P-Public Investment Memorandum - 1 · Garant", IDNO 1003600103332, address: MD-2012, Republic of...

P-Public

Investment Memorandum - 1 -

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CONTENTS

SUMMARY ........................................................................................................................................................... - 3 -

1. INFORMATION CONCERNING THE SECURITIES OF BC „MOLDINDCONBANK” S.A. ...................... - 4 - 1.1. MAIN CHARACTERISTICS OF THE SECURITIES EXPOSED FOR SALE ..................................................................... - 4 - 1.2. INFORMATION ABOUT THE STOCK OF SHARES EXPOSED FOR SALE AND THE SELLING PROCEDURE ...................... - 5 -

2. BANK ACTIVITY ENVIRONMENT ............................................................................................................. - 6 - 2.1 MACROECONOMIC SITUATION ......................................................................................................................... - 6 - 2.2 BANKING SYSTEM AND THE BANKING MARKET DEVELOPMENT ........................................................................... - 9 - 2.3 POSITIONING OF BC „MOLDINDCONBANK” S.A. IN THE BANKING SYSTEM ........................................................ - 12 -

3. ABOUT THE BANK ..................................................................................................................................- 14 - 3.1 OVERVIEW .................................................................................................................................................. - 14 - 3.2 BRIEF HISTORY ............................................................................................................................................ - 14 - 3.3 LICENSES .................................................................................................................................................... - 16 - 3.4 AWARDS ..................................................................................................................................................... - 16 - 3.5 SHAREHOLDING STRUCTURE ........................................................................................................................ - 17 - 3.6 BANK NETWORK .......................................................................................................................................... - 18 - 3.7 INFORMATION TECHNOLOGIES ...................................................................................................................... - 21 - 3.8 ACHIEVEMENTS IN 2017 ............................................................................................................................... - 21 - 3.9 SOCIAL RESPONSIBILITY .............................................................................................................................. - 22 - 3.10 STRATEGY .................................................................................................................................................. - 22 -

4. DESCRIPTION OF BANK AFFAIRS ........................................................................................................- 24 - 4.1 BASIC PRODUCTS AND SERVICES .................................................................................................................. - 24 - 4.2 GRANTING LOANS ........................................................................................................................................ - 25 - 4.3 DOCUMENTARY OPERATIONS........................................................................................................................ - 25 - 4.4 ATRRACTING RESOURCES ............................................................................................................................ - 26 - 4.5 PAYMENT CARDS AND ELECTRONIC SERVICES ............................................................................................... - 27 - 4.6 MONEY REMITTANCES .................................................................................................................................. - 29 - 4.7 CASH AND SETTLEMENT SERVICES ................................................................................................................ - 30 - 4.8 FOREIGN EXCHANGE OPERATIONS ................................................................................................................ - 30 - 4.9 BANK-ASSURANCE ....................................................................................................................................... - 31 - 4.10 CASH COLLECTION ....................................................................................................................................... - 31 - 4.11 RECEIVING OF PAYMENTS AND OTHER SERVICES ........................................................................................... - 31 - 4.12 TREASURY ACTIVITY .................................................................................................................................... - 32 -

5. CORPORATE GOVERNANCE ................................................................................................................- 33 - 5.1. ORGANIZATIONAL STRUCTURE ...................................................................................................................... - 33 - 5.2. CONTROL FUNCTIONS .................................................................................................................................. - 34 - 5.3. PERSONNEL ................................................................................................................................................ - 35 -

6. RISK MANAGEMENT...............................................................................................................................- 36 - 6.1. CREDIT RISK, INCLUDING COUNTER-PARTY CREDIT RISK AND CONCENTRATION RISK ........................................ - 36 - 6.2. COUNTRY RISK / TRANSFER RISK .................................................................................................................. - 38 - 6.3. MARKET RISK .............................................................................................................................................. - 39 - 6.4. LIQUIDITY RISK ............................................................................................................................................ - 40 - 6.5. OPERATIONAL RISK ...................................................................................................................................... - 41 - 6.6. REPUTATIONAL RISK .................................................................................................................................... - 41 -

7. FINANCIAL POSITION .............................................................................................................................- 42 - 7.1. DATA SOURCES ........................................................................................................................................... - 42 - 7.2. STATEMENT OF FINANCIAL POSITION ............................................................................................................. - 42 - 7.3. STATEMENT OF COMPREHENSIVE INCOME ..................................................................................................... - 46 - 7.4. COMPLIANCE WITH THE REGULATORY REQUIREMENTS ................................................................................... - 50 -

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SUMMARY

In accordance with:

− art.11

1 of the Law on Capital Market no.171 from 11.07.2012 (in force until 05.07.2018);

− art. 521 of the Law on banks activity no.202 from 06.10.2017 (in force since 06.07.2018);

− Decision of the Executive Committee of the National Bank of Moldova no.278 from 20.10.2016; − Decision of the Managing Board of BC „Moldindconbank” S.A. from 19.01.2018 (minutes no.08); − Decision of the National Commission on Financial Markets no.7/1 from 29.01.2018 „Regarding the

registration in the State Register of Securities"; − Decision of the Managing Board of BC „Moldindconbank” S.A. from 13.04.2018 (minutes no.43) and other

decisions of the Managing Board of BC „Moldindconbank” S.A. on the exposure for sale of newly issued shares;

− Decisions of the Executive Committee of the National Bank of Moldova on the extension of the term of sale of newly issued shares by BC „Moldindconbank” S.A.,

BC "Moldindconbank" S.A. announced the exposure for sale by auction organized on the regulated market of JSC „Moldova Stock Exchange", of 3 173 751 ordinary nominative shares of class I, issued by the Bank (63,89% of the Bank's share capital).

The shares exposed for sale may be purchased by a single buyer or a group of concerted persons who have obtained the prior approval of the National Bank of Moldova until such purchase, under the conditions of Articles 47-49 of the Law no.202 of 06.10.2017 on the banks activity.

This Memorandum is designed to provide potential investors with the following information:

− Information about BC "Moldindconbank" S.A. and securities that are put up for sale; − information enabling investors to make an informed appreciation of assets and liabilities, financial position,

profits or losses, prospects of BC "Moldindconbank" S.A.; − brief description of the business and financial situation of BC "Moldindconbank" S.A. over the last 3 years.

Warning for potential investors:

− Any decision to invest in the securities exposed for sale must be based on the complex and exhaustive examination by the investor of this Memorandum.

− Any potential investor, following the review of this Memorandum, can assess independently the risk of investing in the shares exposed for sale, before making the decision to acquire them. At the same time, the assessment should not be limited to examining of only this Memorandum, but also to reviewing and analyzing other official documents and information about the Bank and its business that the investor will consider necessary, including publicly available information.

SUMMARY

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1. INFORMATION CONCERNING THE SECURITIES OF BC „MOLDINDCONBANK” S.A.

Full name: Banca Comerciala „Moldindconbank” S.A.

Legal form of organization: Joint-stock company.

Legal address: MD-2012, Republic of Moldova, Chisinau, 38, Armeneasca Street

IDNO – tax code: 1002600028096.

Date of state registration: June 20th

, 2001.

Types of activity: Activity of banks and investment companies.

Social capital: MDL 496 779 400 divided into 4 967 794 ordinary nominative shares of class I.

1.1. Main characteristics of the securities exposed for sale

Type of securities: ordinary nominative shares.

Class of shares: class I.

ISIN Code: MD14MICB1008.

Nominal value: 100 MDL per share.

Rights granted:

An ordinary nominative share issued by the Bank grants the right to vote in the General Meeting of Shareholders, the right to receive a quota of dividends and a part of the Bank's assets in case of its liquidation.

The shareholder has the right:

− to participate in General Meetings of Shareholders, to elect and to be elected in the management bodies of the Bank;

− to get acquainted with the materials for the agenda of the General Meeting of Shareholders; − to acquaint and make copies of the documents of the Bank, the access to which is provided by art.92 of Law

no.1134-XIII from 02.04.1997 on joint stock companies; − to receive the dividends announced according to the number of shares belonging to the shareholder; − to alienate/transfer the shares belonging to him, to put them in pledge or in fiduciary administration; − to demand the redemption of shares belonging to him in cases provided by the legislation and the Statute of

the Bank; − to receive some of the Bank's assets in case of its liquidation; − to exercise other rights provided by the Law no.1134-XIII of 02.04.1997 on joint stock companies and the

Statute of the Bank.

In addition to the above-mentioned rights, the shareholders holding at least 5 percent, 10 percent and 25 percent of the voting shares of the Bank, have the additional rights provided by the Law no.1134-XIII of 02.04.1997 on joint stock companies.

Obligations of the shareholder:

− to inform the person holding the Shareholders' Register of any changes to his or her data, stated in the register;

− to disclose information about transactions with the Bank's shares in accordance with the legislation in force; − to fulfill other obligations under the Law on Joint Stock Companies or other legislative acts.

Any holder, directly or indirectly, including the beneficial owner, of a share of the Bank's capital, is required to submit to the National Bank of Moldova, at its request, the information related to its activity, including annual financial statements, income statements and other information necessary to perform investigations or verification of compliance to the criteria of the art.48 par.(1) and par.(2) of the Law no.202 of 06.10.2017 on banks activity, in the manner and under the conditions stipulated by the normative acts of the National Bank of Moldova.

Any holder, directly or indirectly, of a share of the Bank's share capital is required to provide to the Bank, at its

1. INFORMATION CONCERNING THE SECURITIES OF

BC „MOLDINDCONBANK” S.A.

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request, the information about its identity and its affiliated persons, as well as information on the persons with whom that holder acts concerted with regards to the Bank, according to the Bank's internal regulations.

The Registrar Company, which keeps the register of the holders of securities issued by the Bank: JSC „Registru-Garant", IDNO 1003600103332, address: MD-2012, Republic of Moldova, Chisinau, Mitropolit Varlaam str., 65, of.33, tel. (373 22) 22-99-17.

Tax regime of dividends: According to the provisions of the Fiscal Code, on the calculated dividends, a tax in the amount of 6 percent is retained on the source of payment.

1.2. Information about the stock of shares exposed for sale and the selling procedure

The basis of the securities’ exposure for sale:

− art.11

1 of the Law no.171 from 11.07.2012 on Capital Market (in force until 05.07.2018);

− art. 521 of the Law no.202 from 06.10.2017 on banks activity (in force since 06.07.2018);

− Decision of the Executive Committee of the National Bank of Moldova no.278 from 20.10.2016; − Decision of the Managing Board of BC „Moldindconbank” S.A. from 19.01.2018 (minutes no.08); − Decision of the National Commission on Financial Markets no.7 / 1 of 29.01.2018 "Regarding the registration

in the State Register of Securities"; − Decision of the Managing Board of BC „Moldindconbank” S.A. from 13.04.2018 (minutes no.43) and other

decisions of the Managing Board of BC „Moldindconbank” S.A. on the exposure for sale of newly issued shares;

− Decisions of the Executive Committee of the National Bank of Moldova on the extension of the term of sale of newly issued shares by BC „Moldindconbank” S.A.

Number of shares exposed for sale: 3 173 751 shares.

Share in the social capital of the Bank: 63,89 percent.

Initial selling price: MDL 239,5 per share.

The initial selling price is set according to the Decision of the Bank's Managing Board from 13.04.2018 (minutes no.43), starting from the evaluation made by “Deloitte Consultanta” SRL (Romania), according to the provisions of art.11

1 of the Law no.171 from July 11, 2012 on Capital Markets.

Place of trading: the regulated market of JSC "Moldova Stock Exchange".

Contact details of the JSC „Moldova Stock Exchange": address: MD-2012, Republic of Moldova, Chisinau, 16, Maria Cibotari str., Tel. (373 22) 27-75-16, official website: moldse.md.

Selling format: The shares are exposed for sale by auction as a single block, consisting of the total number of shares.

Other information related to the exposure of the newly issued shares for sale, including information on the period of the regulated market of JSC "Moldovan Stock Exchange" auction is presented in the Notice on the sale of the newly issued shares by BC "Moldindconbank" S.A., published on the Bank's website: micb.md, on the web page of JSC "Moldova Stock Exchange": moldse.md and in periodicals: the newspaper "Capital Market" and "Экономическое обозрение" Логос-пресс" newspaper.

Acquiring the shares exposed for sale: In order to purchase the shares exposed for sale, the potential buyer may apply to any investment company holding the investment company's license issued by the National Commission for Financial Market.

Special conditions for the buyer: The shares exposed for sale may be purchased by a single buyer or a group of concerted persons who have obtained the prior approval of the National Bank of Moldova until such purchase, under the conditions of Articles 47-49 of the Law no.202 of 06.10.2017 on the banks activity.

http://www.moldse.md/

http://www.micb.md/

http://www.moldse.md/

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2. BANK ACTIVITY ENVIRONMENT

Republic of Moldova

Surface: 33 846 km2

Population: 3,5 million (2015 estimate)

Political system: parliamentary republic

Capital: Chisinau

Currency: Moldovan Leu (MDL)

Moldova is a member of the United Nations, Council of Europe, Partnership for Peace, WTO, OSCE, GUAM, CIS, BSEC and other international organizations.

The Republic of Moldova aspires to join the European Union and has already implemented the first 3-year Action Plan under the European Neighborhood Policy.

2.1 Macroeconomic situation

In 2017 and in the first half of the year 2018 is characterized by a positive dynamic situation which influenced most of the sectors of the national economy. Agricultural and industrial production, being the main economic sectors of Republic of Moldova, recorded an increase due to positive developments in plant production, manufacturing, as well as domestic and external demand growth. Domestic trade of goods and services show a positive dynamic, thus showing a continuous intensification of domestic consumption. Transport services as an intermediary sector, had all the premises for an evolution corresponding to that of the other national economic sectors. Foreign trade, based on the increases in the agricultural and industrial sectors from the last year and from the first months of the current year, as well as a result of capitalizing on the export potential, reflects continuation of the upward trend as evidenced in 2017. Investments in fixed assets registered significant growth sustained by private and public investments.

