the
project results and create public awareness. The roundtable will take place in Chisinau and all
project stakeholders as well as key stakeholders interested in Basel and CRD-IV, including
the banks supervised by NBM, will be invited to participate. The roundtable will be
concluded with recommendations for follow-up actions and lessons learned for similar
projects.
Indicative number of allocated expert working days:
MS:
MS Expertise
RTA, Project Leader (PL)
3 w/d (1 PL mission x 3 days)
3.4.1 Component 1: Legal framework, institutional capacity and CRD-IV additional
requirements
Mandatory Result 1: Legal framework updated, institutional capacity upgraded and
CRD-IV additional requirements assessed
The assessment results should underline and identify the required actions to be undertaken
within the scope of implementing the Basel III capital accord. The assessment should refer to:
1.
a thorough analysis of the NBM capital regulations;
2.
detailed recommendations for amending the legal framework in force and elaboration
of new legal rules related to the risk and capital management requirements of Basel III;
3.
mechanisms and instruments which might be used within the on-site and off-site
supervision of banks, as well as a proper training scheme for the Department of Banking
Regulation and Supervision staff
Activity 1.1 Assessment of banks’ risk management practices and compatibility with
different approaches available in CRD-IV.
15
The result will be a classification of banks by compliance capacity, based upon off-site
analysis and on-site inspection reports by NBM supervisors, with MS STE guidance.
Conditions for success will be adequate staffing within BSRD and sufficient co-operation by
commercial banks.
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE mission x 10 days)
Activity 1.2: Assessment and comparison of national banking legislation in force (LNBM
and LIF) with EU legal requirements on banking supervision by MS experts, detailed list of
suggestions and amendments to be submitted to the Bank ('legal gap analysis').
Indicative number of allocated expert working days:
MS Expertise
50 w/d (2 STE mission x 10 days; 2 STE x 15 days)
Activity 1.3: Elaboration by the experts jointly with the National Bank of Moldova of the
action plan for the new Capital Requirements Directive (CRD-IV) implementation.
Indicative number of allocated expert working days:
MS Expertise
20w/d (2 STE mission x 10 days)
Activity 1.4: MS experts will develop amendments to current national banking law (LNBM
and LFI) then submit draft amendments to DBRS; NBM will add its comments and then
finalise the draft amendments for relevant internal and external consultation concerning the
relevant legislation in Moldova.
Indicative number of allocated expert working days:
MS Expertise
50 w/d (2 STE mission x 10 days; 2 STE x 15 days)
Activity 1.5: Revise and update regulations for banks in respect of CRD-IV.
Mandatory result - revised and updated internal rules with sufficient explanations and details
will be prepared.
Indicative number of allocated expert working days:
MS Expertise
25 w/d (1 STE mission x 15 days; 1 STE x 10 days)
Activity 1.6: improve NBM’s legal capacity and authority to identify ultimate controllers and
enhance transparency and corporate governance in banks’ management.
Indicative number of allocated expert working days:
MS Expertise
25 w/d (1 STE mission x 15 days; 1 STE x 10 days)
Activity 1.7 Assessing the impact of Basel III
This activity will imply measuring increase / decrease in CAR for each bank individually and
for the system as a whole. Evaluation of quantitative and qualitative impact on banks
individually and whole system.
16
The result will be achieved by means of internal regulations in banks. Those results will take
the form of new internal procedures and requirements in certain banks on further
investigation carried out by supervisors.
Indicative number of allocated expert working days:
MS Expertise
25 w/d (1 STE mission x 15 days; 1 STE x 10 days)
Activity 1.8: Assessment of new requirements on leverage and liquidity as well as on
centralised counterparty credit risk. Given that some of these requirements remain under
development, it is likely that this area could need additional attention; given also that the
requirements are not yet finalised*, they should be scheduled in the Indicative Workplan for
activity towards the end of the Project.
Given that CRD-IV (incorporating Basel III) is in the process of introducing new
requirements for leverage and liquidity, institute measurement and reporting requirements
and systems including for Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio
(NSFR).
Basel III also establishes a maximum leverage or 'gearing' ratio of total assets to capital
initially of 33.3x, thus the reciprocal minimum ratio of 3% capital to total assets, regardless
of risk-weighting.
Indicative number of allocated expert working days:
MS Expertise
35 w/d (7 STE mission x 5 days)
Activity 1.9: Raise awareness of both banks and supervisors of what the new minimum
capital requirement and their implication for risk management will mean in practice:
- Set up a communication strategy and a permanent dialogue with commercial banks on
topics regarding CRD-IV.
- Create a section of NBM web site dedicated to CRD-IV for the commercial banking sector.
