Assessment of Bank Loans Made To the Agribusiness Sector by Moldovan Banks

The aim of this analysis is to assess the commercial bank lending situation with respect to the agribusiness sector, terms of loans to the
agribusiness sector as compared to terms of loans to other sectors and availability of loans for small farmers and agribusiness companies.
Data used are from public reports on “disclosure of information on crediting activity”, that banks prepare and make available on a quarterly
basis. All of them (with few exceptions) also post the information on their web sites.

Data from all of the 16 banks registered and operating in Moldova were used for this purpose. According to Moldovan bank accounting
standards, loans issued by banks are classified into nine categories:

1. Loans to agriculture and food processing industry;

2. Loans to industry and trade;
3. Loans to power engineering and fuel industry;
4. Loans for road construction and transportation;
5. Loans for real estate;
6. Consumer loans;
7. Loans issued to the Government;
8. Inter-bank loans; and
9. Other loans.

To ensure better comparability and relevance of aggregate information, data from the last three industries were excluded from calculations of
general average interest rates and general average amounts of granted loans and comparisons, as those loans are not typical commercial
loans. They include overdrafts, overnights, purchase order financing, credit cards, loans to Government, etc. (given on very short period and
high interest rates, or loans to other banks for short time liquidity observance, with very low interest rates).

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Table 1: Loans issued by industry: all 16 banks
Total, 2007
Number of granted Average loan Average interest rate,
loans Amount of granted loans (thousand lei) amount, thou. lei %
No. Type of loan
as % of the total
in lei & in lei & loans in
in foreign in foreign foreign in foreign foreign in foreign loans in foreign
in lei currency in lei currency currency in lei currency currency in lei currency lei currency
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Loans issued to agriculture and food
1 industry 1.862 214 1.565.634 1.132.291 2.697.925 8,6% 9,4% 8,9% 841 5.291 18,4% 10,6%

2 Loans issued to industry/trade 5.830 2.930 4.929.568 7.632.378 12.561.946 27,2% 63,4% 41,6% 846 2.605 18,1% 11,2%
Loans issued to power engineering and
3 fuel industry 105 72 215.924 1.149.128 1.365.051 1,2% 9,5% 4,5% 2.056 15.960 19,5% 11,3%
Loans issued for road construction and
4 transportation 244 101 163.417 221.520 384.937 0,9% 1,8% 1,3% 670 2.193 18,8% 11,0%

5 Loans for real estate 2.571 80 1.438.836 543.310 1.982.146 7,9% 4,5% 6,6% 560 6.791 16,6% 11,1%

6 Consumer loans 125.463 185 3.111.140 16.418 3.127.558 17,1% 0,1% 10,4% 25 89 19,2% 10,8%

7 Loans issued to the Government 38 0 21.676 0 21.676 0,1% 0,0% 0,1% 570 - 19,5% -

8 Inter-bank loans 303 47 3.983.347 227.135 4.210.481 22,0% 1,9% 13,9% 13.146 4.833 12,4% 6,0%

9 Other loans 6.325 583 2.713.975 1.118.569 3.832.544 15,0% 9,3% 12,7% 429 1.919 19,5% 12,5%

Total 142.741 4.212 18.143.516 12.040.748 30.184.264 100,0% 100,0% 100,0% 833 5.488 18,4% 11,0%
Note: total averages for columns 11 to 14 do not include last three categories of loans

Loan value to the agriculture and food processing sector make up a very small share of total loans in the nine categories: in 2007 only 8.6%
of credits in lei and 9.4% of those in foreign currency of all banks were issued to this sector. Table 2 gives a picture of aggregate bank loan
portfolios by sector in 2007 in comparison to 2006. Loans to the agriculture and food processing sector amounted to 14% of all loans at
December 31 2007, having increased in absolute terms by 10% as compared to December 31, 2006. However, the total increase in loan
portfolios was 51.7% indicating that the increase in agribusiness lending was very modest compared to the actual increase in the total
lending portfolio. In fact, from almost 20% of the value of loans made in 2006 the percentage made to the agriculture and food processing
sector declined significantly to 14% in 2007.