Source: http://www.statistica.md/

Gross domestic product (GDP) in 2017 amounted to MDL 150,4 billion, increasing by 4,5 percent compared to 2016 (in comparable prices).

The most significant influence on GDP growth had the gross value added (GVA) generated by wholesale and retail trade, transport and storage, hotels and restaurants - by 1,3 percent, followed by agriculture, forestry and fishing - with 1,0 percent, information and communications - by 0,2 percent, construction - by 0,1 percent, industry, real estate transactions and professional, scientific and technical activities - by 0,4 percent.

2. BANK ACTIVITY ENVIRONMENT

112.1 122.6

134.9 150.4

4.8%

-0.4%

4.3% 4.5%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

-50

-30

-10

10

30

50

70

90

110

130

150

170

31.12.2014 31.12.2015 31.12.2016 31.12.2017

Nominal GDP, MDL billion Real growth

Chart 1. Nominal GDP annual evolution

63.9 81.8

2.8%

4.5%

-1.00%

1.00%

3.00%

5.00%

7.00%

9.00%

11.00%

13.00%

15.00%

-50

-30

-10

10

30

50

70

90

110

130

150

170

30.06.2017 30.06.2018

semi-annual evolution

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In the first half of 2018 the GDP increased by 4,5% and amounted to MDL 81,8 billion. The most significant influence on GDP growth had the gross value added (GVA) created in wholesale and retail trade, transport and storage, hotels and restaurants, industry, and real estate and construction transactions.


The annual inflation rate in the first half of 2018 had a downward trend, mainly as a result of the dynamics of regulated prices, but also supported by the appreciation trend of the national currency. The annual inflation rate in June 2018 amounted to 3,2 percent, being below the target level of inflation set by the National Bank of Moldova (5 percent +/- 1.5 percentage points (pp.)).


The Moldovan Leu in the first half of 2018 continues to appreciate against the US dollar and the euro. Since the beginning of 2018, the national currency has appreciated by 1,5 percent against the US dollar in nominal terms (from MDL 17,10 for USD 1 on 01.01.2018 to MDL 16,84 as of 30.06.2018). Compared to the euro, the Moldovan Leu appreciated by 4,3 percent (from MDL 20,41 per 1 EUR on 01.01.2018 to MDL 19,53 as at 30.06.2018).


4.7

13.6

2.4

7.3

3.2

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 2. Annual inflation rate

15.6

19.7 20.0 17.1 16.8

19.0 21.5 20.9 20.4 19.5

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 3. Exchange rate

MDL/USD MDL/EUR

2 340 1 967 2 045 2 425

5 317 3 987 4 020 4 831

-2 977 -2 020 -1 976 -2 406

44.0% 49.3% 50.9% 50.2%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-3513.331-3490.824-3468.318-3445.811-3423.304-3400.798-3378.291-3355.784-3333.278-3310.771-3288.264-3265.758-3243.251-3220.744-3198.238-3175.731-3153.224-3130.718-3108.211-3085.704-3063.198-3040.691-3018.184-2995.678-2973.171-2950.664-2928.158-2905.651-2883.144-2860.638-2838.131-2815.624-2793.118-2770.611-2748.104-2725.598-2703.091-2680.584-2658.078-2635.571-2613.064-2590.558-2568.051-2545.544-2523.038-2500.531-2478.024-2455.518-2433.011-2410.504-2387.998-2365.491-2342.984-2320.478-2297.971-2275.465-2252.958-2230.451-2207.945-2185.438-2162.931-2140.425-2117.918-2095.411-2072.905-2050.398-2027.891-2005.385-1982.878-1960.371-1937.865-1915.358-1892.851-1870.345-1847.838-1825.331-1802.825-1780.318-1757.811-1735.305-1712.798-1690.291-1667.785-1645.278-1622.771-1600.265-1577.758-1555.251-1532.745-1510.238-1487.731-1465.225-1442.718-1420.211-1397.705-1375.198-1352.691-1330.185-1307.678-1285.171-1262.665-1240.158-1217.651-1195.145-1172.638-1150.131-1127.625-1105.118-1082.611-1060.105-1037.598-1015.091-992.5848-970.0781-947.5715-925.0648-902.5581-880.0515-857.5448-835.0381-812.5315-790.0248-767.5182-745.0115-722.5048-699.9982-677.4915-654.9849-632.4782-609.9715-587.4649-564.9582-542.4515-519.9449-497.4382-474.9316-452.4249-429.9182-407.4116-384.9049-362.3982-339.8916-317.3849-294.8783-272.3716-249.8649-227.3583-204.8516-182.345-159.8383-137.3316-114.825-92.31831-69.81164-47.30498-24.79832-2.29165920.21500342.72166465.22832687.734988110.24165132.74831155.25497177.76164200.2683222.77496245.28162267.78828290.29494312.80161335.30827357.81493380.32159402.82825425.33492447.84158470.34824492.8549515.36156537.86822560.37489582.88155605.38821627.89487650.40153672.90819695.41486717.92152740.42818762.93484785.4415807.94817830.45483852.96149875.46815897.97481920.48147942.98814965.4948988.001461010.50811033.01481055.52141078.02811100.53481123.04141145.54811168.05481190.56141213.06811235.57471258.08141280.58811303.09471325.60141348.1081370.61471393.12141415.6281438.13471460.64141483.1481505.65471528.16131550.6681573.17471595.68131618.1881640.69471663.20131685.7081708.21461730.72131753.2281775.73461798.24131820.74791843.25461865.76131888.26791910.77461933.28131955.78791978.29462000.80122023.30792045.81462068.32122090.82792113.33462135.84122158.34792180.85452203.36122225.86792248.37452270.88122293.38782315.89452338.40122360.90782383.41452405.92122428.42782450.93452473.44112495.94782518.45452540.96112563.46782585.97442608.48112630.98782653.49442676.00112698.50782721.01442743.52112766.02772788.53442811.04112833.54772856.05442878.56112901.06772923.57442946.0812968.58772991.09443013.6013036.10773058.61433081.1213103.62773126.13433148.6413171.14773193.65433216.1613238.66763261.17433283.6813306.18763328.69433351.20093373.70763396.21433418.72093441.22763463.73433486.24093508.74763531.25423553.76093576.26763598.77423621.28093643.78763666.29423688.80093711.30753733.81423756.32093778.82753801.33423823.84083846.34753868.85423891.36083913.86753936.37423958.88083981.38754003.89414026.40084048.90754071.41414093.92084116.42754138.93414161.44084183.94744206.45414228.96084251.46744273.97414296.48074318.98744341.49414364.00074386.50744409.01414431.52074454.02744476.5344499.04074521.54744544.0544566.56074589.06734611.5744634.08074656.58734679.0944701.60074724.10734746.6144769.12064791.62734814.1344836.64064859.14734881.6544904.16064926.66734949.17394971.68064994.18735016.69395039.20065061.70725084.21395106.72065129.22725151.73395174.24065196.74725219.25395241.76055264.26725286.77395309.28055331.78725354.29385376.80055399.30725421.81385444.32055466.82725489.33385511.84055534.34715556.85385579.36055601.86715624.37385646.88055669.38715691.89385714.40045736.90715759.41385781.92045804.42715826.93375849.44045871.94715894.45375916.96045939.46715961.97375984.48046006.9876029.49376052.00046074.5076097.01376119.52046142.0276164.53376187.04036209.5476232.05376254.56036277.0676299.57366322.08036344.5876367.09366389.60036412.1076434.61366457.12036479.62696502.13366524.64036547.14696569.65366592.16026614.66696637.17366659.68026682.18696704.69366727.20026749.70696772.21356794.72026817.22696839.73356862.24026884.74696907.25356929.76026952.26686974.77356997.28027019.78687042.29357064.80017087.30687109.81357132.32017154.82687177.33357199.84017222.34687244.85347267.36017289.86687312.37347334.88017357.38677379.89347402.40017424.90677447.41347469.92017492.42677514.93347537.447559.94677582.45347604.967627.46677649.97347672.487694.98677717.49337740

31.12.2014 31.12.2015 31.12.2016 31.12.2017

Export, USD million

Import, USD million

Commercial balance, USD million

Coverage of imports with exports

Chart 4. Export/ Import

annual evolution

1 028 1 315

2 181 2 735

-1 153 -1 420

47.1% 48.1%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-1880.0-1860.0-1840.0-1820.0-1800.0-1780.0-1760.0-1740.0-1720.0-1700.0-1680.0-1660.0-1640.0-1620.0-1600.0-1580.0-1560.0-1540.0-1520.0-1500.0-1480.0-1460.0-1440.0-1420.0-1400.0-1380.0-1360.0-1340.0-1320.0-1300.0-1280.0-1260.0-1240.0-1220.0-1200.0-1180.0-1160.0-1140.0-1120.0-1100.0-1080.0-1060.0-1040.0-1020.0-1000.0-980.0-960.0-940.0-920.0-900.0-880.0-860.0-840.0-820.0-800.0-780.0-760.0-740.0-720.0-700.0-680.0-660.0-640.0-620.0-600.0-580.0-560.0-540.0-520.0-500.0-480.0-460.0-440.0-420.0-400.0-380.0-360.0-340.0-320.0-300.0-280.0-260.0-240.0-220.0-200.0-180.0-160.0-140.0-120.0-100.0-80.0-60.0-40.0-20.00.020.040.060.080.0100.0120.0140.0160.0180.0200.0220.0240.0260.0280.0300.0320.0340.0360.0380.0400.0420.0440.0460.0480.0500.0520.0540.0560.0580.0600.0620.0640.0660.0680.0700.0720.0740.0760.0780.0800.0820.0840.0860.0880.0900.0920.0940.0960.0980.01000.01020.01040.01060.01080.01100.01120.01140.01160.01180.01200.01220.01240.01260.01280.01300.01320.01340.01360.01380.01400.01420.01440.01460.01480.01500.01520.01540.01560.01580.01600.01620.01640.01660.01680.01700.01720.01740.01760.01780.01800.01820.01840.01860.01880.01900.01920.01940.01960.01980.02000.02020.02040.02060.02080.02100.02120.02140.02160.02180.02200.02220.02240.02260.02280.02300.02320.02340.02360.02380.02400.02420.02440.02460.02480.02500.02520.02540.02560.02580.02600.02620.02640.02660.02680.02700.02720.02740.02760.02780.02800.02820.02840.02860.02880.02900.02920.02940.02960.02980.03000.03020.03040.03060.03080.03100.03120.03140.03160.03180.03200.03220.03240.03260.03280.03300.03320.03340.03360.03380.03400.03420.03440.03460.03480.03500.03520.03540.03560.03580.03600.03620.03640.03660.03680.03700.03720.03740.03760.03780.03800.03820.03840.03860.03880.03900.03920.03940.03960.03980.04000.04020.04040.04060.04080.04100.04120.04140.04160.04180.04200.04220.04240.04260.04280.04300.04320.04340.04360.04380.04400.04420.04440.04460.04480.04500.04520.04540.04560.04580.04600.04620.04640.04660.04680.04700.04720.04740.04760.04780.04800.04820.04840.04860.04880.04900.04920.04940.04960.04980.05000.05020.05040.05060.05080.05100.05120.05140.05160.05180.05200.05220.05240.05260.05280.05300.05320.05340.05360.05380.05400.05420.05440.05460.05480.05500.05520.05540.05560.05580.05600.05620.05640.05660.05680.05700.05720.05740.05760.05780.05800.05820.05840.05860.05880.05900.05920.05940.05960.05980.06000.06020.06040.06060.06080.06100.06120.06140.06160.06180.06200.06220.06240.06260.06280.06300.06320.06340.06360.06380.06400.06420.06440.06460.06480.06500.06520.06540.06560.06580.06600.06620.06640.06660.06680.06700.06720.06740.06760.06780.06800.06820.06840.06860.06880.06900.06920.06940.06960.06980.07000.07020.07040.07060.07080.07100.07120.07140.07160.07180.07200.07220.07240.07260.07280.07300.07320.07340.07360.07380.07400.07420.07440.07460.07480.07500.07520.07540.07560.07580.07600.07620.07640.07660.07680.07700.07720.07740.0

30.06.2017 30.06.2018


http://www.statistica.md/

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Exports and imports have increased substantially. In 2017 exports increased by 18,6 percent and imports - by 20,2 percent. The negative balance of the trade balance constituted USD 2 406 million. The coverage of imports with exports in 2017 constituted 50,2 percent, being slightly lower than that recorded in the previous year (51,0%).

In the first half of 2018 exports increased by 27,9 percent and imports - by 25,4 percent compared to the similar period of 2017. The considerable gap in the evolution of exports and imports led to the accumulation in January-June 2018 of a trade balance deficit of USD 1 420.0 million, up 23,1 percent as compared to the one recorded in the first half of 2017. The coverage of imports with exports constituted 48,1 percent.


The volume of agricultural production in the year 2017 registered an increase of 8,6 percent (in comparable prices). The increase in agricultural production was determined by the increase of plant production by 13,1 percent, contributing to the value of the agricultural production index by +9,2 p.p. At the same time, the livestock production registered a decrease of 2,1 percent, having a negative influence on the agricultural production index (-0,6 p.p.).

Agricultural production increased with 7,2% during January-June 2018 (in comparable prices).

The increase in agricultural production was mainly established by the increase in plant production by 54,6%, ensuring 91% of the increase of the agricultural sector in that certain period. Industrial Livestock production increased as well with 0,7% contributing to the growth of the whole agricultural sector by 9% of the total growth.


Industrial enterprises produced 3,4 percent more goods in 2017, in value terms than in 2016. Manufacturing industry has grown by 4,5 percent, boosting the entire industrial sector. Production and supply of electric and thermal energy, gas, hot water and air conditioning, and mining and quarrying decreased by 1,7 percent and 3,7 percent respectively.

In the first half of 2018, industrial output continued its upward trend, recording a growth of 8,4 percent. The growth of the industrial sector was driven by acceleration of manufacturing, which cumulatively increased by 9,5 percent in 6 months and had the most significant contribution to the growth (+7,4 p.p.).