- Raise awareness among Moldovan commercial banks: organise seminars and workshops on
the basic methods used in requirements of the three pillars of Basel III including any relevant
documents of the EBA.
Indicative number of allocated expert working days:
MS Expertise
10 w/d (2 STE mission x 5 days)
Indicative number of allocated expert working days
MS Expertise Total Component 1 activities: (w/d):
260 w/d
3.4.2 Component 2: framework established to supervise the three risk categories of
Pillar 1 under [a] standardised and [b] internal ratings based (IRB) approaches.
Mandatory result: introduced methods and requirements for supervising risks
Organise seminars and workshops on the basic method used in requirements of the three
pillars, including any relevant documents of the Committee of European Banking Supervisors
(CEBS) and European Banking Authority (EBA) eg regarding credit rating agencies (CRA);
17
[a] Standardised (basic) approach
Activity 2.1: Defining the requirements and methods for calculating credit risk
Indicative number of allocated expert working days:
MS Expertise
75 w/d (3 STE mission x 10 days; 3 STE x 15 days)
Activity 2.2: Defining requirements and calculation methods for market risk
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE x 10 days)
Activity 2.3: Defining the requirements and methods for calculating operational risk
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE x 10 days)
Activity 2.4: Training Needs Assessment (TNA) for standard approach
A detailed Training Needs Assessment (TNA) will be undertaken at the outset of the project
and revised regularly at intervals throughout the life of the Project.
Human Resources (HR) Department participation in ongoing TNA and programme is an
important factor for sustainability of the project’s output.
Indicative number of allocated expert working days:
MS Expertise
10 w/d (2 STE x 5 days)
Activity 2.5: Study visits to MS Central Bank for sharing of expertise on standard approach
as regards of internal methodology
NBM experts to visit MS central bank (or banking supervisory authority, as applicable) in
small groups to observe procedures at first hand and absorb working practices.
One group of eight NBM experts x5 w/d - MS to host 40 w/d
MS Expertise
20 w/d (2 STE x 2 x 5 w/d)
Indicative number of allocated expert working days Standard Approach
MS Expertise Total Component 2 activities: (w/d): 145 w/d
[b] Internal Ratings Based (IRB) Approach – Foundation (FIRB) and Advanced
(AIRB)
Activity 2.6: Defining the requirements and methods for calculating credit risk
Indicative number of allocated expert working days:
MS Expertise
75 w/d (3 STE mission x 10 days; 3 STE x 15 days)
Activity 2.7: Defining requirements and calculation methods for market risk
18
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE x 10 days)
Activity 2.8: Defining the requirements and methods for calculating operational risk
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE x 10 days)
Activity 2.9: Training Needs Assessment (TNA) for advanced approach
A detailed Training Needs Assessment (TNA) must be undertaken at the outset of the project
and revised regularly at intervals throughout the life of the Project.
Human Resources (HR) Department participation in ongoing TNA and programme is an
important factor for sustainability of the project’s output.
Indicative number of allocated expert working days:
MS Expertise
10 w/d (1 STE x 10 days)
Activity 2.10: Study visit to MS Central Bank for sharing of expertise on advanced approach
as regards of internal methodology
NBM experts to visit MS central bank (or banking supervisory authority, as applicable) in
small groups to observe procedures at first hand and absorb working practices.
One group of eight NBM experts x5 w/d - MS to host 40 w/d
Indicative number of allocated expert working days IRB Approach
MS Expertise subtotal Component 2 activities: (w/d):
145 w/d
Indicative number of allocated expert working days
MS Expertise Total Component 2 activities: (w/d):
Total 290 w/d
3.4.3 Component 3: implementation of banks' risk management self-appraisal Internal
Capital Adequacy Assessment Process ('ICAAP') and 'Supervisory Review and
Evaluation Process' (SREP) by NBM of banks’ ICAAPs under CRD-IV.
Mandatory Result 3a: ICAAP methodology: Developed internal NBM methodology for
review and evaluation of Moldovan banks' ICAAPs in the Supervisory Review and
Evaluation Process ('SREP') under CRD-IV
The scope of risks covered is very wide and to an extent individual to each bank. Therefore
the indicated resources for this component have been allocated the largest quantity, amount of
experts' time.
These include concentration risk, liquidity risk, pension risk, reputational risk, strategic risk,
among others. These risks involve qualitative as well as quantitative factors. Accordingly the
assessment of these risks depends partly on the judgement of the supervisors, as well as partly
on purely numerical factors.
19
Activity 3.1: Bank employees to improve knowledge of CRD-IV principles and
mechanisms (training - theory and methodology)
Arrange conferences and workshops on the implementation of Basel III, including any
relevant documents of the European Banking Authority (EBA) - and formerly of the
