MOLDOVAN INVESTPRIVATBANK FALLS

UNCLAS CHISINAU 000497

STATE FOR EUR/UMB, EUR/ACE, EEB/OMA

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV EREL ETRD MD
SUBJECT: MOLDOVAN INVESTPRIVATBANK FALLS

REF: CHISINAU 0485

Sensitive but Unclassified. Please Protect
Accordingly


1. (SBU) SUMMARY: The National Bank of Moldova,
the country's central bank, withdrew the license
of Investprivatbank (IPB) on Friday, June 19. The
central bank issued a statement citing banking law
violations and added that it had appointed an
administrator to liquidate the bank. Moldovan
authorities then arrested three top managers of
IPB. Only several days prior to the announcement
of revocation of IPB's license, the parliament had
adopted a new law facilitating the insolvency
mechanism. The GOM took quick action to organize
a tender and then placed the bank under the GOM
majority-owned Banca de Economii. END SUMMARY

MISMANAGEMENT LED TO BANKRUPTCY
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2. (SBU) The National Bank of Moldova (NBM) issued
a statement on Friday, June 19 that it had
withdrawn the license of Investprivatbank (IPB),
one of Moldova's 16 banks. The central bank
conducted a review of the bank from March to May
2009 before moving to liquidate it. The governor
of the NBM, Leonid Talmaci, stated at a press
conference that the central bank had restricted
IPB's ability to grant new loans and had
instructed the bank to restore its capital and
liquidity earlier in the year. The NBM gave IPB
three months to make progress before deciding to
withdraw the bank's license. The NBM cited
violations of banking laws, internal rules and NBM
rules as the reasons for the revocation of the
license. IPB was the 10th largest bank in Moldova
(ranked by assets). Its net profit fell by 40
percent to approximately $600,000 in 2008.
Experts noted that other signs of the bank's
difficulties were apparent over the past year.
IPB had offered the highest interest rates on
deposits in Moldova in order to attract depositors
and had concentrated 40 to 70 percent of its loans
in the now-frozen construction sector.

THREE INVESTPRIVATBANK MANAGERS ARRESTED
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3. (SBU) The Center for Combating Economic Crimes
and Corruption (CCECC) issued arrest warrants for
initial 25-day detentions for the IPB director,
Ion Chirpalov, and two other top managers,
Alexander Voznisenschi and Lilian Ceban. The
CCECC announced the arrests of the three managers
in a press release on Tuesday, June 23. Chirpalov
and Voznisenschi were being held in the CCECC's
detention center, while Ceban was under house
arrest. The three managers face fines of 40,000
to 60,000 Moldovan Lei (USD 3,700 to USD 5,500)
and imprisonment of two to seven years. The press
release stated that convictions would carry a ban
on the right to work in management functions for
five years.

NEW BANK LIQUIDATION LAW
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4. (SBU) Earlier this month, on June 12, the
parliament adopted a new law facilitating the
insolvency mechanism. The chairman of the
Economic Policy, Budget and Finance Committee,
Iurie Muntean, noted that the previous liquidation
procedure took too much time. (Note: Muntean is a
member of the ruling Party of Communists of the
Republic of Moldova. End note.) The new mechanism
was designed both to reduce the time needed for
the lengthy process and to protect depositors'
interests. According to the IMF resident
representative, if the legal changes had not been
made, the liquidation of the IPB could have
dragged on for months or years, effectively
blocking depositors' access to their money. That
development could have ignited a systemic bank run
as depositors at other banks would have feared
they would also lose access to their money for a
long period of time. Under the new rules the NBM
could appoint its own administrator and intervene
to stop the bankrupted bank's dubious transactions
much earlier than would have been possible in a
lengthy court process, according to Muntean.

A TENDER ANNOUNCED
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5. (U) On Monday, June 22, Minister of Economy
and Trade Igor Dodon announced that assets of IPB
would likely be purchased by another Moldovan
commercial bank in half a month. Dodon said that
the GOM was interested in the assets and
liabilities of the bank passing to another
commercial bank in order to prevent a worsening of
the situation. He indicated that the GOM would
put IPB up for sale in an open tender. National
Bank Governor Talmaci stated that depositors would
be guaranteed the reimbursement of their deposits
at the bank. At the same time he asked depositors
to be patient and not panic, specifying that they
would learn how to recover their deposits within a
month. The ordinance on the liquidation of the
failed bank appeared in the GOM's Official Gazette
on Tuesday, June 23 with a deadline for bids of
June 26. The National Bank issued a statement
that IPB depositors could schedule a meeting with
NBM deputy governor, Emma Tabarta, every workday
from 9 am to 10 am. The NBM-appointed bank
administrator, the so-called liquidator, Ion
Ropot, also stood prepared to meet depositors
daily between 4 pm and 5 pm. The NBM also
announced a hotline for depositors.

A QUICK FIX
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6. (U) In a press release on June 23, the GOM
announced that the Banca de Economii was taking
over IPB. The GOM stated that all IPB assets and
liabilities would pass to the Banca de Economii.
All IPB depositors would automatically become
clients of Banca de Economii. Prime Minister
Zinaida Greceanii called for the understanding of
all IPB depositors and assured them that the state
was striving to guarantee their deposits.

COMMENT
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6. (SBU) We were already aware that the recent IMF
Mission to Moldova was very concerned that one of
the sixteen banks in Moldova was near bankruptcy.
The IMF worried that, should the GOM fail to
handle carefully the liquidation of IPB, the
government could easily incite a run on banks.
Dozens of protestors waited in front of IPB on
Monday morning, June 22, demanding the return of
their deposits. New parliamentary elections are
scheduled for July 29 and the ruling PCRM acted
expeditiously to avert a banking disaster. The
PCRM worked to introduce a new liquidation
mechanism before announcing the withdrawal of
IPB's license and then moved to protect all IPB
depositors as quickly as possible. The PCRM
continues to maintain that the economic situation
in Moldova is not as serious as in neighboring
countries. The PCRM campaign strategy that a vote
for the PCRM is a vote for stability is becoming
increasingly more difficult to claim as the
Moldovan economy declines. A run on banks could
have brought down the PCRM's campaign house of
cards.

CHAUDHRY