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 Table 2: Bank loan portfolios by industry 2006-2007, all 16 banks (mil. lei)
Increase (+) Increase (+)
No. Type of loan As at Dec. 31, 2006 As % of total, 2006 As at Dec. 31, 2007 As % of total, 2007 /Decrease (-), mil. /Decrease (-),
lei %
1 2 3 4 5 6 7 8

1 Loans issued to agriculture and food industry 2643,4 19,2% 2.918,7 14,0% 275,3 10,4%

2 Loans issued to industry/trade 6923,9 50,3% 10.235,9 49,0% 3312,0 47,8%

3 Loans issued to power engineering and fuel industry 205,7 1,4% 427,8 2,0% 222,1 210,0%

4 Loans issued for road construction and transportation 478,4 3,5% 469,4 2,2% -8,9 -1,9%

5 Loans for real estate 1502,2 10,9% 2.692,9 12,9% 1.190,7 79,3%

6 Consumer loans 1302,6 9,5% 2.962,2 14,2% 1659,6 230,0%

7 Other loans 711,6 5,2% 1.176,8 5,7% 465,2 65,4%

Total 13767,8 100% 20.883,7 100,0% 7115,9 51,7%

Source: The National Bank of Moldova, Annual Report, 2007

It is worth mentioning that the agriculture and food processing sector provides about 30% of the country’s GDP. Approximately 40% of the
population is occupied in this sector and it provides 65% of the total country’s exports. Moreover, the limited lending to the agribusiness
sector is not connected with a deficit of funds for providing loans. As of November 2008, the average liquidity ratio in the Moldovan
banking system was 31.4%, against the minimum of 20% set by National Bank of Moldova regulations, i.e. Moldovan banks have an extra
liquidity approximately 1/3 higher than the necessary minimum, but hesitate investing in the “real sector” in general and agribusiness in
particular. Instead they prefer making inter-bank loans or placing available funds into very liquid and secure, but low profitable state
securities1.

Only 12 of the analyzed 16 banks made loans to the agriculture and food processing sector in 2007 and in the 3rd quarter of 20082.
Eurocreditbank, Universalbank, Investprivatbank and Comertbank are the four banks that apparently did not operate in this sector at all. The
most active in this sector is the Moldova-Agroindbank (MAIB), that provided almost half of the all agribusiness sector bank loans in 2007
(1.18 billion lei or 43.8% of all loans). All of the rest are far behind, with the second, Moldindconbank, with only 320.8 million lei or 11.9%
in total bank loans to the agribusiness sector (Table 3, column 11). This denotes low interest from banks in providing loans to this sector.

1
As table 1 shows, inter-bank loans are second only to industry/trade loans in banks’ preferences for lending, with almost 14% of all loans issued in 2007.
2
For 2008 latest available data for the third quarter of 2008 were used, as those for the whole year are not available yet.
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Table 3: Agriculture and food processing industry loans issued by bank:
Total, 2007
Number of granted Average loan amount, Average interest rate,
loans Amount of granted loans (thousand lei) thou. lei %
No as % in total loans issued by as % of each
Type of loan bank in total
. each bank
agric.&food
in lei & in lei & industry loans loans in
in foreign in foreign foreign in foreign foreign loans, agr. in foreign issued in foreign
in lei currency in lei currency currency in lei currency currency amounts in lei currency lei currency
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1 EuroCreditBank 0 0 0 0 0 0,0% 0,0% 0,0% 0,0% - - - -

2 Mobiasbanca 63 15 55.816 86.430 142.246 3,8% 11,6% 6,4% 5,3% 886 5.762 18,7% 10,3%

3 FinComBank 227 16 111.590 16.483 128.073 9,9% 3,2% 7,8% 4,7% 492 1.030 19,1% 10,9%

4 ProCreditBank Data not available

5 BCR Chisinau 6 0 23.404 0 23.404 6,6% 0,0% 1,4% 0,9% 3.901 19,7%

6 Energbank 58 19 117.208 27.317 144.526 19,5% 9,9% 16,5% 5,4% 2.021 1.438 17,5% 10,2%

7 Universalbank 0 0 0 0 0 0,0% 0,0% 0,0% 0,0% - - - -

8 Unibank Data not available

9 Comertbank 0 0 0 0 0 0,0% 0,0% 0,0% 0,0% - - - -

10 Banca Sociala 231 51 133.841 98.526 232.367 15,8% 19,6% 17,2% 8,6% 579 1.932 20,1% 11,1%

11 Moldindconbank 193 25 191.384 129.448 320.832 10,5% 11,5% 10,9% 11,9% 992 5.178 17,8% 11,2%

12 Eximbank 53 22 73.268 87.204 160.472 6,4% 5,3% 5,7% 5,9% 1.382 3.964 16,4% 10,5%

13 Banca de Economii 111 2 138.857 3.698 142.555 8,4% 0,8% 6,7% 5,3% 1.251 1.849 18,1% 11,0%

14 Investprivatbank 0 0 0 0 0 0,0% 0,0% 0,0% 0,0% - - - -

15 Moldova-Agroindbank 846 54 579.536 601.849 1.181.385 19,7% 23,2% 21,3% 43,8% 685 11.145 18,4% 10,3%

16 Victoriabank 74 10 140.730 81.336 222.066 2,8% 3,2% 2,9% 8,2% 1.902 8.134 18,7% 10,0%

Total 1.862 214 1.565.634 1.132.291 2.697.925 8,6% 9,4% 8,9% 100,0% 841 5291 18,4% 10,6%