A positive contribution was also provided by the energy sector (+1,0 p.p.), which recorded an increase of 5,0 percent. Extractive industry grew by 2,3 percent.

Investments increased by 1,3 percent and amounted to about MDL 21 billion. The increase of investments was determined by the restoration of the financing of state's investment projects due to unblocking of the external assistance and the increase of public revenues, as well as the emergence of the prerequisites for the relaunching of lending to the national economy.

In the first half of 2018, the investments in fixed assets amounted to MDL 6 767,7 million, compared with the first half of 2017, beeing increased by 7,4 percent (in comparable prices). The main factors that have led to the increase

27.3 27.2 30.6

34.0

8.6%

-13.4%

18.8%

8.6%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

-15

5

25

31.12.2014 31.12.2015 31.12.2016 31.12.2017

Agricultural production, MDL billion Real growth

Chart 5. Agricultural production

43.5 45.7 47.6 52.8

7.3%

0.6% 0.9%

3.4%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

0

20

40

60

31.12.2014 31.12.2015 31.12.2016 31.12.2017

Industrial production, MDL billion Real growth

Chart 6. Industrial production

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of investments were the increase in private investments, supported by the lending to the national economy, and the increase of investments financed from local public budgets.

The volume of transport services has increased. Rail, road, river and air transport companies transported about 17,3 million tonnes of goods in 2017 or 23,8 percent more than the volume transported in 2016. In the first half of 2018, railway, road, river and air transport companies transported about 7,7 million tons of cargo or 14,9 percent more than in the same period last year. Increases in the volume of goods transported were registered for all means of transport: air transport - by 38,9%, river transport - by 21,1%, rail transport - by 18,6%, road transport - by 13,2 percent.

Source: http://www.bnm.md/

In 2017, the total volume of remittances from abroad in favor of individuals in the Republic of Moldova amounted to USD 1 199,97 million. The USD value of total transfers in 2017 increased by 11,2 percent versus 2016 (USD 1 079,24 million), including 0,6 p.p. as a result of the appreciation of EUR and RUB as against USD (calculations according to the daily official courses of the National Bank of Moldova). The real increase of the total amount of money remittances constituted 10,6 percent. This was due to the impact of the increase in remittances in EUR by 21,9 percent and the decrease of the remittances in RUB by 20,4 percent. Thus, in 2017, the currency structure of money remittances (recalculated in USD) was as follows: USD - 570,54 million, EUR - 522,37 million, RUB - 94,40 million and other currencies - 12,66 million. In the first half of 2018, the total volume of remittances from abroad in favor of individuals in the Republic of Moldova amounted to USD 640,3 million. The real increase in the total value of money remittances in the first half of 2018 constituted 7,7 percent.

2.2 Banking system and the banking market development

On June 30, 2018, 11 banks licensed by the National Bank of Moldova, including 4 subsidiaries of banks and foreign financial groups, operated in the Republic of Moldova. During the first half of 2018, two new strategic shareholders joined the local banking sector: Transilvania Bank of Romania became an indirect shareholder in B.C. "VICTORIABANK" S.A. and Intesa Sanpaolo - sole shareholder at B.C. "EXIMBANK" S.A., the bank being part of the Intesa Sanpaolo Group. The banking system of the Republic of Moldova is characterized by a high degree of concentration. Thus, as of June 30, 2018, the largest 3 banks accounted for 65,4 percent of assets, 64,4 percent of loans, 68,7 percent of deposits, and the top five banks with 83.8 percent of assets, 81,5 percent of loans and 86,5 percent of deposits.

During the year 2017 and the first half of 2018, the assets of the banking sector continued to register growth, capital adequacy strengthened, the banks have excessive liquidity, and the profitability of banks is at a high level.

Although in the banking sector was registered a decrease in the lending activity, since March 2018, there have been monthly increases in the loan portfolio. The share of non-performing loans in the loan portfolio during the first half of 2018 has decreased, but remains high. Banks continue to pursue a strategy of lowering bad loans.

The dynamics of the financial indicators of the banking sector must be seen in the light of the events of 2015, when the National Bank of Moldova withdrew the licenses of three banks (Banca de Economii SA, CB «Banca Sociala" SA and CB «Unibank" SA) influenced by the exclusion from the financial information from

1 613

1 129 1 079 1 200

6.4%

-16.2%

-3.2%

10.6%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

-700-680-660-640-620-600-580-560-540-520-500-480-460-440-420-400-380-360-340-320-300-280-260-240-220-200-180-160-140-120-100-80-60-40-20020406080100120140160180200220240260280300320340360380400420440460480500520540560580600620640660680700720740760780800820840860880900920940960980100010201040106010801100112011401160118012001220124012601280130013201340136013801400142014401460148015001520154015601580160016201640166016801700

31.12.2014 31.12.2015 31.12.2016 31.12.2017

Volume of remittences, USD million Real growth

Chart 7. Remittances of money

annual evolution

552 640

0.2%

7.7%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

-700-680-660-640-620-600-580-560-540-520-500-480-460-440-420-400-380-360-340-320-300-280-260-240-220-200-180-160-140-120-100-80-60-40-20020406080100120140160180200220240260280300320340360380400420440460480500520540560580600620640660680700720740760780800820840860880900920940960980100010201040106010801100112011401160118012001220124012601280130013201340136013801400142014401460148015001520154015601580160016201640166016801700

30.06.2017 30.06.2018


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2015 of the data of the three banks in liquidation.

Assets and bonds


Total assets of the banking system as of 30.06.2018 amounted to 80,3 billion MDL, increasing by 1,1% (MDL 863 million) in the first half of 2018. The gross loan portfolio accounted for 41,3 percent of total assets, amounting to MDL 33,1 billion. Investment in state securities and NBM certificates registered a share of 17,1% of total assets, by 1,9 p.p. lower compared to the end of 2017. Other assets, constituting 41,8%, represent the accounts opened with the National Bank of Moldova, other banks, cash, etc.


The gross loan portfolio in the first half of 2018 continued the downward trend of the recent years, amounting to MDL 33,1 billion as of 30.06.2018, down 1,0 percent (MDL 327 million) as compared to 31.12. 2017. At the same time, the volume of new credits increased by 11,6% compared to the same period of the previous year, one of the factors being the decrease of the interest rate on loans. In March-June 2018 there was a monthly increase in the loan portfolio. The largest increase was recorded for individuals loans and loans granted for the purchase of the real estate.

The share of non-performing loans (substandard, doubtful and compromised) in total loans decreased by 3,7 p.p. during the first half of 2018, constituting 14,7 percent at 30.06.2018. This indicator differs from one bank to another, ranging from 5,7 percent to 34,3 percent.

Liquidity indicators remain at a high level. Thus, the value of the long-term liquidity indicator (principle I of liquidity) was 0,6 (limit ≤1), being at the same level as at the end of 2017. The current liquidity by sector (principle II of liquidity) did not change, constituting 55,5% (limit ≥20%), more than half of the assets of the banking sector being concentrated in liquid assets.

41 38 35 33 33

15 11 11 15 14

35

17 27 31 34

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 8. Dinamics of assets in the banking sector (MDL billion)

Total loans Securities investments Other assets

34.9 32.2 28.3 25.9 24.5

5.9 6.0

6.4 7.6 8.6

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart.9. Dinamics of gross loan portofolio (MDL billion)

Loans to individuals Loans to legal entities

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Deposit balance of the banking sector increased by 1,7% in the first half of 2018 and accounted for MDL 60,9 billion (deposits of individuals constituted 65,6% of the total deposits, deposits of legal entities – 34,4%, including deposits of banks – 0,2 percent).

The biggest influence on the increase of the deposits was recorded by the increase of deposits of legal entities by MDL 662,7 million (3,3%). Also, the individuals’ deposits increased by MDL 371,3 million (0.9 percent).


Banks' capital during the first half of the year 2018 increased by 2,1 percent (MDL 282,1 million), amounting MDL 13,9 billion. The total regulatory capital at 30 June 2018 amounted to MDL 11,5 billion, up 8,8 percent (MDL 932,7 million) for the period. The increase of the capital of the banks, as well as the total regulatory capital, was mainly determined by obtaining the profit of MDL 937 million.

The high level of the risk-weighted capital adequacy indicator was maintained in the first half of the year 2018 (average per sector – 33,9 percent, the regulated limit for each bank ≥16 percent). At the same time, all banks comply with the regulated limit, which varies from 22,8 percent to 86,1 percent.


34.6 35.0 37.7 39.6 40.0

17.1 15.0 17.0

20.1 20.9

26.0

23.9

29.3 34.2 35.8

25.8

26.2

25.4 25.5 25.2

0

10

20

30

40

50

60

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 10. Dinamics of deposits (MDL billion)

Deposits of individuals

Deposits of legal entities

Deposits accepted in MDL

Deposits accepted in foreign currency

12.3 11.5 12.6 13.6 13.9

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 11. Capital dynamics in the banking sector (MDL billion)

64.8

35.5 32.4 33.9 34.0

9.0 9.3 9.7 10.5 11.5

13.9%

26.3% 29.8% 31.0% 33.9%

-50%

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-30%

-20%

-10%

0%

10%

20%

30%

40%

0

10

20

30

40

50

60

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80

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 12. Dynamic of the risk-weighted capital adequacy indicator

Risk-weighted assets, MDL million

Regulatory capital, MDL million

Risk-weighted capital adequacy (%)

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Income and profitability

Chart 13. Profit, return on assets (ROA) and return on equity (ROE)


Banks in the banking system of the Republic of Moldova have increased profits and profitability indicators over the last few years. As of 30.06.2018, the profits registered by banks amounted to MDL 937.0 million and compared with the same period of the previous year they decreased by 2,1 percent. The decrease in profit is caused by the decrease in interest income by 11,9% or by MDL 289,9 million as a result of the decrease in the interest rate and the loan portfolio, as well as by the increase of non-interest expenses by 7,8% or by MDL 128,3 million. Non-interest income increased by 14,8 percent or MDL 169,7 million. Interest expenses decreased by 23,1 percent or MDL 228,9 million as a result of the decrease in the average deposit ratio. On 30.06.2018, ROA accounted for 2,2 percent and ROE 13,4 percent, decreasing by 0,3 p.p. and 1,23 p.p. compared to the same period of the previous year.

2.3 Positioning of BC „Moldindconbank” S.A. in the banking system

3 2

1

713

1 144

1 364 1 481

0.9% 1.7% 1.8% 1.9%

5.9%

10.2% 11.1% 11.1%

0%

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10%

15%

20%

25%

30%

0

200

400

600

800

1 000

1 200

1 400

31.12.2014 31.12.2015 31.12.2016 31.12.2017

annual evolution

Profit, MDL million

Capital

Deposits

Total Assets Loans Profit

Regulatory Capital

Rentability Cards Remittances

Network

957 937

2.4% 2.2%

14.6% 13.4%

0%

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20%

25%

30%

0

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30.06.2017 30.06.2018


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During the first half of 2018, the Bank recorded the following evolution of the market share by:

− total assets – maintained the level of 19,1 percent; − gross loans - increase from 19,0 percent to 19,7 percent; − total deposits - decrease from 20,0 percent to 19,8 percent.

The bank ranks 2nd in the banking system and holds 20 percent of the local banking market by different indicators.

BC „Moldindconbank” S.A. is the leader in the payment card market and the leader in the market for money remittance services by individuals.

The bank's share in the total cards in circulation as of 30.06.2018 constituted 37,3 percent, up by 0,6 p.p. as compared to 31.12.2017 (36,7 percent), and represented 29-32 percent of the market by volume of payment card transactions.

The bank's share in the market of money remittance services by individuals as of 30.06.2018 was 37,7 percent.

Loans 19,7%

Deposits 19.8%

Assets 19.1%

Deposits of individuals

23.1%

Cards 37.3%

Remittances 37.7%

Chart 14. Market share of the bank at 30.06.2018

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3. ABOUT THE BANK

3.1 Overview

3.2 Brief history

The Bank started its activity on 1 July 1959 as a subsidiary of the USSR Stroibank with a staff of 40 people, whose main tasks were to finance the construction of industrial objects, energy complex enterprises, and roads.

The bank was subsequently reorganized into a Moldovan republican bank of Promstroibank of the USSR with the assignment of complex additional activities of home servicing and lending to industrial, transportation, telecommunication, technical-scientific and supply organizations.

During its activity, the Bank supported the largest state projects, which contributed to the formation and development of the economy of the republic.

After the dissolution of the USSR, the Bank was transformed into a commercial bank for industry and construction - BC „Moldindconbank” S.A. Moldova Railways, Chisinau Airport, Moldagrotehnica JSC, Moldavhidromas JSC and others were among the founders of the Bank.

During the years of its activity as a commercial bank, BC „Moldindconbank” S.A. has taken a solid position in the banking market, optimizing the structure of assets and liabilities, developing its customer base, modernizing and improving the range of services rendered to clients. Currenty, the Bank is an universal financial institution that provides all types of modern banking services for legal entities and individuals. The Bank is among the top three commercial banks in Moldova, with a developed branch network covering the entire country.

Market share

- Second position in the banking system of the Republic of Moldova, market share of about

20%;

- Leader in the bank cards market (37,3%);

- Leader in the remittance market (37,7%).

Network

- Largest network of territorial subdivisions

(194 units);

- The largest cash-in ATM network (61 units).

Customers

- Over 600 000 individual customers;

- More than 30 000 corporate clients.

Business lines and services

Wide range of products and services for:

- Individuals;

- Legal entities;

- Treasury.

Technologies

- Own card processing center;

- Leader in the e-banking segment in Moldova;

- Unique money remittance systems;

- Two data centers.

Personal

- Over 1 400 highly qualified employees;

- Professional team.

