Moldova’s crisis-hit banking sector moved a step closer to recovery with the announcement in November that Romania’s Banca Transilvania has agreed to take over troubled lender Victoriabank.
News of the acquisition, which will be the first by a foreign bank in Moldova since 2007, came almost exactly three years after $1 billion was stolen from three of the country’s leading banks in as many days. The resultant bailout cost more than 10% of Moldova’s annual GDP and prompted an overdue clean-up of the banking sector.
As well as the closure of banks involved in the fraud, this saw three other lenders – Victoriabank, Moldova Agroindbank (MAIB) and Moldinconbank – put under central bank supervision over concerns about corporate governance.
Owners of substantial stakes in all three subsequently had their voting rights suspended and were ordered to dispose of their holdings.
Victoriabank, Moldova’s third-largest lender, is the first to find a buyer. Banca Transilvania will acquire an initial 39.2% stake in the lender from Insidown, a Cyprus-based company registered to a little-known Russian businessman.
“The announcement by Banca Transilvania is important and symbolic,” says Sergiu Cioclea, Moldova’s central bank governor. “It means banking reforms are starting to bring results and the market is becoming attractive for strategic investors.”
The deal also marks the first step outside its home market for Banca Transilvania, which has expanded rapidly in recent years to become Romania’s number two lender.
Chief executive Omer Tetik says the group previously had no intention of pursuing a regional development strategy but “chose to be responsive to a natural expansion towards a very close market, both historically and geographically.
“There are also economic reasons for this move,” he adds, “as Moldova is a region with significant potential in the SME (small and medium-sized enterprise), micro and retail sectors, all of which are business segments in which Banca Transilvania has the necessary experience and know-how.”
The acquisition has received strong support from the EBRD, which has been a prime mover in the drive to clean up Moldova’s banking sector. The development bank is a long-term shareholder in Victoriabank; last June it upped its stake in the lender to 27.5%. The EBRD also owns 8.6% of Banca Transilvania.
“Shareholder transparency and attraction of strategic investors in banks is at the core of the EBRD mandate in Moldova,” the bank’s office in Chisinau said in a statement.
Between them, Banca Transilvania and the EBRD will own a controlling 66.7% stake in Victoriabank, after the purchase of Insidown’s holding. Banca Transilvania is expected to launch an offer for the remaining shares once the deal has been approved.
At present only two EU banking groups have operations in Moldova. Erste Group acquired a branch in Chisinau with its purchase of Romanian market leader BCR in 2005, while Société Générale bought Mobiasbanca in January 2007. The latter is now Moldova’s fourth-largest lender.
The next task for Moldovan policymakers will be to find buyers for the 40% of MAIB and 63% of Moldinconbank that have been frozen by the central bank.
Cioclea says both lenders had attracted interest from potential investors but that sales of the holdings had so far been stymied by litigation by the former owners.
“The authorities are considering now a series of legal solutions to mitigate these risks and secure the participation of qualified investors in these banks,” he adds.
Our plans focus on efficiency-boosting digitalization investments at Victoriabank and on fast and modern products and services- Omer Tetik, Banca Transilvania
Tetik hints that Banca Transilvania could participate in further consolidation in Moldova.
“In the long run, we aim at other investments, provided they are in line with the bank’s strategy and have a similar shareholding structure,” he says.
Banca Transilvania would also want to see support for any deal from either the EBRD or the IFC, which also holds a stake in the group, he adds.
For the moment, however, the bank’s priorities will be getting to know Moldova and developing Victoriabank.
“At this stage, Banca Transilvania prefers to gain a very good knowledge of the Moldovan market and clients, and to obtain positive results in a new geography,” says Tetik.
“Our plans focus on efficiency-boosting digitalization investments at Victoriabank and on fast and modern products and services. We see the greatest opportunities in mortgage and real-estate loans, loans for entrepreneurs and cards.”
The bank will also have plenty to do in its home market, following the announcement on November 24 that it had won the bidding for Eurobank’s Romanian subsidiary, Bancpost. The purchase will increase Banca Transilvania’s domestic market share by assets to 16.4%, just a fraction behind number one player BCR.
Analysts at Berenberg say the deal should be positive for Banca Transilvania, allowing the lender to “better capture growth in the debt-underpenetrated Romanian economy” and creating value through potential cost and revenue synergies.
It will be the second large domestic acquisition in less than three years for Banca Transilvania, which was ranked 10th in Romania as recently as 2009, following the purchase of Volksbank Romania from the failed Austrian group in December 2014. The Cluj-based lender also moved into investment banking last year with the acquisition of local advisory firm Capital Partners.
Tetik says Banca Transilvania has been able to expand through M&A as well as organic growth over recent years thanks to a sound capital base and liquidity surplus.
The bank’s common equity tier-1 ratio stood at 19.6% at the end of September, according to Berenberg analysts.
“Assuming Banca Transilvania pays one times price to book value for Bancpost, the acquisition will decrease the ratio by 280-300 basis points,” they add.