Committee of European Banking Supervisors (CEBS) - concerning internal capital adequacy
assessment process (ICAAP) and supervisory review of banks' capital adequacy (SREP), as
well as all types of risks that would be covered in the process.
Participants involved in this activity will be the Bank employees and also outside experts in
financial institutions in Moldova. The activities will take the form of workshops and seminars
with the active participation of one or several MS’ experts. These will be carried out
throughout the project. At the end of each session, participants will complete an evaluation
form.
Indicative number of allocated expert working days:
MS Expertise 50 w/d (2 STE mission x 10 days; 2 STE x 15 days)
Activity 3.2: study visits
NBM experts to visit MS central bank (or banking supervisory authority if different, as
applicable) in small groups to observe procedures at first hand and absorb working practices.
One group of eight NBM experts x5 w/d - MS to host 40 w/d
Indicative number of allocated expert working days:
MS Expertise 20w/d (2 reception missions x 2 STE x 5 w/d)
Activity 3.3: HR - human resources review and issues arising; review current establishment
against future forecast requirement; adopt sustainable staffing plan, career path planning, EU
best practice.
Indicative number of allocated expert working days:
MS Expertise 20 w/d (2 STE mission x 10 days)
Activity 3.4: IT - information technology resources review and issues arising; review current
system and software against future forecast requirement; adopt sustainable IT equipment and
industry best practice operational planning (include business continuity / remote back-up
review).
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE mission x 10 days)
Activity 3.5: presentation to DBRS and NBM senior management on Component 3 above;
solve problems, bottle-necks, seasonal peaks and troughs where-ever possible with practical
recommendations and solutions.
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE mission x 10 days)
20
Mandatory Result 3b SREP: Implemented internal NBM actual and practical capacity
and experience in the review and evaluation of Moldovan banks' ICAAPs in the
Supervisory Review and Evaluation Process ('SREP').
3.6 Deliver on-the-job training for NBM staff on implementation of the internal
methodology
Activity 3.6: Provide training on the implementation aspects
Provide training on topics related to supervisors' use of IT systems and databases; as related
e.g. to credit portfolio sampling techniques, modelling and issues related to stress testing.
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE mission x 10 days)
Activity 3.7 Prepared and conducted supervisory review of ICAAP reports of seven banks
(indicatively the three largest and the subsidiaries of foreign banks - a key activity
Indicative number of allocated expert working days:
MS Expertise (w/d)
70 w/d (7 STE missions x 10 w/d)]
Activity 3.8: Deliver presentation to NBM on the general findings of the conducted
supervisory review of the selected banks' ICAAP reports
Indicative number of allocated expert working days:
MS Expertise
20 w/d (2 STE mission x 10 days)
Indicative number of allocated expert working days:
MS Expertise Total Component 3 activities: (w/d): Total 240 w/d
3.4.4 Component 4: CRD-IV - publication of information enabling market participants
to assess the risk management process and capital adequacy of each particular bank
Mandatory result 4: Prepared and issued regulations, guidance and requirements for
commercial banks to publish capital adequacy and risk management reports complying
with CRD-IV requirements
Activity 4.1: CRD-IV, implementation and supervision by BRSD, NBM.
Pillar III - Publication of information enabling market participants to assess the risk
management process and capital adequacy of each particular bank. Preparation and issuance
of regulations, guidance and requirements for commercial banks. Review of publication by
commercial banks' - on their web-sites - to supervise compliance with regulations and
requirements of NBM.
Indicative number of allocated expert working days:
MS Expertise
25 w/d (1 STE mission x 10 days; 1 STE x 15 days)
21
Activity 4.2: Other - International co-operation, consolidated supervision issues:
- establishment and finalisation of agreements between home - host country supervisors (in
complex cases, 'colleges of supervisors') regarding parent banks and subsidiaries;
responsibilities and contingency plans in case of urgent serious action requirements; eg which national depositors' compensation / insurance scheme should be responsible for what
amount of liability in case of a bank failure.
- establishment of individual minimum prudential capital requirement for branches of
international banks from the EU.
- banks which own insurance companies (and other non-bank financial services) - brokerage,
investment management, leasing subsidiaries; establishment of responsibilities with NCFM.
Indicative number of allocated expert working days:
MS Expertise
40 w/d (4 STE mission x 10 days)
Indicative number of allocated expert working days:
Total Component 4 activities: (w/d):
65 w/d
3.5 Measures / partner support from administration of the Member State (MS)
3.5.1 Profile and tasks of the Project Leader (PL)
Project Leader Profile:

University degree/education in the field of finance, accounting / auditing or law or
equivalent practical experience;

At least 7 years of experience in a central bank or supervisor working with the
implementation of banking regulation and supervision;

Sound knowledge of CRD provisions and relevant documents of the European
Banking Authority (EBA) and former Committee of European Banking Supervisors (CEBS);

Senior civil servant or equivalent staff of a MS institution in a position which would
enable him/her to fulfil and complete the tasks associated with the Project Leader role;

Specific experience in project management with focus on EU funded projects and in
particular twinning would be an advantage;

Very good command of written and spoken English;

Strong leadership and problem solving skills.
The Project Leader is responsible to coordinate the activities, disseminate project
information among stakeholders, take part in discussions with high level officials, present
and defend project input and expected outputs, manage the project team, prepare project
management reports, help overcome project related problems, and assist the RTA for
continuous development of project initiatives. The PL will be expected to devote a
minimum of 3 days per month to the project in his/her home administration. In addition,
he/she will coordinate, from the MS side, the Project Steering Committee (PSC), which will
meet in Moldova every three months.
Project Leader Tasks:

Overall coordination, guidance and monitoring of the project;

Preparation of project progress reports together with BC Project Leader and with
support of RTA;
22



Timely achievement of the project results;
Co-chairing of project steering committees;
Provision of legal and technical advice and analysis whenever needed.
3.5.2 Profile and tasks of the Resident Twinning Advisor (RTA)
The Resident Twinning Advisor (RTA) will be based in Moldova to provide full-time input
and advice to the project for the entire duration of the project.
RTA Profile:

University degree/education in economics, finance, law, audit or related field;

At least 5 years of experience in banking regulation and supervision;

Specific professional experience in Basel and CRD-IV requirements;

Recent experience in a senior position in an institution responsible for banking
supervision in an EU MS would be an asset;

Experience in project management would be an asset;

Strong initiative, analytical and team working skills;

Excellent communication skills, with fluency in written and spoken English;

Knowledge of Romanian and/or Russian language would be an asset.
RTA Tasks:

To manage the day-to-day coordination and progress of activities of the project;

To provide technical inputs in project implementation, including the EU Acquis;

To liaise with the BC Project Leader and RTA counterpart;

To report to the MS Project Leader.
3.5.3 Profile and tasks of the RTA Assistant
The RTA assistant will be recruited and funded by the project. He/she will be working
together with the RTA the whole duration of the project. The RTA assistant will provide
logistical and administrative support. The RTA assistant should also preferably handle
technical translation and interpretation services for the RTA to facilitate the implementation
of the Twinning project activities and assist in the preparation of working documents,
organisation of seminars, training and study tours. The profile of the RTA assistant will be
specified by the RTA who will proceed to his/her recruitment following the provisions of the
Twinning Manual.
3.5.4 Profile and tasks of the short-term experts (STE)
The Project will require a number of short-term experts in order to cover the full range of
specialised expertise required. These will be suitably qualified and capable of providing the
necessary skills and experience according to the activities mentioned above.
STE Profiles - general experience:

A university degree in a relevant subject or equivalent professional experience;

A minimum of three years of experience in banking supervision field desirable;

An excellent command of written and spoken English;

Knowledge of Romanian and/or Russian language would be an asset.
23
STE Profiles - specific experience (indicative list)

Public external audit;

Performance - and system audits;

EU Acquis and MS practices of banking regulation and supervision;

Human Resource Management;

Strategic Planning;

Training and coaching; including of senior management

IT development;

Internal and external communication.
STE Tasks:

To provide technical inputs in specific areas of project implementation of the
activities listed in the twinning fiche, including organisation of workshops, training,
coaching, drafting of methodological and relevant handout materials as per the terms of
reference provided by the RTA prior to each mission;

To liaise with the RTA, the RTA counterpart and beneficiary component leader;

To report to the RTA.
4. INSTITUTIONAL
The main beneficiary of the project will be the National Bank, in particular, the Department
of Banking Regulation and Supervision (DBRS). The organizational structure of the National
Bank of Moldova is attached (Annex 2). Moreover, the project will enhance and improve the
National Bank of Moldova's supervision capacity.
The National Bank will invite the National Commission on Financial Markets (NCFM) to
attend relevant seminars that will be arranged within the project. This will contribute to future
cooperation between the Bank and NCFM in the current implementation of CRD-IV and the
related Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013
on access to the activity of credit institutions and the prudential supervision of credit
institutions and investment firms, amending Directive 2002/87/EC and repealing Directives
2006/48/EC and 2006/49/EC; and the Regulation no. 575/2013 of the European Parliament
and of the Council of 26 June 2013 on prudential requirements for credit institutions and
investment firms and amending Regulation (EU) No 648/2012.
5. BUDGET
The indicative total budget available for the Twinning Project action is € 1,600,000.
The beneficiary will provide its logistic support in the form foreseen in the Twinning Manual
(Revision 2013).
6. Implementation arrangements
A new Financial Regulation applicable to the general budget of the European Union entered
into force on 1st January 2013.1 This implied several changes to the Twinning contract
templates. An updated version of the Twinning Manual (revision 2013-2014) and of its
24
Annexes, incorporating these changes, has been published on the EuropeAid website. 2 The
Twinning contract to be signed as a result of the present procedure shall follow the templates
of the updated Twinning Manual and Annexes.
6.1 Implementing Agency responsible for tendering, contracts and accounting
Implementing Agency responsible for tendering, contracts and accounting is the European
Commission:
The Contracting Authority responsible for tendering, contracting and accounting is the
Delegation of the European Union to Moldova. The person in charge of this project is:
Mr. Oleg HIRBU, Operations Section
Delegation of the European Union to Moldova
Office Address:
12 Kogalniceanu Str., MD 2001, Chisinau, Moldova
Tel.: +373-22-505210
Fax: +373-22-545421
e-mail: Oleg.Hirbu@eeas.europa.eu
Project Administration Office (PAO). he PAO will support the twinning project
implementation process with the EU Delegation.
Ms Tatiana MOLCEAN
Head of Division for Economic and Sector Cooperation with EU
Department for European Integration
Ministry of Foreign Affairs and European Integration of the Republic of Moldova
Tel: +373- 22-250215 578 232
Fax:+Mobile: +373-22-250259 79488462
e-mail: tatiana.molcean@mfa.md
6.2.1 The main counterparty in the BC is NBM:
6.2.2 The main representatives in NBM:
Project leader: Ms Emma TABIRTA
Function: Vice-Governor of the National Bank of Moldova
Address: bl Grigore Vieru 1, MD - 2005 Chisinau, Moldova
Tel.: + (373) 22 409 007
Fax: + (373) 22 228 697
Email: emma.tabirta @bnm.md
RTA counterpart: Mr. Vladimir ŢURCANU
Function: Head of Banking Regulation and Supervision Department
