The reformation and consolidation of the credit system is one of the factors that can stimulate national economic growth. In this context, the presentation is emphasizing the problems and proposals referring to the consolidation and sustainable development of the real sector through the bank credits. As well, it remarks the possibilities of decentralization of the national credit system, through the diversification of the types of credit institutions and financial products, both in urban and rural areas that could cover the financial necessities of all branches and spheres of the national economy.bank credits, real sector, interest rate, sustainable development, bad credits, volume of credits

CIOBU Stela

PARtACHI Ileana

English

Research Papers in Economics

The Ninth International Conference  
“Investments and Economic Recovery”, May 22 – 23, 2009 
 
 
 
 
Economia seria Management    Vol.12, Nr. 1 special/2009 
 
227 
 
The impact of the bank credits 
on the sustainable development of the real 
sector in the Republic of Moldova 
 
Impactul creditelor bancare asupra dezvoltării 
durabile a sectorului real în Republica Moldova 
 
Associate Professor Stela CIOBU, Ph.D. 
The Academy of Economic Studies of Moldova, Republic of Moldova 
e-mail: stellciob@yahoo.com 
Student Ileana PÂRŢACHI 
The Academy of Economic Studies of Moldova, Republic of Moldova 
 
 
Abstract 
The reformation and consolidation of the credit system is one of the factors that 
can stimulate national economic growth. In this context, the presentation is emphasizing 
the problems and proposals referring to the consolidation and sustainable development of 
the  real  sector  through  the  bank  credits.  As  well,  it  remarks  the  possibilities  of 
decentralization of the national credit system, through the diversification of the types of 
credit institutions and financial products, both in urban and rural areas that could cover 
the financial necessities of all branches and spheres of the national economy. 
 
Keywords: bank credits, real sector, interest rate, sustainable development, bad 
credits, volume of credits 
 
    Rezumat 
Reforma şi consolidarea sistemului de creditare sunt factori ce ar putea stimula 
creşterea economică naţională. În acest context, articolul dat accentuează problemele şi 
propunerile  referitoare  la  consolidarea  şi  dezvoltarea  durabilă  a  sectorului  real  prin 
acordarea  de  credite  bancare.  Totodată,  relevă  posibilităţile  de  descentralizare  a 
sistemului naţional de creditare, prin diversificarea tipurilor de instituţii de creditare, cât 
şi a produselor financiare acordate, atât în sfera urbană, cât şi în cea rurală, ce ar putea 
acoperi necesităţile financiare ale tuturor sferelor economiei naţionale. 
 
Cuvinte-cheie: credite bancare, sector real, rata dobânzii, dezvoltare durabilă, 
credite neperformante, volumul creditelor 
JEL Classification: E50, O23 
 
 
anks exert a fundamental influence  on capital allocation  and economic 
growth.  Underdeveloped  economies  with  a  low  level  of  financial 
intermediation  and  small,  illiquid  financial  markets  may  be  unable  to  B   The Ninth International Conference 
“Investments and Economic Recovery”, May 22 – 23, 2009 
 
 
Vol.12, Nr. 1 special/2009        Economia seria Management 
 
228 
channel savings efficiently. In comparison, more bank-oriented countries have experienced 
considerably higher growth rates. This has lead to the idea that banks, in their lending 
capacity have an important function in the economy, because in developing countries, the 
real sector, and not only always requires funds for investment. Therefore, considering to the 
needs on the market, were created credit instruments that are further used by businesses in 
their current or long-term affairs. These can be classified according to various criteria: term, 
collateral  and  purpose.  The  most  important  credits available  to  businesses  in  Moldova, 
according to their term are: long term loans to firms and short term ones, the later include 
self-liquidating inventory loans, working capital loans and overdraft. 
In 2008 the evolution of credits market was determined by an increased demand of 
credits  in  the  national  economy.  The  total  balance  of  credits  extended  to  economy  to 
25122.6 million lei at the end of 2008, increasing by 20.3%, or by 4238.8 million lei versus 
the end of 2007 (according to IMF methodology, out of total credits to economy (including 
interest  calculate  don  credits)  are  excluded  interbank  credits  and  credits  to  the 
Government). However, the volume of credits both in national and in foreign currency has 
diminished; this can be observed in the following graph. 
 
Chart 1. Structure and volume of term credits (%) 
 
 
Source: National Bank of Moldova : Statistics (http://bnm.md/md/statistics) 
 
The volume of credits in national currency increased by 18.0% and equalled to 
17127.2 million lei. Within the maturity structure, credits with terms of over 12 months 
prevailed and recorded an increase by 1341.6 million lei (15.2%), to the level of 10166.2 
million lei, which is 59.4% of total credits in national currency extended in 2008. The 
volume of credits with terms of up to 1 month advanced by 1250.5 million lei (73.0%), and 
held the weight of 17.3%. The Ninth International Conference  
“Investments and Economic Recovery”, May 22 – 23, 2009 
 
 
 
