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Regulation on Crediting Activity of Banks operating in the Republic of Moldova, approved by the CA of the NBM, Minutes no.45 of December 25, 1997

Published in the Official Monitor of the Republic of Moldova no. 8 of January 30, 1998, art.24

Ministry of Justice
of the Republic of Moldova
no. 824 of 20.05.2011
Minister Oleg EFRIM

within the meeting of the
Council of Administration
of the National Bank of Moldova,
Minutes no.45 of 25.12.1997

on Crediting Activity of Banks operating in the Republic of Moldova

Amended by:

DCA of the NBM no. 110 of April 14, 2005, Official Monitor of the Republic of Moldova no. 62-64 of April 22, 2005, art.228;
DCA of the NBM no.139 of July 31, 2008, Official Monitor of the Republic of Moldova no. 171-173 September 12, 2008, art.496;
DCA of the NBM no.82 of April 21, 2011, Official Monitor of the Republic of Moldova no. 87-90 of May 27, 2011, art.569.


I. General Provisions

1.1. Provisions of this Regulation are based on the Law on the National Bank of Moldova (chapters I and VI) and the Law on Financial Institutions (chapters III and IV).

1.2. With the view to ensure unique crediting standards within the financial sector banks operating in the Republic of Moldova shall conduct crediting activities in compliance with provisions stipulated in this Regulation.

1.3. The scope of this Regulation is to establish basic principles of bank crediting. Banks shall apply the Regulation in common with set normative requirements. Bank administration shall manage the business of the bank in accordance with sound prudential and effectiveness principles.

1.4. The bank’s competence and responsibility shall include as follows:
- to establish and maintain organisational structures;
- to manage the bank’s crediting activity;
- to elaborate analytic methods and administrative procedures;
- to determine relevant internal control systems to assess, manage and control credit risks.
Provisions mentioned above shall be established following internal regulations approved by the board of the financial institution.
The relevant competent body of the bank shall bear full responsibility for achievement of enumerated objectives as in accordance with vested statute.


II. Organisation and Management of Crediting Activities

2.1. Relevant prudential management of bank crediting activities implies the establishment and operation of due organisational structures and credit policies in conformity with risk evaluation, monitoring and control procedures aimed at ensuring traced policies’ implementation. The scope of these activities is to protect bank assets and to gain profit, paying due consideration to security of client deposits.

2.2. This Regulation establishes the fundamental principles and basic requirements to be followed by banks within the context of crediting activities and provide the capacity of bank management to supervise banking operation in an efficient and prudent manner, taking into consideration the interests of depositors and other clients.


III. Organisational Structure

3.1. The organisational structure of credit units shall depend upon the bank size, branch network, credit investment value and other factors.

3.2. The activity scope of these organisational structures is to implement bank’s credit policies and procedures in an efficient and prudent manner.

3.3 Functions of organisational units and credit staff shall be determined following approved internal regulations explicitly providing their responsibilities and obligations.

3.4. The activity of organisational structures shall include as follows:
- request placement procedure;
- client credibility (solvability) analysis;
- systematic revision and analysis of credit portfolio quality.

3.5. Within approval process, decisions with regard to credit extension requests shall be taken by a special credit committee formed of an odd number of members, but not less than 3 persons.
The maximum amount of a credit to be extended without approval by the special credit committee at branch level shall be determined within the bank’s general credit policy provisions.
All credit transactions shall be concluded providing the approval of at least 3 persons.
„Large” credits shall be extended in conformity with the requirements stipulated in Regulation no. 3/09 on large exposures (Official Monitor of the Republic of Moldova, 1995, no. 70, art.31).
(Item 3.5 amended following the Decision of the CA of the NBM no.82 of 21.04.2011, in force on 27.05.2011)

3.6. Credit extension procedure may be subject to double control conducted by an independent structural unit, which shall report directly to the special credit committee or to the bank management.


IV. Credit Policy and Procedures

4.1. The bank credit policy shall be aimed at protecting assets, gaining profit and improving the economic and financial condition of borrowers, considering also the security of clients’ deposits.

4.2. Credit policy and procedures shall be determined following a general policy instruction and specific (written) instructions approved by the bank board.

4.2.1. Such general policy and written procedures shall include, but shall not be limited to, as follows:

♦ Bank Credit General Policy Instruction, providing as follows:
- organisational structure;
- crediting authorities;
- business and marketing strategy;
- credit types;
- general credit limits;
- crediting activity at branch level;
- acceptable and sufficient collateral or other type of insurance;
- credit extension and reimbursement;
- interest value establishment;
- distribution and diversification by branches (sectors);
- revision and control of credit portfolio; etc.