3. ABOUT THE BANK

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Chronology of the most important events in the Bank's activity:

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3.3 Licenses

Table no.1

№ Type of activity Issuing authority Series, issue

number and date Term

1 Bank activity, full range of operations The National Bank of Moldova

A MMII 004507 from 07.03.2018

Unlimited

2

Ccategory „C" investment company license with the right to carry out services and activities and other services

National Commission for Financial Market

CNPF 000814 from 15.03.2015

Unlimited

3.4 Awards

„The Most Innovative Bank of Moldova 2016" (Global Finance and Banking Review, UK)

„The Best Banking Product - P2P Transfer, Moldova 2016" (Global Finance and Banking Review, UK)

„Moldova's Best Bank 2015" (Global Finance, USA)

„The most innovative bank in Moldova 2015, ranking of trading services"

(Global Finance, USA)

„Moldova's Best Bank 2014" (Global Finance, USA)

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3.5 Shareholding structure

The shareholding structure of the Bank during the period of 2015-2017 and the first semester of 2018: Table no.2

Name of the shareholder

31.12.2015 31.12.2016 31.12.2017 30.06.2018

Shareholding,% Shareholding,% Shareholding,% Shareholding,%

Shareholders who own individually or in concert ≥5%

SC „MVI” S.R.L. 3,60 3,60 3,60 3,60

Mîrzac Valerian 9,06 9,06 9,06 9,11

12,66 12,66 12,66 12,71

Shareholders who own individually or in concert ≥1% and <5%

Legal entities 24,28 2,35 2,90 1,67

Individuals 48,92 6,76 6,76 6,76

73,20 9,11 9,66 8,43

The shareholders acting in concert according to the decision of the National Bank of Moldova*

0,00 63,89 63,89 63,89

Shareholders who own in concert <1%

Legal entities 6,34 6,15 6,22 7,37

Individuals 7,33 7,72 7,10 7,13

13,67 13,87 13,32 14,50

Treasury shares 0,47 0,47 0,47 0,47

New issued shares registered provisionally on behalf of the Bank

0,00 0,00 0,00 63,89

Total 100,00 100,00 100,00 100,00

*By the Decision of the Executive Committee no.278 dated October 20, 2016, the National Bank of Moldova identified that some shareholders of BC „Moldindconbank” S.A. acting in concert, have acquired and hold a substantial share (63,89 percent) in the Bank's share capital without the prior written permission of the National Bank of Moldova, as required by the legislation.

As the respective shareholders did not alienate the shares within the set deadline, according to the legislation in force, in January 2018, the shares held by them were canceled. At the same time, new shares were issued, in the same number and of the same class, which were registered on the Bank's account and put up for sale.

Other information about the Bank's shareholding structure, compiled and disclosed in accordance with the legislation in force, is available on the Bank's website: www.micb.md.

http://www.micb.md/

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POS-terminals

3.6 Bank Network

As of 30.06.2018, the Bank had territorial coverage throughout the Republic of Moldova with 63 branches and 131 agencies, or a total of 194 subdivisions, including:

- in Chişinău: 30 branches and 51 agencies, or a total of 81 subdivisions;

- in the country: 33 branches and 80 agencies, or a total of 113 subdivisions.

The subdivision network during 2018 aimed at providing a wide range of banking services at high level, targetting to attract new customers, including by improving the service quality and locating the Bank's subdivisions to attractive locations with a high flow of customers.

The branches of the Bank offer a wide range of financial services to all categories of clients: individuals and legal entities, both in private and public sector.

As of 30.06.2018, the Bank had 233 ATMs, of which 61 with Cash-in functionality and 4 797 POS terminals. The evolution of the number of ATMs and POS terminals during the period of 2014-2017 and the first half of 2018, as well as the related market shares held by the Bank as of 30.06.2018, are presented below:

Total ATM-uri (Cota de piață 2017)

ATM-uri „Cash-In”

61%

Total ATMs

Bank

21%

The rest of banks

ATM-uri „Cash-In” Total ATM-uri

Bank

28%

The rest of banks

160 167 174 172 172

27 44 59 61

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 16. The ATM network, units

Standard ATM Cash-In ATM

194 218

231

233

2 532 3 182

4 342 4 614 4797

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 17. POS-terminals, units

Chart 18. Bank ATM and POS Terminals Market Shares at 30.06.2018

57 63 63 63 63

70

125 131 131 131

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 15. The subdivisions of the Bank, units

Branches Agencies

127

188

194

194

194

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Chart 19. Market share of the Bank in terms of loans and advances by regions as of 31.12.2017 (the latest data provided by NBM)

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Chart 20. Market share of the Bank by financial liabilities measured at amortised cost (including customers deposits) by regions as of 31.12.2017 (the latest data provided by NBM)

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3.7 Information technologies

The Bank's information system is one of the most performing, continuously growing and developing, satisfying the needs of the Bank with modern systems of virtualization, aggregation, storage, redundancy and scalability to ensure the continuous development of business processes according to the Bank's development strategy.

The bank has two data centers, main and backup, in compliance with the best practices in the area that ensure the confidentiality, availability and integrity of the systems, including business continuity.

The bank is licensed with VISA and Mastercard payment systems as its primary member and has its own card processing center based on OpenWay’s technology. The processing center currently serves over 600 000 cards, over 4 700 POS terminals and 233 ATMs. The processing center is audited annually according to PCI-DSS standards.

The bank is the undisputed leader in the ATM segment of the Republic of Moldova, being the first bank to implement Cash-in ATM including multicurrency, the only bank to implement cash-by-code and p2p transfer at ATMs. The processing center serves customers by providing them with a wide range of related services such as: issuing, acquiring, e-commerce, 3D Secure, SMS notification, p2p via VISA Direct and MasterCard MoneySend and performant e-banking remote service systems.

The e-banking remote systems are intended for both the Bank's clients and the clients of other banks in the Republic of Moldova.

The bank has unique e-banking remote service systems of payments through money remittance systems and works in this area with 10 systems.

The e-banking remote service systems for individuals are also designed for mobile devices offering solutions on Android and iOS platforms. The functionalities are unique for the Republic of Moldova. The Bank is a trendsetter in the development of technologies in e-banking remote service systems for individuals.

Remote banking systems allow the payment of invoices to more than 400 service providers from the Republic of Moldova and already serve over 20 percent of the total number of related payments made to the Bank.

3.8 Achievements in the first half of 2018

Among the important achievements and events in the Bank's activity during the first half 2018, it is worth mentioning the following:

− Maintaining the second position by most indicators and the market share in the domestic banking market: 2nd position and approx. 20 percent of the market by different indicators.

− Ascending evolution of volume indicators of the Bank: the bank's assets (+1,0 percent), loan portfolio (+2,5 percent), deposits portfolio (+0,7 percent).

− Increasing the clients’ number to 706 thousand as of 30.06.2018, by 6,5 percent or by 43 thousand customers from the beginning of the year.

− Maintaining leading position in the payment card market. The Bank's share by total cards in circulation at 30.06.2018 constituted 37,3 percent, up by 0,6 p.p. as compared to 31.12.2017 (36,7 percent), and represented 29-32 percent of the volume of operations with payment cards.

− Maintaining leading position in the money remittance market for individuals. The Bank's market share as of 30.06.2018 was 37,7 percent.

− Increasing the profitability of the Bank's activity against the result obtained for the previous year and maintaining the Bank's higher profitability compared to the banking system, holding the leading positions on the banking system (the first place on the banking system as of 30.06.2018 on the return on assets and return on equity).

− increasing the capitalization of the Bank by raising the capital by 13 percent and increasing the coverage of the assumed risks from the capital (increasing the risk-weighted capital adequacy ratio to 31,4 percent).

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3.9 Social Responsibility

BC „Moldindconbank” S.A. is one of the financial institutions that managed to integrate banking activity with the concept of social responsibility. The Bank contributes to the country's economic growth by working with customers, employees, local authorities and society. The ultimate benefit of a sustainable economy is the social development. BC „Moldindconbank” S.A. actively participates in the cultural and social life of the country by supporting activities in financial education, arts and sports.

Thus, for three consecutive years BC „Moldindconbank” S.A. has supported the national selection for the Eurovision Song Contest, offering young talents in the country opportunities for worldwide promotion. A successful partnership, lasting more than 26 years, was established between BC „Moldindconbank” S.A. and „Mihai Eminescu” National Theater. During this period, the Bank provided support to the cultural institution in carrying out National Theater renovations, modernizing the technologies and the lighting system of the scene, producing more performances, upgrading the ticket sales equipment and supporting the annual "Reunion of National Theaters". With the financial support of BC „Moldindconbank” S.A., the books on the development and history of the National Theater in Chisinau were launched.

BC „Moldindconbank” S.A. is an active member of the community and engages in activities to support the education system. In 2016, 2017 and 2018, the Bank joined the events of the International Financial Education Week, organizing educational seminars and providing informational support to educational institutions in Chisinau as well as in other localities in the country.

Annually, BC „Moldindconbank” S.A. participates as a partner in the organization and conduct of sports events that contribute to the promotion of a healthy lifestyle. The Bank has supported the Badminton Championships for amateurs and veterans "Summer Chişinău - 2017", "The Cup of Chisinau 2017" and "Summer Kids 2018". The competitions offer opportunities for athletes and amateurs of all ages and promote the localities of Moldova as a touristical destination.The financing of social responsibility projects is part of the strategy and tradition of BC „Moldindconbank” S.A. Thus, during 2018, the Bank has been involved in projects aimed at improving the quality of services needed for community development. The Bank has allocated financial resources for the acquisition of the necessary polygraphic materials in the activity of the Academy of Sciences of Moldova, the international scientific congress at the "Dimitrie Cantemir" State University, the inauguration of the Stefan cel Mare monument by the Râşcani District Council. Material aid was also granted to individuals.

3.10 Strategy

Mission Provide qualitative and modern banking services and products focused on customer necessities and value increase for shareholders.

The core principles of the Bank's activity

Major bank of the Moldovan banking system

one of the largest banks in Moldova

bank with rich history and traditions

bank with the most developed branch network

bank of systemic importance

Universal Bank for providing competitive financial services

serves the most diverse categories of customers

offers a wide range of accessible financial and banking services

provides the most innovative banking services

Partner in business development for its clients

consultant and assistant in customer business development

liable and trustworthy partner for customers

open and transparent in customer relations

receptive to the individual needs of its clients

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Efficient bank evaluates and minimizes the risks associated with its activity

maintains an optimal balance between income and expenses

ensures maximum return on capital

Innovative bank constantly upgrades and refines information technologies

implements advanced technologies for innovative banking services

optimizes business processes and organizational structure

Bank with high social responsibility

promotes national values in society

supports Moldovan culture, art and sport

provides financial support to socially vulnerable people

Bank's strategy by areas of activity

d

General objective:

Maintain financial

stability

General objective:

Maintain market positions

in the group of

systemically important

banks

Mission:

Provide qualitative and modern

banking services and products,

focused on customer necessities and

value increase for shareholders

Wide the spectrum of

electronic services

and increase the

share of services

provided through the

ATM network, web-

banking and mobile

banking

Loans growth

Attract term deposits in

accordance with placement

options Reduce expired loans

and non-performing

loans

Maintain the

position in the

banking system

and the market

share by credits,

cards and

remittances

Diversify loan

portfolio

Investment of free

resources in state

securities

Attract new customers by

efficiently promoting bank’s

products and services

Maintain existing

correspondence

relationships

Business ariaRisk aria

Compliance aria Support area

General objective:

Ensure continuity and security of the bank

Develop/expand

e-banking remote

service systems

Modernize the

professional

training system

of the bank’s

employees

Develop the branches

and increase their

efficiency

Increase Bank

capitalization

Ensure the capital

adequacy for stable

activity and risk

mitigation

Implement IFRS9

and Basel III

requirements

Develop the risk

management

framework

Automate bank

processes to

minimize costs and

optimize business

processes

Ensure

technological

continuity

Modernize and

strengthen the

security

system

Improve and

develop the

bank’s

management

framework

according to the

legal norms

Transparentize

shareholders

Recover non-performing

loans

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4. DESCRIPTION OF BANK AFFAIRS

4.1 Basic products and services

As of 30.06.2018 the Bank served 705,8 thousand customers, including 30,8 thousand corporate clients and 675,0 thousand individual customers. During last years, the number of customers registers a continuous increase.

Individuals

Cash and settlement services

Attracting deposits

Granting credits

Issuing cards and processing card

transactions

Money Remittances

Foreign exchange transactions

Bancassurance

Safe keeping

Receiving payments from population

Tax Free Service

Escrow service

Other services

Legal entities

Cash and settlement service

Attracting deposits

Granting credits

Factoring

Foreign exchange transactions

Issuing cards and processing card

transactions

Cash collection service

Bank guarantees

Letters of credit Documentary collections

E-commerce service

Bancassurance

Other services

Treasury

Operations with State Securities

Certificates of the National Bank of Moldova

Operations with corporate securities

Interbank deposits/loans

Other services

4. DESCRIPTION OF BANK AFFAIRS

317 660

483 177 548 082

633 257 674 993 18 033

24 115 28 921

29 900 30 822

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 21. Number of clients

Individuals Legal entities

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4.2 Granting loans

Lending activity is the main source of revenue for the Bank. As of 30.06.2018, the credit portfolio generated 39,8 percent of the total income of the Bank. It is necessary to mention that this includes income from interest and commissions related to the granted credits. At the same time, the lending activity also brings indirect revenues, being the main product of attracting the client to the Bank, which subsequently carries out other income-generating operations.

Thus, the loan portfolio of the Bank as at 30.06.2018 reached MDL 6 533 million. The bank holds firmly the second position in the banking system, with a market share of 19,7 percent.

The lending activity refers to the granting of credits to individuals and legal entities, except for banks.

The Bank grants loans to legal entities as follows:

− Loans for financing its current activity - financing the short-term needs because of working capital shortage or for meeting the needs for short-term financing, due to the operating cycle or seasonality, by making payments to suppliers, salaries, state budget transfers and other expenses.

− Loans for medium and long-term projects financing - for the purchase of equipment, buildings, real estate projects, financing of other investment projects or even the acquisition of other investment credits.

The Bank holds a loan portfolio to legal entities of MDL 4 710 million out of a total of MDL 24 549 million per banking system, which means a market share of 19,2 percent and a second position on the market. From the total loan portfolio of BC „Moldindconbank” S.A., the loans to legal entities represent 72,1 percent. On June 30, 2018, the Bank granted over 1 960 credits at approx. 949 legal entities.