 
Economia seria Management    Vol.12, Nr. 1 special/2009 
 
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The volume of credits in foreign currency amounted in 2008 to 10684.6 million 
lei,  decreasing  by  10.8%  versus  the  previous  year.  Simultaneously,  their  equivalent  in 
foreign  currency  increased  by  USD  41.9  million  (4.2%)  and  constituted  USD  1028.4 
million. 
At the same time, it should be mentioned that the volume of credits with terms of 6 
to 12 months reduced by 29.9 million lei, or by 1.0% and their weight constituted 16.5% in 
2008. 
The analysis of credits supply from the banking system to the national economy at 
the  end  of  2008  reveals  that  credits  extended  to  industry  and  trade  posted  the  highest 
weight, and constitute 12275.2 million lei (48.9% of total at the end of 2008), increasing by 
19.9%, or by 2039.3 million lei. 
The  weight  of  credits  for  real  estate,  construction  and  development  recorded 
36.9% (994.7 million lei) versus the end of 2007. Their weight advanced by 1.8 percentage 
points, and constituted 14.7% of total (table no. 1). As compared to the end of 2007, the 
weight of consumer credits diminished (by 1.3 percentage points, to the level of 12.9%), 
despite their 9.9%-increase (293.9 million lei).  
 
Credits breakdown by branches (MDL million) 
Table 1 
  As of 
31.12.2007  
MDL 
million 
Weight 
in 2007 
(%) 
As of 
31.12.2008 
MDL 
million 
Weight 
in 2008 
(%) 
Absolute 
growth 
MDL 
million 
Relativ
e 
growth 
(%) 
Credits to 
agriculture and food 
industry 
2918.70  14.0  3344.52  13.3  425.8  14.6 
Credits for real 
estate, construction 
and development 
2692.87  12.9  3687.62  14.7  994.7  36.9 
Consumer credits  2962.21  14.2  3256.13  12.9  293.9  9.9 
Credits to energy 
and fuel industry 
427.84  2.1  499.13  2.0  71.3  16.7 
Credits to 
industry/trade 
10235.92  49.0  12275.23  48.9  2039.3  19.9 
Credits for road 
construction and 
transportation 
469.43  2.2  396.70  1.6  -72.7  -15.5 
Other loans  1176.80  5.6  1663.24  6.6  486.4  41.3 
Total  20883.77  100.0  25122.59  100.0  4238.8  20.3 
Source: National Bank of Moldova : Statistics (http://bnm.md/md/statistics) 
 
During the year of 2008 the banking margin (the difference between the average 
interest rate on credits and deposits) continued the descendant trend recorded in the period 
of  2000-2007.  Thus,  the  banking  margin  related  to  operations  in  national  currency 
diminished by 0.86 percentage points, to the level of 2.87 percentage points, while that   The Ninth International Conference 
“Investments and Economic Recovery”, May 22 – 23, 2009 
 
 
Vol.12, Nr. 1 special/2009        Economia seria Management 
 
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related  to  transactions  in  foreign  currency  reduced  by  2.49  percentage  points,  and 
constituted 2.38 percentage points in 2008 (chart no. 2).  
In  2008  the  banking  margin  recorded  a  more  emphasized  reduction  than  its 
average descendant trend during the previous years. In the period of 2000-2007 the average 
reduction rate of the banking margin for the operations in national currency 10.0%, while 
for those in foreign currency –10.2%, in 2008 the banking margin for the operations in 
national currency diminished by 23.1% and for those in foreign currency – by 51.1%. 
The financial sector development can make an important contribution to economic 
growth and poverty reduction. This is especially likely to be true in developing countries, 
whose  financial  sectors  are  likely  to  be  particularly  underdeveloped,  and  without  it, 
economic development may be constrained, even if other necessary conditions are met. 
By  increasing  the  savings  rate  and  the  availability  of  savings  for  investment, 
facilitating and encouraging inflows of foreign capital, and optimizing the allocation of 
capital between competing uses, financial sector development can boost long-run growth 
through its impact on capital accumulation and on the rate of technological progress. 
 
Chart 2. Evolution of banking margin on operations in national currency  
and in foreign currency (percentage points) 
 
 
Source: National Bank of Moldova : Statistics (http://bnm.md/md/statistics) 
 
Though the scale may be different, access to financial services can reduce poverty 
through  the  same  channels  that  affect  overall  growth:  by  increasing  investment  and 
productivity resulting in greater income generation, and by facilitating risk management 
thus reducing vulnerability to shocks. 
Modern growth theory identifies two specific channels through which the financial 
sector might affect long-run growth: 
1.  Through  its  impact  on  capital  accumulation  (including  human  as  well  as 
physical capital) and 
  2. through its impact on the rate of technological progress. The Ninth International Conference  
“Investments and Economic Recovery”, May 22 – 23, 2009 
 
 
 
 
Economia seria Management    Vol.12, Nr. 1 special/2009 
 
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These effects arise from the intermediation role provided by financial institutions 
which enable the financial sector to: 
•mobilize savings for investment; 
•facilitate  and  encourage  inflows  of  foreign  capital  (including  FDI,  portfolio 
investment and bonds, and remittances); and 
•optimize the allocation of capital between competing uses, ensuring that capital 
goes to its most productive use. 
 