♦ Specific detailed instructions on policy and procedures for each type of credit and advance payment, including as follows:
- internal procedures of debtor’s credibility assessment;
- risk management and verification;
- credit extension limits;
- required collateral or other type of insurance;
- price establishment;
- authorisations;
- problematic credits and their collection;
- reserve establishment;
- description of analytical methods of clients’ credibility evaluation .

These instructions shall also include blanks of requests, credit agreements (contracts), collateral form or other type of insurance, etc.
(Item 4.2.1 amended following the Decision of the CA of the NBM no.110 of 14.04.2005, in force on 22.04.2005) The general business and marketing strategy shall include the bank’s general commercial client-targeted strategy and the definition of the marketing strategy aimed at achieving business commercial objectives. The general policy shall define all types of credits extended by the bank and shall provide concise and comprehensive description of credits, including information on credit purpose, term and reimbursement structure, price, required collateral or other type of insurance, etc.
(Item amended following the Decision of the CA of the NBM no.110 of 14.04.2005, in force on 22.04.2005) The general policy shall include general guidance with regard to weights of each credit type in total credit portfolio, for example commercial credits, consumer credits, real estate credits, etc. by providing reflection of the bank commercial strategy and consideration of separate risks. The general credit policy shall reflect legal and regulatory credit limits, i.e. limits on large credit extension to a debtor or a group of debtors in interconnection, affiliated persons and bank employees. The policy could also provide instructions on credit portfolio geographical distribution and sector breakdown. Credit activity at branch level shall be conducted based on rules establishing branches’ functions, responsibilities and powers within the bank’s general crediting activity. Requirements with regard to credit securing, as well as forms of collateral shall be established depending on credit type. The general policy of credit extension and reimbursement shall provide all

possible procedures of credit extension and reimbursement. The general credit policy shall include daily guidelines with regard to interest rates applied on different credit types, margin establishment at managerial and branch levels.

Prices for special credit types shall be decided upon by the administration body. Diversification of credit portfolio shall mean the establishment of optimal

proportions of credit types (consumer credit, real estate credits, commercial credits, etc.) in total credit portfolio, giving due consideration to the risk implied within each credit risk. The credit general policy shall provide relevant rules of systemic revision of credit portfolio, allowing an objective portfolio classification. Within this context, the policy shall explicitly stipulate responsibilities of banks and branches and rules of internal control procedures and data reporting.

4.2.2. Depending on provisions of the general Instruction, specific Instructions shall reflect specific features for each credit type, additionally providing the followings: credit administration, credit informational system, credit internal revision, etc. Banks shall maintain detailed instructions with regard to the general administration process for each credit type: client initial request, evaluation of client credibility and approval of credit extension, and final credit reimbursement. These instructions shall provide detailed guidelines on documents deemed for all credit types and stipulate rules with regard to:
- Credit authority: establishment of a credit authority within the bank for purposes of decision taking at various levels, for each credit type and value;
- Financial information: requirements with regard to communication of financial condition data to be reported by debtors for any credit type, allowing the performance of a due analysis of client credibility;
- Credibility assessment: detailed instructions with regard to performance of relevant assessment of client credibility and capacity to reimburse the received credits, including adequate analysis methods of balance sheet, profit and loss account; similarly, evaluation of collateral and of other forms of credit securing and establishment of credit use limits (coefficients), examining credit reports containing information relating to the credit history and other relevant information relating to compliance by the debtor to his contractual obligations (certificates from other banks, extracts of accounts opened with other banks, and other information that makes it possible to track the compliance with contractual obligations). The financial statements of the entities that, according to the legislation, are obliged to conclude this type of statements, shall be submitted, upon bank request, under the stamp of the relevant state entity, for the last reporting period;
- Collateral and other forms of credit securing: provision of a relevant minimal coefficient with regard to collateral and other forms of credit securing deemed for each credit type and their adequate evaluation with the view to fully cover the risk amount (credit principal plus interest);
- Approval process: detailed rules with regard to authorisation of credit extension;
- Determination of credit price: interest rates / commissions for all credit types covering costs of funds establishment (plus a profit margin), including additional costs and establishment of credit loss provisions;
- Limits: restrictions on individual lines / credits non-reimbursed and in total by each debtor;
- Collection: determination of procedures related to overdue credits and related non-paid / legally delinquent payments and other claims;
- Miscellaneous: specific instructions for exceptional events and exemption, etc.
(Item amended following the Decision of the CA of the NBM no.82 of 21.04.2011, in force on 27.05.2011)
(Item following the Decision of the CA of the NBM no.139 of 31.07.2008, in force on 12.09.2008)
(Item following the Decision of the CA of the NBM no.110 of 14.04.2005, in force on 22.04.2005) Relevant sound and prudent management of a bank credit portfolio requires the existence and operation of an efficient informational system to include all important aspects of credit extension. The availability of a strong and correct informational system, covering the whole crediting process is an indispensable requirement of the risk effective management and control process and, ultimately, of due fulfilment of management or administration assumed obligations and responsibilities.