Address: bl Grigore Vieru 1, MD - 2005 Chisinau, Moldova
Tel: + (373) 22 221 451
Fax: + (373) 22 228 697
Email: vladimir.turcanu@bnm.md
25
The tasks of the NBM Project Leader and RTA counterpart are to ensure (a) the smooth
collaboration with the twinning experts in their respective field, and (b) the availability of
NBM personnel accordingly.
6.2.3 The Project Steering Committee (PSC)
A Project Steering Committee (PSC) will be established upon project start. The PSC will
encompass the Project Leader, RTA as well as their respective BC counterparts and the
PAO, as well as representatives of the Delegation of the EU to Moldova. Representatives of
other donors and relevant projects may be invited to participate as observers in the Steering
Committee meetings.
The PSC will be established for the control and supervision of the project activities and the
mandatory results. The Steering Committee will meet at regular intervals and will assess the
progress of the project, verify the achievements of the outputs and mandatory results and
discuss any other issues which might affect a smooth implementation of the project. The PSC
will submit by the end of the meeting (as recorded in the minutes of meeting) an
approval/non-approval of the project reports. Official minutes of the PSC meetings will be
kept in English with translation in Romanian and distributed to all parties within ca 15 days
after the PSC meeting.
7. Implementation Plan (indicative)
Project duration:
Launch of the call for MS Twinning proposals:
Reception of the proposals:
Notification to MS:
Signature of the contract:
Start of Twinning Project Activities:
Project Completion:
24 months (27 months total)
June 2014
September 2014
September 2014
February 2015
February 2015 (implementation)
February 2017
7.1 Launching the proposals for participation
Indicatively, June 2014.
7.2 Start of project activity
Indicatively, February 2015.
7.3 Period of implementation of actions
The planned duration period of the Project is 24 months. The official total length of the
Twinning Contract will be 27 months (i.e. 24 during the implementation of the work plan + 3
months for opening and closing of the Project).
8. Sustainability
Given the goals of the National Development Strategy of the Republic of Moldova and
cooperation agreements present and future between the EU and Moldova, the sustainability of
project results is ensured through increased compliance with the EU acquis and enhanced
26
compliance obligations of EU membership: the single market, particularly relevant segments
of their markets and financial services (banking, investment). The National Bank is to
provide personnel and allocate financial resources adequate to ensure the administrative and
operational capacity of its regulatory and supervisory functions.
9. Crosscutting issues (equal opportunity, environment, etc.)
Each Twinning partner is required to comply with the equal opportunities requirements of the
European Union. The principal of equal opportunity will be integrated into all stages of the
project implementation.
10. Conditionality and Sequencing
The project includes various activities which are partly interdependent and some of the
deliverables imply certain prerequisites for their successful implementation. In particular the
timely introduction of appropriate modification to existing legislation and regulation has to
precede their enforcement and the Project's assistance in the appraisal of a selection of the
first ICAAP reports from the banks after a suitable interval since the publication of the new
requirements.
27
Annex 1: Logical Framework Matrix
Name and number of the program:
Twinning Project: Strengthening National Bank of Moldova in
banking regulation and supervision
Contractual period expires at:
Payment period expires at:
Total Budget: 1.600.000 EUR
General Objective
 To help create the conditions
for long-term financial stability
and economic and social
development by strengthening
the prudential regulation of the
banking sector and banking
supervision by approximating
more closely to EU standards.
The project purpose
 Preparing the NBM for
gradual implementation of the
EU
Capital
Requirements
Directive (CRD-IV) in time
Objectively verifiable indicators
(OVI)
 Recognition of the European
Council