As regards the loans to individuals, the Bank holds a portfolio of MDL 1 823 million out of a total of MDL 8 598 million per banking system, which means a share of 21,2 percent and a second position on the market. Out of the Bank's total loan portfolio, loans to individuals represent 27,9 percent. The bank serves about 32 390 customers, which have over 34 828 credits.

4.3 Documentary operations

The Bank guarantees offered to clients to ensure fulfilment of contractual obligations in commercial transactions including for:

29.30

4.40

9.40

1.10 4.30 9.10

4.10

5.90

4.10

3.00

16.00

3.40 5.90

Chart 22. Loan portofolio of the Bank by branches as of 30.06.2018

Agriculture

Food industry

Constructions

Consumer loans

Energy industry

Manufacturing industry

Trade

Non-banking financial sector

Real estate

Individuals engaged in entrepreneurial activities

Transport, telecommunication and networkdevelopmentProvision of services

Other

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- Participation in goods buy/sell auctions; - Participation in public work procurement auctions; - Good performance of shipment; - Good performance of works; - Repayment of advance payments; - Non-execution of payments; - Payment of budget receivables; - Issued upon customs brokers’ demand; - In order to meet the customs regulation for temporary admission of goods; - In order to meet the customs regulation for transit of goods; - In order to meet the customs regulation for storage of goods; - Other types of guarantees.

Benefits of bank guarantees for clients:

- It excludes the risk of failure to fulfil the contractual obligations; - It covers the distrust between business partners in case they are at the beginning of the collaboration or the

contract covers a longer period of time; - Lower costs in coomparisson to bank loans.

The guarantee portfolio reached MDL 265 million on 30.06.2018.

Documentary credit – a settlement form in the international trade, which represents the firm commitment taken by the issuing bank, on behalf of the buyer, to pay to the seller the counter-value of goods, under the condition the seller submits the necessary documents as per terms and conditions provided in the letter of credit. The letter of credit is the most complex and efficient method of payment protection within the export/import operations.

Documentary collection – a banking instrument used to collect the money owed by the importer against the documents provided by the exporter who attests the shipment. The bank ensures intermediation between the importer and exporter, collects and sends the documents at the exporter’s order and in exchange receives the money for the exported goods.

Factoring with and without regression – the proper financing solution entailing the takeover of an enterprise receivables, and pursuing them by every debtor.

BC „Moldindconbank” S.A. is the sole bank in the Republic of Moldova that offers factoring with and without regression to its clients.

4.4 Atrracting resources

Deposits from individual and corporate clients

The Bank provides a vast range of deposits products with a series of advantages: replenishment, automatic renewal, possibility to withdraw.

Attracted deposits are structured as follows:

- term deposits of individuals; - sight deposits of individuals; - term deposits of legal entities; - sight deposits of legal entities.

On 30.06.2018, the overall deposit portfolio of the Bank’s clients was MDL 12,1 billion, including:

- deposits of individuals – MDL 9,3 billion, including:

term deposits – MDL 6,4 billion;

sight deposits – MDL 2,9 billion.

- deposits of legal entities – MDL 2,8 billion, including:

term deposits – MDL 0,5 billion;

sight deposits – MDL 2,3 billion.

On the deposits market activates 11 banks. The overall deposit portfolio in the banking system was MDL 60,9 billion on 30.06.2018.

BC „Moldindconbank” S.A. ranks third on the bank deposits market, with a 19,8 percent share. Thus, on

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30.06.2018, the market share of individual’s deposits represented 23,1 percent, while the share of legal entities’ deposits reached 13,5 percent.

The term structure of the deposits portfolio is as follows:

- term deposits – MDL 6,9 billion or 56,7 percent of the total portfolio; - sight deposits – MDL 5,2 billion or 43,3 percent of the total portfolio.

Thus, individuals’ deposits have the highest share in the deposits portfolio, whose share in the Bank’s overall deposits portfolio was 76,6 percent, which shows population’s continuous credibility towards BC „Moldindconbank” S.A. The share of legal entities’ deposits was 23,4 percent.

As for individuals’ term deposits, the Bank has a portfolio of MDL 6,4 billion out of MDL 28,3 billion per banking system, which accounts for a 22,5 percent of market share and the second place on the market.

The Bank’s services benefit individuals from the all districts of the Republic of Moldova which at 30.06.2018 hold about 61 thousand term deposits.

The structure of the individuals’ term deposits portfolio with regard to maturity is the following:

- Up to 6 months: 18 percent; - 12 months: 63 percent; - More than 12 months: 19 percent.

The sight deposits portfolio accounted for MDL 5,2 billion on 30.06.2018, recording an increase by MDL 570 million or 12,3 percent compared to 31.12.2017. This increase was due to the MDL 425 million rise in the individuals’ deposits portfolio and to the MDL 145 million increase of legal entities’ deposits.

Collaboration projects with CNAS

The Bank has a collaboration contract concluded with the National Social Insurance Fund (CNAS) – with regard to the transfer of social payments to the accounts of social payments beneficiaries (pension for age limit, invalidity pension, maternity leave, parental leave etc.).

Thus, on 30.06.2018, the Bank had over 133,4 thousand social cards issued, which means the market leader in the Republic of Moldova. The cards number is increasing continuously and as compared to 31.12.2017, it increased with 13,0 thousand or 11 percent.

4.5 Payment cards and electronic services

In 2018, the Bank continued the elaboration and implementation of card related products, revolutionary on the Moldovan market, as well as attracting new clients.

On 30.06.2018, the number of issued cards was by 18,9 percent (110 thousand cards) higher compared to the same period of the previous year and reached about 690 thousand cards in circulation. On 30.06.2018, the Bank’s market share reached 37,3 percent, positioning it as a leader of the banking system of Moldova.

The balance of resources attracted on individuals’ cards accounts reached MDL 2,2 billion on 30.06.2018 and increased by about 41 percent as compared to the same period of the previous year.

The volume of cashless operations on the territory of the Republic of Moldova by means of cards issued by the Bank was about 46,1

270 868

429 825 529 115

636 863

689 971

20.8

33.3 35.0

36.7 37.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 23. Evolution of the number of cards in circulation

Number of cards Market share, %

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percent higher on 30.06.2018 as compared to the previous year and reached MDL 1,04 billion. The Bank’s share increased from 31,2 percent (31.12.2017) up to 32,0 percent (30.06.2018).

Chart 24. Evolution of the volume of cashless transactions (MDL million)

The 40,6 percent or MDL 211 million increase in cashless payments abroad through the cards issued by the bank is also remarkable compared to the same period of the previous year. The Bank's share increased from 28,4 percent

(31 December 2017) to 30,6 percent (30 June 2018).

On 30.06.2018, the number of POS-terminals was 4 797 units, while the number of automatic teller machines was 233 ATMs (including 61 Cash-Ins). The Bank’s Cash-in ATMs allow replenishment of card accounts in 3 currencies, both by use of the card and without it. The share of cash replenishments of card accounts by use of Cash-in ATMs in the total number of cash replenishments of card accounts increased from 70,5 percent (31.12.2017) to approximately 75,7 percent (30.06.2018).

The overall number of P2P transfers for first semester of 2018 (via the site Transfer.md, web-banking, mobile-banking and the Bank’s ATMs) reached about 23 thousand operations, accounting for a MDL 58 million volume (1,7 times growth as compared to the same period of 2017).

P2P transfer – online money transfer, directly from the personal card to any other card in the world (MasterCard or VISA). Clients have the possibility to make transfers through several available channels:

− Web Banking; − Mobile Banking; − www.transfer.md; − Bank’s ATMs.

In the last 3 years, the Bank elaborated, implemented and continues to develop a wide range of card related products, revolutionary on the banking market of the Republic of Moldova:

− „Cash-in” and “Cash-in Cardless” service; − „Mobile-banking” and “Web-banking” applications; − 3D Secure service; − Contactless cards; − P2P Transfer service (including website www.transfer .md); − Direct Transfer service; − VIP Exclusive package; − “Cash by Code” and “Cash-in by Code” services; − SMS-notifications.

In 2018, the Bank launched new Exclusive Cards: Mastercard World Elite and Mastercard Platinum.

In 2017-2018, the bank implemented a series of new functionalities in the Web and Mobile-Banking remote service systems:

− Subscribing, unsubscribing “SMS-notifications” in Web and Mobile-Banking systems; − Generating Cash by Code in Web and Mobile-Banking systems;

215 406

928

1 514 14,4

19,6

28,5 31,2

9.0

14.0

19.0

24.0

29.0

34.0

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

31.12.2014 31.12.2015 31.12.2016 31.12.2017

annual evolution

Volume of transactions Market share, %

711 1 040

31.8 32.0

29.0

29.5

30.0

30.5

31.0

31.5

32.0

-100

100

300

500

700

900

1 100

1 300

1 500

30.06.2017 30.06.2018


http://www.micb.md/web-bank-fiz/

http://www.micb.md/mobile-banking/

https://www.transfer.md/transfer-p2p/

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− Withdrawing cash from automatic teller machines using the mobile phone, by scanning the bar code generated in Mobile Banking (Cash by Code);

− Funding the card at ATMs using the mobile phone, by scanning the bar code generated in Mobile Banking (Cash by Code);

− Transferring money by sending the bar code generated in Mobile Banking to other people, entrusted to withdraw money from the ATMs;

− Authenticating in Mobile Banking with digital print; − Paying telecommunication services and some utility services in Mobile Banking; − Making scheduled payments and managing templates directly on the mobile phone via the functional Mobile

Banking; − Geographic localization of ATMs directly in Mobile Banking; − Handling the card related transactional limits in Mobile Banking system; − Loan related payments through Web and Mobile Banking applications.

By developing new perspectives and opportunities of electronic services, the Bank attaches particular importance to remote services for clients.

Remote service solutions provided to individuals:

- Web-Banking – is the remote service whereby clients can administer all card accounts at any moment of the day and everywhere around the globe;

- Mobile Banking – a mobile app offering fast and safe access to card accounts, directly from the mobile phone, anytime, anywhere.

SMS notifications – an information service for clients via SMS messages sent on the mobile phone regarding the transactions performed via the card and on the card account. Notifications are sent to the subscribers of all mobile operators from the Republic of Moldova.

Due to this strategy, the number of clients subscribed to SmartBanking system (web-banking, mobile-banking) was about 133 thousand on 30.06.2018 (+41 percent compared to the same period of the previous year).

Remote service solutions provided to legal entities:

- Web business – is a remote banking service system offering the suitable solution to handle the account; - Mobile business - information and payment management service on the mobile phone.

SMS business – an information service via SMS messages and detailed emails, sent in real time, every time a certain amount of money enters or is withdrawn from the client’s current accounts.

On 30.06.2018 the Web-business service was used by 6 578 legal entities, which accounts for an over 23 percent share in the overall number of corporate customers with accounts opened in the Bank, increasing continuously. At the same time, the share of the number of payment documents made via Web-business exceeded 80 percent in the total number of payment documents. On 30.06.2018, there were about 1 521 clients connected to SMS business service, recording a 11 percent increase compared to the end of 2017.

4.6 Money remittances

A large part of the non-interest incomes are from money remittance services. There are 10 money remittance services in the Bank’s portfolio covering almost all the countries in the world. In the geographic development of the money remittance systems, the countries with the most active labor migration of Moldovan citizens are prioritized: the Russian Federation, Italy, Israel, Spain and others.

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Chart 25. Money remittances (USD million)

In the first half of 2018, the volume of money remittances made through the Bank was USD 241,8 million, up by USD 32,4 million or 15,5 percent compared to the 6 months of 2017. By money remittances volume, BC „Moldindconbank” S.A. is the leading bank on the local banking market, holding 37,7 percent market share.

This significant share of the Bank can be explained, first of all, by the largest network of subdivisions, being present in all the districts of the Republic of Moldova.

In 2016, a new innovative service, Direct Transfer, was implemented, offering the easiest and simplest method to receive the money transferred from abroad, directly to the personal card or to the deposit account.

4.7 Cash and settlement services

Cash and settlement services offer both corporate and individual clients access to a wide range of banking services, allowing the client to manage the money flow efficiently and securely, including:

- keeping a record of accounts in different currencies; - registering/releasing money in/from accounts; - performing payment documents; - foreign exchange transactions; - international money transfers; - investigation of the amounts non-registered in the client’s account; - collecting of utility and non-utility bills; - consulting services etc.

4.8 Foreign exchange operations

At the situation of 30.06.2018, there were 194 exchange offices operating within the Bank, performing foreign exchange operations in 7 currencies.

The basic foreign currencies that are the object of exchange operations are Euro and US dollar, which accounted for 95 percent of operations in the the first half of 2018.

The share of operations in Euro is predominant and it was 72 percent in the first half of 2018, while in US dollars – 23 percent. The volume of operations in Russian ruble decreased, its share is 3 percent.

For the first semester of 2018, the turnover of exchange operations through the Bank’s exchange offices amounted to MDL 4 530 million, down 1,8 percent compared to the same period in 2017. The decline in volume was determined by appreciation of national currency and the tendency to release money remittances in the national currency - MDL.

398.8 337.7 399.3 459.8

23.7

29.3

36.4 38.4

0

5

10

15

20

25

30

35

40

0

100

200

300

400

500

600

700

800

900

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31.12.2014 31.12.2015 31.12.2016 31.12.2017

annual evolution

Volume of remittances Market share

209.4 241.8

38.2 37.7

18

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28

33

38

0

100

200

300

400

500

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30.06.2017 30.06.2018


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4.9 Bank-assurance

The Bank is a bank-assurance agent on the basis of the mandate provided by the insurer. It can take out insurance contract in the name and on behalf of the insurer with third parties according to the conditions stipulated in the nominee agreement.

The Bank has collaboration agreements concluded with four insurance companies: CA “Moldasig” JSC, CA “Donaris Vienna Insurance Group” JSC, CA “Grawe Carat Asigurari” JSC, CA „General Asigurări” S.A. Under these nominee agreements the Bank takes out insurance contracts with legal entities and individuals for the following types of insurances:

- insurance of goods and other valuables; - voluntary life insurance; - medical insurance for travelling abroad; - compulsory automobile insurance; - compulsory automobile insurance “Green Card”; - voluntary automobile insurance (AUTO CASCO); - other types of insurances.

