Implementing corporate governance good practices in the banking system of the Republic of Moldova

Abstract

Corruption in the lending activity, financial fraud or reduced banking efficiency may be the result of a weak and deficient corporate governance mechanism. An eloquent example is given by the frauds uncovered in 2014 in the domestic banking system, namely the governance gaps that allowed the robbery of three banks and the misappropriation of funds of billions of lei by malicious factors. Subsequent investigations revealed a number of serious shortcomings in the management process at several banks, including decision-making in the board of directors, the work of the executive body or reduced transparency of shareholders. The important role of financial intermediation of banking institutions in the economy, their high sensitivity to the potential difficulties arising from inefficient corporate governance and the need to protect the interests of depositors and investors, require that corporate governance for these institutions be of particular interest to maintain the stability of the financial sector. Despite progress in addressing IMF recommendations and the satisfactory performance of banks, there are several governance issues at several banks, including the largest ones. Deficiencies in corporate governance at banks still pose a major risk to systemic financial stability in the Republic of Moldova, and the ability of regulators to act remains restricted. The purpose of this research is to analyse the constraints that caused the banking crisis in the Republic of Moldova and develop recommendations to eliminate the major systemic deficiencies of the Moldovan banking system based on corporate governance good practices. DOI: https://doi.org/10.53486/9789975155663.50; CZU: 005.35:336.71(478); JEL: G21, E58.