Evaluation
by
relevant
institutions such as IMF in
periodic reviews (Art. IV and
FSAP)
Sources of verification
Objectively verifiable indicators
 Action Plan adopted by the
Council of NBM implementing
CRD-IV and related EU directives
 Evaluations conducted by the
relevant institutions such as the
IMF
Source of verification
 NBM Council Decisions
 Bank annual reports for 2014
[and 2015-16]
 Final report of the project
 Reports by the IMF and other
international institutions
Contribution:
 The assessment of EC
 Evaluation reports prepared
by the IMF and other
international
financial
institutions
Assumptions
• Institutional structures and
organizational arrangements for
financial sector regulation and
supervision are implemented and
functioning
• NBM remains committed to
implementing the CRD-IV in
Moldova
• Since the CRD-IV applies not
only to banks, but also investment
firms, the Bank will seek, where
28
appropriate, involvement in the
project
of
the
National
Commission of Financial Market
(NCFM - which is responsible for
supervision of investment firms)
• The Action Plan recommended,
when accepted by the Bank
Board, will be reflected in timely
adjustments to regulations and
Bank operations
Results
 Legal framework updated,
institutional capacity upgraded
and additional requirements for
CRD-IV compliance assessed
 Introduced methods and
requirements for supervising
risks

ICAAP
methodology:
Developed
internal
NBM
methodology for review and
evaluation of Moldovan banks'
ICAAPs in the Supervisory
Review and Evaluation Process
('SREP') under CRD-IV
 Implemented internal NBM
actual and practical capacity and
experience in the review and
evaluation of Moldovan banks'
Objectively verifiable indicators
• Proposed legislative changes to
LFI and LNBM as well as
regulations for banks presented by
National Bank to the relevant state
body of the Republic of Moldova
(Government or Parliament, as
appropriate)
• Personnel of NBM (and NCFM)
adequately familiar with the
CRD-IV and CEBS guidelines
and
principles
• Action Plan for strengthening
operations of DBRS adopted by
NBM
Council
• Overview of the institutions’
ICAAP, pulling together the
institutions’ risk management
framework, business planning and
Source of verification
• Letter from the Council of
NBM to the relevant state body
outlining proposed legislative
changes
• Regulations for banks
approved and published in the
Official Monitor of the RM
• Official Gazette of the
Republic
of
Moldova
• Annual reports of NBM
• Banks’ICAAPs assessed by
NBM
• Final report on the project
• Reports prepared by the IMF
(FSAP) and other international
institutions
Assumptions
• The proposed amendments will
pass in time through the
legislative or other decision
making process
• Sufficient DBRS or other NBM
staff
with
appropriate
qualifications will be available to
participant in the project
• NBM will seek to ensure that the
reasonable results are not
adversely affected by an increased
rate of turnover of staff
29
ICAAPs in the Supervisory capital management
Review and Evaluation Process
('SREP').

Prepared
and
issued
regulations,
guidance
and
requirements for commercial
banks
to
publish
capital
adequacy and risk management
reports complying with CRD-IV
requirements.
30
Annex 2: Organigram of the National Bank of Moldova
31
Glossary - List of Acronyms
AML
Basel I
Basel II
Basel III
BCBS
BCP
CRD IV
CEE
CSP
DBRS
DCFTA
EBA
EBRD
ECAI
ENPI
EU
EUD
EUR
FINREP
FSAP
IBRD
ICAAP
IFI
IFRS
IMF
IT
LCR
LFI
LNBM
MS
NBM
NCFM
NSFR
NIP
NPLs
OECD
PAO
PCA
Anti- Money Laundering programme
Basel Accord on capital requirements of 1988 - 1992 Basel Accord enhanced guidance 2004 - revised through 2008 Basel Accord further improvements 2010-11; see 'CRD IV'
Basel Committee on Banking Supervision
Basel Core Principles - for effective banking supervision
Capital Requirements Directive 2013/36/EU - 26 June 2013
Central and Eastern Europe
Country Strategy Paper
Department of Banking Regulation and Supervision
Deep and Comprehensive Free Trade Agreement
European Banking Authority
European Bank for Reconstruction and Development
External Credit Assessment Institution
European Neighbourhood and Partnership Instrument
European Union
European Union Delegation to Moldova
Euro
Financial Reporting Standards of EBA
Financial Sector Assessment Programme [by the IMF]
International Bank for Reconstruction and Development ['World Bank']
Internal Capital Adequacy Assessment Plan
International Financial Institutions
International Financial Reporting Standards
International Monetary Fund
Information Technology
Liquidity Coverage Ratio
Law on Financial Institutions
Law on the National Bank of Moldova
Member State of EU
National Bank of Moldova
National Commission for Financial Markets
Net Stable Funding Ratio
National Indicative Programme
Non-Performing Loans
Organisation for Economic Cooperation and Development
Project Administration Office
Partnership and Cooperation Agreement
32
PCS
PL
RO[A]A
RO[A]E
RTA
RM
SDP
SIFI
SREP
STE
WB
Project Steering Committee
Project Leader
Return on [Average] Assets
Return on [Average] Equity
Resident Twinning Advisor
Republic of Moldova
Strategic Development Plan
Systemically Important Financial Institution
Supervisory Review and Evaluation Process
Short-term Experts
World Bank - [see also 'IBRD']
33