 
 
 
 
 
 
 
 
 
 
SAVINGS FOR INVESTMENT 
INFLOWS OF FOREIGN CAPITAL 
EFFICIENT ALLOCATION OF CAPITAL 
 
Figure 1. Impact of financial sector on long-term growth 
 
Finance  is  at  the  core  of  the  development  process.  Efficient,  well-functioning 
financial  systems  are  crucial  in  channeling  funds  to  the  most  productive  uses  and  in 
allocating  risks  to  those  who  can  best  bear  them,  thus  boosting  economic  growth, 
improving opportunities and income distribution, and reducing poverty. Improving access 
and building inclusive financial systems is a goal that is relevant to economies at all levels 
of development. The challenge of better access means making financial services available 
to  all,  thereby  spreading  equality  of  opportunity  and  tapping  the  full  potential  in  an 
economy. The challenge is greater than ensuring that as many firms as possible have access 
to basic financial services. It is just as much about enhancing the quality and reach of 
credit,  savings,  payments,  insurance,  and  other  risk  management  products  in  order  to 
facilitate  sustained  growth  and  productivity,  especially  for  small  and  medium-scale 
enterprises.  
Despite the impressive growth of the banking sector in the last years, there seem 
to be serious impediments for businesses to access financial and credit resources, mainly 
due to excessive operating costs of banks reflected in high interest margins, and lack of 
development  of  other  elements  of  the  financial  sector,  such  as  leasing,  insurance,  and 
capital markets. The Government and the NBM should: 
•  Postpone the increasing of a deposit insurance scheme until the banking sector is 
further consolidated and more efficient. 
•  Enhance  the  payments  system  infrastructure,  to  reduce  transaction  costs  and 
further de-monetize the financial system. 
 
Impact of 
financial sector 
on capital 
accumulation 
 
Impact of 
financial sector 
on technological 
progress 
 
LONG-TERM 
GROWTH    The Ninth International Conference 
“Investments and Economic Recovery”, May 22 – 23, 2009 
 
 
Vol.12, Nr. 1 special/2009        Economia seria Management 
 
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• Facilitate the  functioning  of an efficient credit  information  bureau  system  to 
support the development of cash-flow based credit policies and retail banking (this could be 
facilitated by the further development of a card-based payments system). 
• Review the tax framework to remove impediments for leasing 
• Improve the access of concerned parties to the pledge database by upgrading the 
technical parameters of the central register so that it can support faster access by more users 
(notaries and banks). 
Besides, businesses encounter difficulties at other levels as well. Banks should 
properly consider the specifics  of the economy  of Moldova and create proper services, 
which would respond efficiently to the needs of firms. The conditions in Moldova should 
be made more favourable for SME’s in terms of bank loans, as well. Another characteristic 
of the local banking system is the high cost of loans, which impedes firms to invest and 
further ensure growth. Banks do not only use price terms, but also inconvenient non-price 
requirements in making loans to the businesses. This burden can be avoided in the near 
future if  banks can create efficient risk  management systems and if competition in the 
financial sector increases.  They  should also relate lending costs to the  general rates  of 
return in the economy. 
It is thus recommended that the real sector should have access to both local and 
external  funding,  because  foreign  banks  coming  to  similar  markets  have  increased 
competition and provided additional funds.  This does not  only  lead to  more attractive 
funding opportunities and smaller agency costs, but also encourages sustainable projects 
and contributes to the general growth of the economy.  With higher competition on the 
financial  market will appear appropriate  products, with  longer  maturities and less rigid 
credit requirements.  
At the level of banks, some improvements are also in place. First of all, in order to 
improve efficiency and to decrease losses, banks must invest in sound risk divisions. Only 
recently have some banks started to work on this aspect, when actually the truth is that 
banks can decrease the number of non-performing loans and operational risks only with 
their help. There is a variety of credit risk evaluation and management methods, which 
should  be  adopted  by  banks  at  different  management  levels.  In  addition  to  credit  and 
operational risks, banks’ performance may be affected by changes in interest rates. This 
particular problem can be solved if banks form adequately their loan portfolio and adopt 
efficient policies and procedures in case of losses. It is also essential to advise banks to 
build lasting relationships with important clients and to keep attracting new ones. As long 
as each investment opportunity is assessed correctly, banks may undertake riskier projects 
in order to increase their profitability. 
Banks should become an essential instrument in the country’s growth and should 
allocate capital in a truly  sustainable way. They  should also consider  the opportunities 
present  on a  market  like  that  of  the  Republic  of  Moldova,  filled  with  remittances and 
consumers, and play an important role in the country’s development. 
 
 The Ninth International Conference  
“Investments and Economic Recovery”, May 22 – 23, 2009 
 
 
 
 
Economia seria Management    Vol.12, Nr. 1 special/2009 
 
233 
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The impact of the bank credits on the sustainable development of the real sector in the Republic of Moldova

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The impact of the bank credits on the sustainable development of the real sector in the Republic of Moldova

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