4.10 Cash collection

The collection services represent a professional approach to the issue of money and other values transport.

BC „Moldindconbank” S.A. provides the following services to legal entities:

- money collection and registration in the client’s account; - transporting and accompanying the client, on the route specified by the client, with cash or other values; - delivering money or other values to the destination specified by the client; - transporting value documents, nominative cheques, payment and settlement documents on the specified

route.

For this purpose, in order to ensure the integrity and security of money and other values, the Bank disposes of:

- specialized and modern equipment; - armoured cars; - radio devices, sound and illuminating devices; - own collection service represented by qualified personnel who have been specially trained and have

practical working abilities with money and other values.

4.11 Receiving of payments and other services

Collection of utility and non-utility bills

The bank has about 800 contracts signed for collecting of utility and non-utility bills and other payments from individuals in favour of service providers and other beneficiaries in the following domains:

- utility services; - telecommunications; - financial services; - tourism; - assignments to national budget; - other services.

The Bank accepts payments from the population both in its offices and through remote services (web banking and mobile banking).

Rent of individual safe deposit boxes

BC „Moldindconbank” S.A. offers legal entities and individuals value keeping services in safe deposit boxes – a system of individual safes for keeping values, of different sizes: large, small and medium.

The treasury is fitted with modern guarding systems and has several protection degrees, including electronic, based on chips, as well as an automatic fire-extinguishing system.

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ESCROW service

The Bank provides ESCROW service for legal entities and individuals. The ESCROW service aims to protect the participants in commercial transactions. Therefore, this service offers maximal security to the contracting parties, ensuring that the seller obtains the amount of the sold goods and the buyer obtains the ownership of the goods.

The deposit can be made in MDL or foreign currency; there is no limit to the amount and its validity period ranges between the date when the ESCROW deposit has been opened (inclusively) and the date of its liquidation, namely the confirmation of fulfilment the contractual obligation accordingly.

ESCROW service is applied to transactions related to the transfer of ownership of an asset (apartments, private houses, commercial spaces, lands, cars etc.) under a sales contract.

4.12 Treasury activity

The treasury activity consists of cash management, liquidity management and internal and external wholesale financing (resources of international financial organizations, interbank deposits and placements).

Another side of the treasury activity is the investment activity. The Bank’s free resources are invested in:

- government securities (GS);

- National Bank certificates (NBC); - others (interbank placements, overnight deposits etc.).

Government securities (GS)

On 30.06.2018, the GS portfolio of the Bank amounted to MDL 1 546,7 million nominally. The nominal value of GS in circulation was MDL 7 443,7 million on 30.06.2018. Thus, the Bank holds a 20,8 percent market share. The average balance of the Bank’s GS portfolio, for the first semester of 2018, was MDL 1 492,8 million. At the same time, during the first half of 2018, the GS volume bought by the Bank on the primary market in its own portfolio amounted to MDL 1 143,8 million, which accounts for 23,9 percent of the overall volume of GS purchased on the primary market (MDL 4 788,0 million).

Apart from its own investments in GS, the Bank provides GS purchase services for legal entities or individuals.

National Bank Certificates (NBC)

On 30.06.2018, the Bank’s NBC portfolio was MDL 1 300,0 million. The average balance of the Bank’s NBC portfolio represented MDL 1 599,4 million throughout the first half of 2018.

Also, according to the License series CNPF no. 000814 of 15.03.2015, issued by the National Financial Market Commission, the Bank carries out investment services and activities and other auxiliary services as an investment company.

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5. CORPORATE GOVERNANCE

According to the definition, corporate governance is a set of responsibilities and practices of management, that aims at providing a strategic direction and assuring that its objectives should be attained, namely that the risks are properly managed and that resources are used responsibly. The Bank operates under its Corporate governance code, approved by the Board of Directors on 30.05.2018, available on the Bank’s webpage: http://www.micb.md/img/n-info-doc/codul-guvernare-corporativa.pdf

By its management bodies, the Bank always calls for instituting and maintaining some respectful and fair relationships with its shareholders, business partners, clients and employees, setting and maintaining the confidence with regard to the efficient governance, control and reduce the risk, constant increase of the Bank’s financial indicators.

5.1. Organizational structure

Following the provisions of the Bank’s Statute, the Bank’s organizational structure is developed according to the volume and activity lines of the Bank, and it is approved by the Bank’s Board of Directors:

BOARD OF DIRECTORS

Collateral Assessment Division

Internal Audit Department

ALCO Committee

Informational Technologies

Department

Human Resources Department

Bank Products Department

Bank Subsidiaries

Bank Cards Department

Risk Department

Treasury Department

Member of the Managing Board

Deputy Chairman


Deputy Chairman

Tender Committee

Planning and Financial Analysis

Department

General Meeting of Shareholders

Accounting Department


First Deputy Chairman

Security Department

Operations Department

Secretary

Compliance Department

Legal Department


Chairman

Organization Chart of BC „Moldindconbank” S.A.

Credit Committee

Risk Committee

Non-performant Loans

Department

Managing Board

Business Area Risk Area Support Area Compliance Area

ES Committee

LSH Committee

Sales and Network Department

Audit Committee

Information Security Service

Appointment

Committee

Remuneration

Committee

The main organizational levels of BC „Moldindconbank” S.A. are: the General Meeting of Shareholders, the management structure and the executive structure.

The General Meeting of Shareholders is the Bank’s deliberation body and decision-maker, whose competences are set in accordance to the laws in force and the Bank’s Statute. The exclusive competences of the General Meeting of Shareholders, according to the Bank’s Statute, cannot be delegatetd to the managing body (the Board of Directors or the Managing Board) of the Bank.

The management structure includes the Board of Directors and the Managing Board.

The executive structure consists of the Head Office, organized in Departments, Devisions, Sections, and territorial network of subsidiaries, including their secondary offices.

5. CORPORATE GOVERNANCE

http://www.micb.md/img/n-info-doc/codul-guvernare-corporativa.pdf

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The Board of Directors overlooks and monitors the management decision-making process and is responsible for the Bank’s overall activity and its financial soundness. The powers of the Board of Directors are set by the legislation in force, the Bank’s Statute and by the Regulation of the Board of Directors and cannot be delegated to another person.

According to the Bank’s Statute, the Board of Directors consists of 7 (seven) members – individuals. The members of the Board of Directors are elected by the General Meeting of Shareholders, by a cumulative vote for a 4 (four) years term.

Componence of the Board of Directors (on 30.06.2018)

Giedrius Steponkus Chairman of the Board

Anna Gheorghiu Member of the Board

Elena Punga Member of the Board

Sorin Andrei Member of the Board

Aureliu Cincilei Member of the Board

All the members of the Board of Directors are temporary administrators appointed by the National Bank of Moldova, as competent authority, under the Law no. 232 of 03.10.2016 on bank recovery and resolution.

The Board of Directors decides the establishment of its specialized committees (audit committee, risk administration committee, appointment committee and remuneration committee) and, at its own discretion, other committees that will assist in discharging the responsibilities it has in the risk administration process. At the same time, the Board of Directors is not entitled to delegate its duties to the respective committees. The responsibilities of committees are established by regulations approved by the Board of Directors.

The Managing Board is the collective executive body that exercises the current management function of the Bank under the direct supervision of the Board of Directors and efficiently and prudently operates the Bank’s activity in accordance with the strategy and administration framework, approved by the Board of Directors. The powers of the Managing Board are established by the legislation in force, the Bank’s Statute and by the Regulation of the Managing Board.

According to the Bank’s Statute, the Managing Board is composed of 5 (five) members – individuals, as follows: the Chairman, First Deputy Chairman and three Deputy Chairmen of the Managing Board. The members of the Managing Board are appointed by the Board of Directors for 5 (five) years.

Componence of the Bank’s Managing Board (on 30.06.2018)

Aureliu Cincilei Chairman of the Managing Board

Victor Cibotaru First Deputy Chairman of the Managing Board

Svetlana Magdaliuc Deputy Chairman of the Managing Board

Iurie Ursu Deputy Chairman of the Managing Board

The Chairman and the Deputy Chairmen of the Bank’s Managing Board are temporary administrators appointed by the National Bank of Moldova, as competent authority, under the Law no. 232 of 03.10.2016 on bank recovery and resolution. The First Deputy Chairman of the Managing Board is exercising his function since 02.03.2016.

The ALCO committee, the Credit Committee, the Tender committee, Labor security and Health Committee and the Exceptional Situations Committee perform under the supervision of the Managing Board, and their duties are established by the regulations approved by the Board of Directors.

5.2. Control functions

The Bank has its own internal control mechanism representing a system that ensures the efficient management of the Bank, performance of financial activities in a secure and prudent manner, compliance to the provisions of the legislation in force, as well as protection of deponents’ and shareholders’ interests.

In order to ensure an efficient control mechanism, the Bank disposes of and permanently takes measures to develop and maintain the 3 main control functions, which are independent from the activity lines they monitor and control:

- the Risk administration function; - the Compliance function;

- the Internal audit function.

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These functions are independent between them from organizational point of view, as well as according to the activity lines they monitor and control. They have direct reporting lines to the management body.

The risk administration function has the role of coordinating the development and implementation of a sound risk administration system as to ensure risk identification, evaluation, monitoring, control or reducing and its reporting.

The compliance culture is promoted within the Bank and it aims at reaching an advanced level of it. The responsibility to follow the compliance culture is every employee’s responsibility by the obligation to comply with the regulation framework related to its activity.

The Compliance Department has the basic mission to ensure the efficiency of money laundering prevention activity, to promote ethic principles and regulate avoidance and management of conflicts of interests, to assist the management body regarding the compliance of the Bank’s activity to the laws and regulations that govern the banking activity, as well as to monitor the implementation of internal regulatory framework, reporting to the management body.

The internal audit function ensures a constant and independent supervisory activity with regard to the evolution of the bank’s activity and processes in order to prevent or highlight the occurrence of some abnormal and risky behaviors or situations, evaluating the global functionality of internal control and its compliance, as to guarantee the efficacy and efficiency of processes within the Bank.

5.3. Personnel

The key of success of the contemporary business world is the efficient use of all resources, especially human resources. Improving human potential is the path that highlights the other categories of resources, that is why the policy and activity in human resources field is tightly correlated with the Bank’s overall strategy.

The Bank is permanently focused on consolidating the human capital. In the human resources field (HR), the management principles applied by the Bank are oriented to develop and maintain highly qualified specialists, so that to ensure the Bank’s needs.

On 30.06.2018, the number of employees was 1 419, inclusively 1 023 – in subsidiaries and 396 – in the Head Office.

The Bank staff is optimally equilibrated by age, the young personnel successfully works along with the employees with a rich working experience. From the total number of 1 419 employees, there are 1 007 employees in the age category up to 40 years, accounting for 71,0 percent.

BC „Moldindconbank” S.A. is a professional team. The Bank has 1 169 persons with university/ bachelor degree, which accounts for 82,4 percent and 250 employees with specialist degree, or 17,6 percent.

In order to develop and improve employees’ professional skills, the Bank invests permanently in the human capital by carrying out the professional training program which provides the implementation of modern training practices, actively involving internal trainers and attracting external trainers from the country and abroad.

In 2017, 1 257 people were trained by internal trainers, 400 people were trained within the Bank by external trainers while 60 people participated in courses and seminars organized by the Romanian Banking Institute, the Association of Moldovan Banks and the League of Moldovan Bankers. In the first half of 2018, 655 people were trained by internal trainers, 232 people were trained within the Bank by external trainers, and 76 people attended training courses at training institutions in the country and abroad.

322 352 383 396 396

826 1 021

1 082 1 051 1 023

1 148

1 373 1 465 1 447 1 419

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 26. Number of employees

Employees in the head office Employees in subsidiaries

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6. RISK MANAGEMENT

The risk management process within BC „Moldindconbank” S.A. aims at creating an adequate framework of an efficient administration for the following risks which the Bank can be exposed: the credit risk, including the credit risk of the counter-party and the concentration risk, the country risk or the transfer risk, the market risk, liquidity risk, operational risk and the reputational risk – for this purpose the Bank disposes of strategies, policies, manuals, regulations and other internal normative acts.

6.1. Credit risk, including counter-party credit risk and concentration risk

The credit risk is the current or future risk that can affect profits and capital as a result of the non-fulfillment of contractual obligations by the counter-party or of its failure to what was agreed.

The credit risk is one of the most important risks the Bank’s activity is exposed.

The credit risk includes both the risk emerging from the lending activity itself and from other transactions initiated for the Bank’s customers like: issuing letters of guarantee, issueing / confirming letters of credit, investments in shares and other securities, other facilities awarded to clients.

Regarding that the credit activity has an important share in the Bank’s activity, an efficient credit risk management system generates positive effects both for the Bank and for its clients. For the Bank, positive effects consist of the reduction of losses resulted from non-performing loans, as well as the reduction of the volatility of financial outcomes. For customers, positive effects suppose tariff optimization, enhancement of quality, service’s diversification and its rendering operativity, increasing the level of clients’ interests protection.

The lending activity within the Bank is regulated by normative documents which establish the steps in the process of lending to legal entities and individuals, the eligibility criteria, the method of monitoring debtors, establishing the internal rating, limits on activity sectors, type of client, currency, groups of clients, products etc.

The administration of the credit risk is performed by assessing the risk of the credit portfolio and qualifying limits of exposure to that credit risk. Also, the Bank seeks the structure of the credit portfolio by currency to be distributed depending on the structure of the available resources.