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Despite the fact that there is fierce competition among banks for acquiring greater market share, especially among the banks from “the big
six” (banks with assets of 3 billion lei and more: Moldova-Agroindbank, Victoriabank, Moldindconbank, Mobiasbanca, Banca de Economii
and Eximbank) it seems that only Moldova-Agroindbank, and to a lesser extent Moldinconbank regard this sector as a potential source for
their growth. Moldova-Agroindbank is the leader with 19.7% and 23.2% of all loan value issued to the sector in lei and foreign currency,
respectively, or 21.3% on aggregate (in both lei and in foreign currency). Moldindconbank provided 10.5% and 11.5% of all issued loans in
lei and foreign currency to agriculture and food industry in 2007, or 10.9% on aggregate. All of the rest have issued on aggregate far less
than 10% of their loans to this sector (Table 3, column 10). One factor limiting the level of loans to the sector is the National Bank of
Moldova regulations that limit single sector concentration at 25% of total loan portfolio. However, as noted above only Moldova-
Agroindbank approaches that limit for the agriculture and food processing sector.

Of the smaller banks, only Banca Sociala and Energbank issued on aggregate more than 15% of their total loans to the agriculture and food
processing sector, while others were all less than 10%. (There are no data for 2007 for Procredit Bank and Unibank, but these are among the
smallest banks and cannot add much optimism to the generally bleak conclusion that the Moldovan banking sector provides very limited
credit support to this sector).

However, Procredit Bank is the absolute leader in the number of loans provided to small-scale borrowers in the agriculture and food
processing sector, having issued in the 3rd quarter of 2008 almost 37% of loans by number to that industry from the total of all 16 banks. This
bank has also the smallest average loan size (21 thousand lei and 1.24 million lei) and accordingly, provides better accessibility for small-
scale borrowers. However, interest rates are the highest as well (26% for credits in lei and 14.4% for those in foreign currency, on average)
(Table 4, columns 21, 22).

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Table 4: Agriculture and food processing industry loans issued by bank: 3rd quarter 2008 as compared to 3rd quarter 2007
Increase (+)/decrease (-) 3rd quarter 2008 to 3rd quarter
3rd quarter, 2007 3rd quarter, 2008 2007
in the in the
Number of Number of number of average
granted Average loan Average interest granted Amount of granted loans (thousand Average loan Average interest granted in the amount of granted loans interest
loans Amount of granted loans (thou. lei) amount, thou. lei rate, % loans lei) amount, thou. lei rate, % loans (thou. lei) rate, %
N
Type of credit as % of the
o.
as % of the total as % of the total total
loans
in in in in in
foreig foreig foreig foreig foreig
n in in in loans loans in n in in in loans loans in n in n n
curre foreign foreign foreign issued in foreign curre foreign foreign foreign issued in foreign curre foreign curre loans curre
in lei ncy in lei currency in lei currency in lei currency lei currency in lei ncy in lei currency in lei currency in lei currency lei currency in lei ncy in lei currency in lei ncy in lei ncy

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

1 EuroCreditBank 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - -

-
2 Mobiasbanca 8 3 2.793 32.968 0,8% 24,1% 349 10.989 18,5% 8,3% 9 16 1.724 28.390 0,4% 4,2% 192 1.774 21,7% 11,5% 1 13 -1.069 -4.578 -0,4% 19,8% 3,2% 3,2%

3 FinComBank 32 1 14.870 863 6,5% 0,7% 465 863 18,8% 10,4% 49 8 41.312 5.891 22,1% 7,2% 843 736 18,7% 12,3% 17 7 26.442 5.029 15,6% 6,6% -0,1% 1,9%

4 ProCreditBank Data not available 347 2 7.298 2.485 6,7% 14,8% 21 1.243 26,0% 14,4%
11,0
5 BCR Chisinau 0 0 8.763 0 8,5% 0,0% 19,0% 1 0 10.253 295 10,7% 0,1% 10.253 22,1% 11,0% 1 0 1.490 295 2,1% 0,1% 3,1% %
6 Energbank 18 5 23.452 11.722 13,7% 16,4% 1.303 2.344 17,3% 9,9% 25 28 31.651 5.784 31,6% 15,1% 1.266 207 21,3% 11,2% 7 23 8.199 -5.938 17,9% -1,3% 4,1% 1,2%

