Implications of the financial crisis on the soundness of the banking system in the Republic of Moldova

Abstract

The extent of recent financial crisis implications on economies differs from countryto country. The effects of the crisis events in developed countries differ from the ef-fects in developing countries. The banking systems are now more vulnerable toshocks and to contagion than ever before due to the globalization of banking ac-tivity. In recent years, the Moldovan banking system has demonstrated a high degreeof resilience to the global financial crisis. The local banking system has a low degreeof connectivity to the European and world banking systems due to a very limitedpresence of international banks in the market. This has meant that there has beenno direct contagionduring the last financial crises. The effects of the crises in Moldovawere felt indirectly by the banks, through the channel of remittancesand foreign trade,which have diminished substantially as a result of the economic decline in Europe,particularly in 2009. This article aims to verify whether a systemic crisis wasrecorded within the domestic banking sector during recent years and to establishthe conditions which could be classified as a full-fledged crisis episode in the caseof the Republic of Moldova. In addition, the implications of the recent financialcrisis on the soundness of Moldova’s banking system are identified.