The Bank observes the lending limits on the set currencies according to the Policies on significant risk administration, so that the Bank’s portfolio is structured according to the following limits:

Table no.3

№ Indicator Share in the total portfolio

1 Share of loans in MDL 55% - 65% of the total loan portfolio

2 Share of loans in foreign currency 45% - 35% of the total loan portfolio

The structure of the Bank’s loan portfolio by currencies at 31.12.2017 and 30.06.2018 is presented in the following chart:

MDL 59,7%

EUR 20,5%

USD 19,8%

Chart 27. Structure of loans by currency at 31.12.2017

MDL 62.3%

EUR 19.7%

USD 17.9%

Chart 28. Structure of loans by currency at 30.06.2018

6. RISK MANAGEMENT

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Also, the Bank complies other limits established in the Bank’s Policies on significant risk administration, which correspond to the legislation in force, and sometimes are even more rigid than the requirements of the National Bank of Moldova – the detailed information is presented in the table below.

Table no. 4: Compliance with limits within BC „Moldindconbank” S.A.

№ Indicators

NBM Limit

Bank limit Actual on 30.06.2018

1 Bank’s exposure to a group of its related parties (% of TRC) < 10% <8% 10,06*

2 The Bank’s total exposure to its related parties (% of Tier I capital of the bank)

< 20% < 18% 27,35*

3 Exposure to a group of parties acting in common (% of TRC) < 15%

1. <10% for new debtors;

2. <13.5% for existent

debtors;

10,97

4 Net exposure to the first 10 debts (% of the portfolio) < 30% 20,34

5 Total large exposures, compared to the Bank’s TRC 5 x TRC 3 x TRC 0,21

6 Debt of the Bank’s employees that are not related to the Bank, (%) of TRC

<10% <9% 3,31

7 Share of the bank’s net exposures to individuals, attached to the foreign currency rate, in TRC (%)

< 30% < 10% 2,53

8 Share of the bank’s net exposures, others than the mortgage ones, to individuals, attached to the foreign currency rate, in the bank’s total regulatory capital (% of TRC)

< 10% < 5% 0

9 Loans awarded to the shareholders who hold a share lower than 1% of the bank’s share capital (% of TRC)

< 20% 10,09

*Up to 31.03.2020 exceeding of indicated limits shall not be considered a violation of the maximum limits stipulated in Chapter III of the Regulation on Bank Transactions with its Related Parties (DEC of NBM no.83 of 26.04.2018).

During 2017 and the first half of 2018, the share of loans granted to individuals in the overall loan portfolio of the Bank increased so that the Bank diversified its loan portfolio on a higher number of debtors.

Individuals

1 828 28%

Large 669 10%

Medium 1 730 27%

Small 1 047 16%

Micro 1 259 19%

Legal entities 4 705 72%

Chart 30. Structure of loans by debtor types at 30.06.2018, million MDL

Individuals 1 562 25%

Large 657 10%

Medium 1 622 25%

Small 1 186 19%

Micro 1 349 21%

Legal

entities 4 813 MDL 75%

Chart 29. Structure of loans by debtor types at 31.12.2017, million MDL

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The structure of the Bank’s loan portfolio by type of collateral

At 31.12.2017, the share of secured loans was 92,05 percent, up 1,65 percent compared to 31.12.2016, and in the first half of 2018 the share of secured loans decreased insignificantly by 0,3 p.p.

Secured loan portfolio Unsecured loan portfolio

The quality of the portfolio

The share of expired loans in the total loan portfolio in the first half of 2018 increased from 11,56 percent to 12,52 percent. The chart below shows the dynamics of the rate of expired loan in BC "Moldindconbank" S.A. compared to the level of this indicator in the banking system.

6.2. Country risk / Transfer risk

The country risk is the risk of exposure to losses as a result of economic, social and/or political conditions and events in a foreign country, affecting the bank’s activity.

The transfer risk is the risk emerging from the impossibility of a counter-party to convert the national currency into a foreign currency necessary for paying some financial obligations because of the lack or unavailability of this currency as a consequence of some restrictions imposed by the country of the counter-party.

The Bank holds exposures in foreign currency, including in cash, as well as correspondent accounts in foreign banks.

The country and transfer risks’ management is performed by applying an assessment and review mechanism of the risk category, established for the country, based on a collection of factors to limit the bank’s exposure to each country. The limits established are periodically reviewed and adjusted. The compliance with the

11.90%

8.67%

13.58% 11.56%

12.52%

4.44%

2.90%

12.66% 11.28%

9.16%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 33. Rate of expired loans

Rata creditelor expirate BC "Moldindconbank" S.A., %

Rata creditelor expirate pe sistem bancar, %

Rate of expired loans in BC „Moldindconbank“ S.A.

Rate of expired loans in the banking system

91,75%

8,25%

Chart 32. Pledge insurance of the loan portfolio at 30.06.2018

92,05%

7,95%

Chart 31. Pledge insurance of the loan portfolio at 31.12.2017

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country limits is monitored daily and is calculated applying a rating. As an assessment tool, the Bank uses the evaluation and rating of the international agencies such as Standard & Poor’s, Moody’s and Fitch. As for the country and transfer risks, the Bank seeks to qualify in a low risk profile.

Currently, the Bank’s biggest exposures are to the corresponding banks from Germany. There were no limit overruns admitted at 30.06.2018. The information on exposures on risk categories by countries is shown in the table below.

Table no.5

Risk per country category

31.12.2017 30.06.2018

million MDL % million MDL %

I 1 371,30 93,38 1 223,30 92,60

II 86,51 5,90 18,90 1,43

III 0,04 0,003 61,50 4,66

IV 10,40 0,71 17,40 1,32

Total 1 468,50 100 1 321,10 100

6.3. Market risk

6.3.1. Currency risk

The currency risk is a component of the market risk and represents the risk of exposure to losses resulted from commercial contracts or other economic relations as a consequence of the market fluctuations of the exchange rate during the term of an agreement.

The Bank’s appetite to the currency risk is controlled through the limits set in the Policies of significant risk administration, corresponding to the Bank’s open foreign exchange positions, both for each currency and aggregatelly for all currencies.

The Bank monitors (daily and monthly) the open foreign exchange positions both for each currency and cumulatively for all foreign currencies in order to limit the risks and avoid losses caused by the fluctuations of the exchange rate and it seeks to comply with the limits for the open foreign exchange positions settled in the Bank’s Policies of significant risk administration.

In order to diminish and monitor the Bank’s currency risk, BC „Moldindconbank” S.A. has set the following limits:

- the long open foreign exchange position ratio for each foreign currency shall not exceed “+10%”; - the short open foreign exchange position ratio for each foreign currency shall not be less than “-10%”, - the sum of long open foreign exchange position ratios for all currencies shall not exceed “+20%”; - the sum of short open foreign exchange position ratios for all currencies shall not be less than “-20%”.

Table no.6 Indicator of currency positions within BC „Moldindconbank” S.A.

Indicator Limit Year

31.12.2017 30.06.2018 1. Ratio of the open foreign exchange position for all currencies (%) Long +20 5,28 3,99

Short -20 0 0

2. Ratio of the open foreign exchange position for EUR

Long +10 2,37 1,91

Short -10 0 0

3. Ratio of the open foreign exchange position for USD

Long +10 2,57 1,79

Short -10 0 0

4. Ratio of the open foreign exchange position for other currencies

Long +10 0,35 0,21

Short -10 0 0

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6.3.2. Interest rate risk The interest rate risk is the current or future risk that can affect profits and capital as a result of some adverse changes in interest rates.

The interest rate risk emerges from the mismatch between the size of the interest rate sensitive assets and the interest rate sensitive liabilities, for a certain period of time, in absolute volume and from the changes of the temporary structure of those interest rates, resulted from the modification of the slope and shape of the profitability curve.

Within BC „Moldindconbank” S.A., a periodic analysis and monitoring of risk is performed, including the influence of different factors, such as the inflation rate, the monetary policy rates of the National Bank of Moldova and of the financial instruments, as well as a comparative analysis of product rates and market situation, with a further reporting and recommendations to the management body.

The banking risks department exercises control over the interest rate risk administration process, reporting the results to the Board of Directors.

Also, the Bank analyzes the sensitivity of the net interest income to a possible proportional change in the interest rate on particular intervals.

Table no.7 Possible change in the interest rate by (-100 p.p.)

Maturity / Indicators

(MDL million)

0-1 months

1-2 months

2-3 months

3-6 months

6-9 months

9-12 months

12-60 months

60-120 months

Total

Interest rate sensitive assets

8 538,40 236,42 174,22 607,52 339,78 270,79 225,06 56,39 10 448,57

Interest rate sensitive liabilities

7 276,36 378,11 318,06 764,57 355,72 426,38 16,83 0,0 9 536,03

Influence of interest rate modification on the net income

-0,50 0,17 0,29 0,56 0,09 1,30 -5,95 -4,03 -8,08

Table no.8 Possible change in the interest rate by (+100 p.p.)

Maturity / Indicators

(MDL million)

0-1 months

1-2 months

2-3 months

3-6 months

6-9 months 9-12

months 12-60

months 60-120 months

Total

Interest rate sensitive assets

8 538,40 236,42 174,22 607,52 339,78 270,79 225,06 56,39 10 448,57

Interest rate sensitive liabilities

7 276,36 378,11 318,06 764,57 355,72 426,38 16,83 0,0 9 536,03

Influence of interest rate modification on the Bank’s net income

0,50 -0,17 -0,29 -0,56 -0,09 -1,30 5,95 4,03 8,08

6.4. Liquidity risk

BC „Moldindconbank” S.A. manages the liquidity risk for all assets and liabilities in national and foreign currency, including those attached to the exchange rate, from the balance and off the balance sheet taking into account all complementary risks.

The Bank aims at qualifying into a low liquidity risk profile.

The main objective of the liquidity risk administration is ensuring an efficient and sustainable activity, protecting clients’ interest and the Bank’s capital.

The Bank uses the following instruments in the evaluation process of the liquidity risk:

- analysis of the maturity and gap between assets and liabilities on maturity bands; - analysis of monetary flows; - analysis of the Bank’s resource base; - analysis of liquidity indicators.

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In order to monitor and reduce the liquidity risk, the Bank has established the following liquidity indicators in the Policies on significant risk administration, having sometimes more rigid limits than those set by the National Bank of Moldova:

a) Long-term liquidity (Principle I) – provides that the sum of the Bank’s assets with a reimbursement term

higher than 2 years must not exceed the sum of its financial resources, this ratio must not be higher than 1;

b) Current liquidity (Principle II) – provides that the Bank’s current liquidity, expressed as ratio of the liquid

assets to the Bank’s total assets must not be lower than 30 percent (the requirement of the National Bank of

Moldova is >20 percent).

6.5. Operational risk

Operational risk – the current or future risk that can affect profits or capital resulting from inadequate or failed internal processes or systems and/or as a consequence of the action of some external people or events.

Within BC „Moldindconbank” S.A., the operational risk is structured according to the cause of the risk – people, processes, systems, external events.

The loss from operational risk events can arise from 7 event categories: internal fraud; external fraud; employment practices; clients, banking products and practices; execution, delivery and process management; suspension of activity and system failure; deterioration of tangible assets.

For a more efficient administration of operational risk events, the Bank has a database implemented for keeping a record and classifying the operational risks, which is permanently updated and continually developed.

The administration of the operational risk aims at reducing the number and amount of losses generated by the operational risk events mainly, resulted from internal processes, inadequate or erroneous systems, including both internal and external frauds, deficient processing of client-related data, as well as the defective functioning of IT systems. Also, it allows the creation of a compliance culture which protects the Bank against the risks associated to violation of law, of the regulations subordinated to them, of the rules and codes applicable to the banking activity.

6.6. Reputational risk

The reputational risk is the current or future risk that can affect profits and capital or liquidity determined by the unfavorable perception of the image of BC „Moldindconbank” S.A. by its customers, employees, counter-parties, shareholders, investors or supervision authorities, population etc.

The Bank treats the reputational risk as the “risk of risks” because it can chase clients away and discard their trust in the Bank, which can lead to significant losses.

Any risk can trigger a reputational risk in case the information about it becomes public. Thus, the Bank seeks to qualify into a low reputational risk level, which does not lead to losses or failure to achieve the profits estimated by the Bank.

In order to efficiently manage the reputational risk, the Bank systematically analyzes the expectations of the interested parties. This is performed by identifying the interested parties and their information sources, internal and external parties are considered – including the regulation authorities, shareholders, employees and clients to obtain a broad overall image. The accumulated information serves as the basis for the identification of factors involving the expectations of the interested parties and the potential risks on reputation.

23.61% 38.05%

44.77%

59.24% 58.28%

22.48%

41.73% 49.30%

55.48% 55.50%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 35. Liquidity (Principle II)

BankPrudential norm (min.)Banking system

0.86

0.83

0.73

0.54 0.57

1.54

0.70 0.64

0.61 0.61

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 34. Liquidity(Principle I)

Bank

Prudential norm (min.)

Banking system

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7. FINANCIAL POSITION 7.1. Data sources

The presentation of the financial position of BC „Moldindconbank” S.A. has been performed on the basis of the audited financial statements for 2014, 2015, 2016, 2017 and unaudited financial statements for the first half of 2018.

Table no.9

Audit company Audited period

„Grant Thornton Audit” SRL 2014 financial year

„Moore Stephens KSC” SRL 2015, 2016, 2017, 2018 financial years

The financial data are presented in the equivalent of the national currency at the official exchange rate on the date of reporting:

Table no.10

Foreign currency 31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

MDL/USD exchange rate 15,62 19,66 19,98 17,10 16,84

MDL/EUR exchange rate 19,00 21,48 20,89 20,41 19,53

MDL/RUB exchange rate 0,28 0,27 0,33 0,30 0,27

The full audit reports can be accesed on the Bank’s webpage: www.micb.md.