The credit informational system shall include specific and concise details with regard to individual credits as follows:
- debtor’s identity and activity;
- debtor’s economic and financial condition (previous, current and in expectation) based on a profound analysis of his credibility;
- credit type, purpose and value;
- reimbursement primary and secondary sources;
- credit reimbursement securing (collateral) and relevant conditions;
- other information with regard to credit relation (communication of data on debtor’s financial condition is requested) . Credit internal revision shall imply the bank’s credit portfolio systematic re-examination with the view to detect in due time the increased risk value and to determine relevant measures to be applied for doubtful or compromised credits, including reserves.
Detailed instructions covering following subjects shall be mandatory available:

(i) Objectives of Credit Internal Revision:
- due informing on credit portfolio current situation;
- evaluation of credit portfolio positive or negative trends;
- identification of problematic credits;
- detailed analysis of problematic credits;
- ensurance of relevant reserves establishment (as in accordance with the Regulations of the National Bank of Moldova);
- identification of failures to comply with internal instructions, supervision rules and regulations issued by the National Bank of Moldova.

(ii) Liability for Correctness of Credit Portfolio Internal Revision
To execute this requirement banks shall establish an organisational structure separate from organisational structures of credit extension and analysis.

(iii) Credit Revision Standards
Instructions shall include provisions with regard to bank’s standards to be applied within credit portfolio evaluation and shall contain the following chapters:
• overdue credits, interest non-accumulating credits;
• delinquent credits (legal infringements);
• interest non-bearing credits as in accordance with contract provisions;
• overdue credits, interest non-accumulating credits;
• problematic credits;
• credits subject to modification of conditions and terms following reduction of interest rate or credit value, postponement of interest payment or credit extension, or any other restructuring of modification of reimbursement terms;
• credits transferred, both in full or partial value, to other credit institution as a result of assets sale, participation or exchange;
• credits received from other institution as a result of assets purchase, participation or exchange;
• credit obligations or other eventual liabilities ;
• in event of secured credits: collateral value and quality or of another type of insurance;
• in event of non-secured credits: detailed analysis of account movement (funds movement);
• credits extended to bank employees and management, chairmen (directors), main shareholders and other affiliated persons;
• diverse crediting debits and suspended credit accounts.

(iv) Reports on Credit Revision
Reports on credit revision shall give the bank administration the possibility to manage and control risks. Reports shall be worked out periodically, at least once per month, within strictly established terms and shall be submitted to bank’s competent bodies for purposes of decision taking.

(Item amended following the Decision of the CA of the NBM no.110 of 14.04.2005, in force on 22.04.2005)

4.3. The general instruction and specific instructions at bank’s discretion may be included in one general Regulation on Crediting that shall reflect all crediting aspects and activities.

4.4. Provisions of this Regulation shall be also applied within crediting activities related to financial leasing.


V. Final and Transitory Provisions

5.1. This Regulation shall enter into force on the date of its publication in the Official Monitor.

5.2. Banks shall, as in accordance with this Regulation, work out related internal normative acts and comply existent internal normative acts until May 1, 1998.

5.3. The National Bank shall verify the bank’s adequate organisation, management and crediting procedures during on-site controls. Received results shall determine the bank’s rating and shall be subject to discussion with the bank’s management.

5.4. As on the date of this Regulation enforcement, the following shall be abrogated: the provisional Regulation on Bank Credit, approved following the Decision of the Council of Administration of the National Bank of Moldova of 26.03.1993, minutes no. 14 and the provisional Regulation on Issuance of Bank Guarantee and Securities, approved following the Decision of the Council of Administration of the National Bank of Moldova of 16.04.1993, minutes no. 18.

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