7.2. Statement of financial position

Table no.11

Indicator 31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

MDL’000 MDL’000 MDL’000 MDL’000 MDL’000

ASSETS

Cash and balances at National Bank 1 911 624 3 441 018 3 779 688 4 483 521 4 897 995 Current accounts and deposits at banks 1 113 581 1 296 886 569 897 1 354 945 1 242 059 Financial investments - held to maturity 1 011 792 1 262 939 2 282 343 3 154 357 2 795 421 Net Loans 8 590 948 8 951 640 6 885 858 5 366 544 5 608 222 Financial investments available-for-sale 29 542 36 109 3 824 4 191 4 573 Tangible assets, net 201 281 232 519 241 191 217 660 204 375 Intangible assets, net 45 156 59 474 47 205 44 976 44 810 Investment property, net 9 638 - - - Other assets, net 318 720 198 177 233 679 224 323 210 166 Assets taken into possession/ownership, net - - 325 846 302 580 302 192

Total assets 13 232 282 15 478 762 14 369 531 15 153 097 15 309 813

LIABILITIES

Due to banks 881 146 63 132 40 563 13 056 31 368 Other borrowings 1 656 993 1 740 994 865 254 629 383 401 965 Due to customers 8 888 492 11 768 727 11 386 548 12 004 668 12 070 221 Current income tax liability 17 626 844 1 284 19 409 14 762 Deferred tax liability 39 388 8 756 8 701 7 226 3 970 Other liabilities 86 789 116 532 137 095 377 240 407 333

Total liabilities 11 570 434 13 698 985 12 439 445 13 050 982 12 929 619

EQUITY

Ordinary shares 494 466 494 466 494 466 494 466 494 466 Statutory reserves and other reserves 311 016 223 972 295 296 422 115 659 062 Additional capital 5 5 5 5 5 Revaluation reserve 12 179 11 647 458 1 028 1 444 Retained earnings 844 182 1 049 687 1 139 861 1 184 501 1 225 217 Total equity 1 661 848 1 779 777 1 930 086 2 102 115 2 380 194 Total equity and liabilities 13 232 282 15 478 762 14 369 531 15 153 097 15 309 813

7. FINANCIAL POSITION

http://www.micb.md/

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The Bank’s assets have increased fast during the Bank’s activity, except for the year of 2016 when assets decreased by 7,2 percent due to unfavorable conjuncture triggered by a series of internal and external factors that influenced the Bank’s activity.

During the year 2017, assets returned to growth, recording a 5,5 percent increase. In the first half of 2018, assets increased by 1,0 percent. By structure, assets evolved according to the following trends:

- increase in loan portfolio;

- stabilization of liquid assets.

13 232 15 479 14 370 15 153 15 310

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 36. Assets (MDL million)

2.4% 1.3% 3.9% 3.5% 3.30%

1.9% 1.9% 2.0% 1.7% 1.6%

64.9% 57.8%

47.9%

35.4% 36.6%

7.9%

8.4% 15.9%

20.8% 18.3%

22.9% 30.6% 30.3%

38.5% 40.1%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 37. Structure of assets

Cash and balances at National Bank, accounts and deposists at banks

Financial investments

Net Loans

Tangible and intangible assets

Other assets

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3 132

5 889 6 433

8 977 8 923

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 38. Liquid assets (MDL million)

14% 11% 15% 14% 16%

77% 66%

49% 51% 52%

9% 23%

36% 36% 32%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 39. Structure of liquid assets

State securities+NBM Certificates

Nostro accounts

Cash

In the first half of the year 2018 the uptrend of the credit portfolio was reestablished and consolidated, the positive uptrend registered an increase of 2,5% after a long-term downtrend period.

Among the factors that have influenced the reduction of the volume of the loan portfolio were:

- reorientation of the Bank’s lending

policy primarily towards the segment of

small and medium-size enterprises;

- increase of caution when granting new

credits. A more prudent and critical

approach of the Bank towards the

classification of loans by credit risk;

- reduction of the exposure to some

debtors who are related to the Bank.

The dynamics of loans by types of clients throughout the first half of the year 2018 follows the previous year's trend of increase in the share of loans granted to individuals (3 percentage points increase compared to 31.12.2017).

13% 12% 17% 25% 28%

87% 88% 83% 75% 72%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 41. Loans by types of clients

Loans to individuals Loans to legal entities

8 889 9 517

7 828 6 376

6 533

322 586 984 1 076

972

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 40. Loans and loan loss impairments (MDL million)

Gross loans Loan loss impairments

P-Public


The evolution of liabilities structure was characterized by:

− increase in sight deposits and decrease in term deposits;

− reduction of borrowings; − increase in capital.

The main component of the Bank’s debts is due to customers. Customers’ deposits have recorded an ascending trend both as absolute value and as share in total debts.

The decrease in the share of term deposits in the analyzed periods was the objective of the Bank's efficient assets and liabilities management policy in context of the reduction of the loan portfolio. Under the slowdown in lending, the Bank promoted the policy of attracting term deposits at average market costs. At the same time, the Bank has actively promoted the attraction of sight deposits, which are a cost-effective financial source for placements in financial instruments other than loans (NBM certificates and state securities).

7.7% 1.2% 1.3% 2.8% 3.0%

67.2% 76.0% 79.2% 79.2% 78.8%

12.5% 11.2% 6.0% 4.2% 2.6%

12.6% 11.5% 13.4% 13.9% 15.5%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 42. Structure of liabilities

Other liabilities Due to customers Borrowings Equity

8.9% 1.4% 1.5% 3.2% 3.5%

76.8% 85.9% 91.5% 92.0% 93.4%

14.3% 12.7% 7.0% 4.8% 3.1%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 44. Structure of debts

Other liabilities Due to customers

11 570 13 699

12 439 13 051 12 930

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 43. Debts (MDL million)

8 888

11 769 11 387 12 005 12 070

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 45. Due to customers (MDL million)

P-Public


The Bank’s equity grew steadily during its activity due to retained eanings.

7.3. Statement of comprehensive income

Table no.12

Indicator 2014 2015 2016 2017

MDL’000 MDL’000 MDL’000 MDL’000

Interest income 990 394 1 367 394 1 552 651 1 010 934 Interest expenses (503 236) (679 226) (791 314) (434 027)

Net interest income 487 158 688 168 761 337 576 907

Impairment losses (55 266) (711 131) (601 850) (168 130)

Net interest income after impairment loss 431 892 (22 963) 159 487 408 777

Commission income 187 536 241 305 317 076 359 750 Commission expenses (27 306) (40 553) (65 959) (91 998)

Net commission income 160 230 200 752 251 117 267 752

Financial income, net 129 749 265 579 152 005 155 535 Income from disposal of available-for-sale financial investments and income from dividends

5 788 13 121 25 43

74.6% 70.9% 68.6% 61.3% 56.7%

25.4% 29.1% 31.4% 38.7% 43.3%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 46. Sight deposits and term deposits

Term deposits Sight deposits

28.7% 27.1% 21.7% 23.3% 23.4%

71.3% 72.9% 78.3% 76.7% 76.6%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 47. Structure of due to customers

Legal entities Individuals

1 657 1 741

865 629

402

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 48. Borrowings (MDL million)

1 662 1 780 1 930 2 102 2 380

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 49. Equity (MDL million)

P-Public


Indicator 2014 2015 2016 2017

MDL’000 MDL’000 MDL’000 MDL’000 Other operating income 35 975 53 111 77 532 37 709

Total operating income 763 634 509 600 640 166 869 816

Personnel expenses (126 966) (158 156) (224 036) (250 588) General and administrative expenses (161 443) (204 351) (209 729) (182 042) Depreciation and amortization (25 555) (29 530) (43 405) (38 387)

Total operating expenses (313 964) (392 037) (477 170) (471 017) Profit before income tax 449 670 117 563 162 996 398 799

Income tax expense (52 153) 25 869 (1 498) (35 033)

Net profit for the year 397 517 143 432 161 498 363 766

Other comprehensive income

Available-for-sale investments revaluation reserves

(1 936) (323) (9 636) 533

Deferred tax related to other comprehensive income

168 (209) (1 553) 37

Other comprehensive income for the period, net of tax

(1 768) (532) (11 189) 570

Total comprehensive income for the period, net of tax

395 749 142 900 150 309 364 336

Earnings per share (MDL) 80 29 33 73

Table no.13

Indicator 30.06.2017 30.06.2018

MDL’000 MDL’000

Interest income 537 641 413 999

Interest expenses (238 022) (159 326)

Net interest income 299 619 254 673

Impairment losses (26 793) 67 053

Net interest income after impairment loss

272 826

321 726

Commission income 166 695 194 133

Commission expenses (41 480) (60 030)

Net commission income 125 215 134 103

Financial income, net 59 977 72 201

Income from disposal of available-for-sale financial investments and income from dividends

18 16

Other operating income 16 504 14 917

Total operating income 474 540 542 963

Personnel expenses (123 219) (132 880)

General and administrative expenses (75 889) (85 411)

Depreciation and amortization (18 994) (19 799)

Total operating expenses (218 102) (238 090)

Profit before income tax

256 438

304 873

Income tax expense (10 250) (9 866)

Net profit for the period 246 188 295 007

P-Public


Indicator 30.06.2017 30.06.2018

MDL’000 MDL’000

Other comprehensive income

Available-for-sale investments revaluation reserves - 415

Deferred tax related to other comprehensive income 1 926 -

Other comprehensive income for the period, net of tax 1 926 415

Total comprehensive income for the period, net of tax 248 114 295 422

Chart 50. Income and expenses (MDL million)

The Bank’s activity has been profitable along its activity, the Bank being also one of the leaders of the domestic banking system in terms of efficiency.

In 2017, the profit of the year amounted to MDL 364 million, increasing by 2,25 times compared to the previous year.

In the profit structure, the decrease of the interest income and expenses in the year of 2017 is a trend and an objective situation of the market as the base rate of the National Bank of Moldova decreased (from 19,5 in early 2016 to 6,5 in late 2017), as well as the rates of other instruments of the monetary policy. As a result, the rates on loans and deposits in the banking system decreased.

Impairment losses have considerably diminished the net operating income, their increase since 2015 being triggered by the difficult macroeconomic environment and by more prudent and critical approach of the Bank towards loan classification by credit risk, a policy also promoted by the National Bank of Moldova.

In the commission income of the year 2017 component, commissions from card transactions, income from cash office and payment services, income from remittances significantly increased. At the same time, other operating income in 2017 decreased compared to the previous year because of the reduction of income from investment and other values output, as well as because of the decrease of the fines, penalties and other sanctions received, in relation to the lending activity.

764

510 640

870

366 366

479 506 398

143 161

364

31.12.2014 31.12.2015 31.12.2016 31.12.2017

Net operating income

Operating expenses and income tax

Profit for the period

annual evolution

475 543

228 248 246 295

30.06.2017 30.06.2018


P-Public


Chart 51. Composition of the operating income, net (MDL million)

In the first half of 2018, the profit of the period amounted to 295 million MDL, increasing by 19,8 percent compared to the same period of the previous year.

Interest income and expenses in the first half of 2018 continued to decline following the 2017 trend caused by market conditions, as the average interest rates on both loans and deposits diminished, and the registered surplus of liquidity in the banking system.

Impairment losses recorded positive value, which demonstrates the improvement of assets quality, with the credit portfolio growing.

In the commission income component, for the first half of 2018, the highest increase registered comissisions from card transactions.

3.2%

1.0%

1.0%

2.3%

3.5%

0.9%

1.7%

1.8% 1.9% 2.2%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 52. Return on assets (ROA)

ROA Bank ROA Banking system

26.1%

7.7% 8.1%

17.8%

25.8%

5.9%

10.2% 11.1% 11.1%

13.4%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 53. Return on equity (ROE)

ROE Bank ROE Banking system

577 761 688

487

-168 -602

-711

-55

268

251 201

160

193

230 332

172

31.12.201731.12.201631.12.201531.12.2014

annual evolution

Net interest income

Impairment losses

Net commission income

Other net operating income

764

510 640

870

255 300

67

-27

134 125

87 76

30.06.201830.06.2017

475 543


P-Public


Under the decrease of the loan rates, the Bank has adjusted its deposit attraction policy, which has influenced the decrease of interest expenses and has ensured the possibility to maintain the margin at the level settled by the Bank’s asset and liability management Policy and above the average level of the banking system.

7.4. Compliance with the regulatory requirements

Table no.14

Indicator Norm 31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Total regulatory capital (TRC) ≥200

million MDL

1 339 942 1 525 585 1 638 220 1 685 571 1 913 848

Capital adequacy ratio ≥16% 16,06 18,61 23,20 27,68 31,41

Liquidity Principle I (long term liquidity) ≤ 1.0 0,87 0,83 0,73 0,54 0,57

Liquidity Principle II (current liquidity) ≥20% 23,67 38,05 44,77 59,24 58,28

Maximum net exposure to a person or group of persons acting in concert / TRC

≤ 15% 14,20 15,12 15,49 11,95 10,97

The net loan amount to top 10 parties less loan loss provisions and provisions on contingent commitments/Total loan portfolio and contingent commitments to top 10 parties

≤ 30 20,10 21,07 21,13 20,98 20,34

Total exposure to retated parties / Tier I capital

≤ 20% 10,25 10,55 8,58 9,01 27,35*

Exposure to a related party (% of TRC) ≤10% 4,49 5,69 4,28 6,12 10,06*

The amount of „large” exposures / TRC ≤ 5 1,76 1,88 1,17 0,76 0,21

Total exposure to the employees of the bank / TRC

≤10% 1,88 1,64 2,40 2,85 3,31

Total investments in long-term tangible assets / TRC

< 50% 14,54 13,85 13,44 11,88 9,86

*Up to 31.03.2020 exceeding of the indicated limits shall not be considered a violation of the maximum limits stipulated in Chapter III of the Regulation on Bank Transactions with its Related Parties (DEC of NBM no.83 of 26.04.2018).

4.71% 5.24%

5.66%

4.73%

4.24%

4.03%

5.30%

5.50%

4.71%

4.25%

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 54. Net interest margin

Bank Banking system

P-Public


1 339.9 1 525.6 1 638.2 1 685.6

1 913.8

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 55. Total regulatory capital (MDL million)

Bank Prudential norm (min.)

16.1 18.6

23.2

27.7

31.4

13.9

26.3

29.8 31.0

33.9

31.12.2014 31.12.2015 31.12.2016 31.12.2017 30.06.2018

Chart 56. Risk Weighted Capital Adequacy

Bank

Prudential norm (min.)

Banking system

P-Public


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