7 Universalbank 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - -

8 Unibank Data not available 11 0 7.896 0 7,4% 0,0% 718 22,1%

9 Comertbank 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - -

10 Banca Sociala 42 15 44.226 29.437 18,2% 16,7% 1.053 1.962 19,3% 11,6% 115 19 33.074 12.470 19,3% 22,1% 288 656 22,8% 13,8% 73 4 -11.152 -16.967 1,2% 5,4% 3,6% 2,2%

11 Moldindconbank 27 11 49.814 69.825 9,3% 18,7% 1.845 6.348 15,7% 10,9% 49 12 38.378 27.642 8,9% 13,4% 783 2.304 21,0% 12,5% 22 1 -11.436 -42.183 -0,4% -5,3% 5,3% 1,7%
12 Eximbank 11 7 21.441 41.945 7,7% 6,4% 1.949 5.992 15,3% 10,8% 13 6 43.536 19.211 8,1% 3,5% 3.349 3.202 25,3% 13,8% 2 -1 22.095 -22.735 0,3% -3,0% 10,0% 3,0%

Banca de
13 Economii 27 1 31.757 1.191 7,9% 0,6% 1.176 1.191 18,0% 11,0% 18 2 39.870 9.422 11,5% 8,8% 2.215 4.711 21,0% 11,9% -9 1 8.113 8.231 3,6% 8,2% 3,0% 0,9%

14 Investprivatbank 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - - - - 0 0 0 0 0,0% 0,0% - -

Moldova-
15 Agroindbank 82 14 122.921 232.384 17,9% 30,5% 1.499 16.599 17,6% 10,6% 176 16 138.010 272.494 18,6% 39,2% 784 17.031 20,0% 11,7% 94 2 15.089 40.110 0,7% 8,7% 2,4% 1,1%

16 Victoriabank 19 8 27.913 44.112 2,8% 7,0% 1.469 5.514 18,9% 10,4% 26 5 60.387 43.540 9,7% 7,3% 2.323 8.708 21,8% 12,5% 7 -3 32.474 -572 6,9% 0,3% 2,9% 2,2%

Total 266 65 347.950 464.447 8,2% 12,9% 1308 7145 17,8% 10,4% 839 114 453.389 427.625 10,2% 12,7% 540 3751 22,0% 12,4% 573 49 105.439 -36.823 2,0% -0,2% 4,1% 2,0%

The question of access to credit is another important issue derived from the analysis. A review of the general picture (Table 1) and for each
bank in particular (Table 3), indicates that banks prefer big borrowers, and respectively one can conclude that large-scale companies have
easier access to bank credit than do smaller-scale companies and individual growers. Moldova-Agroindbank, which is the absolute leader
and most active in the sector judging by absolute figures in amounts of loans issued, turns out to be interested primarily in large loans, with

6
an average of 685 thousand lei (approx. $65 thousand) for loans valued in lei and 11.15 million lei (approx. $1.07 million) for loans valued
in foreign currency for each loan issued in 2007. Clearly, such amounts for a single loan are accessible only to medium and large-scale
businesses, while micro and smaller-scale businesses usually cannot use more than $50 thousand.

The aggregate average figure of loans issued by all banks to the agriculture and food processing industry is even larger: 841 thousand lei
(approx. $81 thousand) for loans in lei and 5.3 million lei (approx. $508 thousand) for loans in foreign currency (Table 3). Only Procredit
Bank, and to some extent Banca Sociala and Fincombank, have average loan sizes for the agriculture and food processing sector that can fit
into the category of small loans (Tables 3 and 4). That testifies to the fact that competition in the bank sector is today for the “big pie”, i.e.
big agribusinesses, while the micro and small businesses niche in that sector is largely ignored by commercial banks.

One more issue pertaining to the question of access to loans relates to the cost of loans. According to Moldovan bank regulations, credit
denominated in foreign currencies can only be made for payments outside Moldova, i.e. for imports. In that situation, clearly, only big
companies that import can benefit from lower interest rates on loans in foreign currencies (average of 12.4% in 2008, while small businesses
are compelled to take loans in MDL at 20% to 26% interest rates Table 4, col. 21, 22). This also stimulates imports to the detriment of local
production. In looking also at the latest evolution of bank interest rates (3rd quarter 2008) one can also conclude that average interest rate for
bank loans to agriculture and food processing industry (22.0%) is lower only than loans for transportation (22.2%) and consumer loans
(22.7%) (Table 5).

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Table 5: Loans issued by industry: Quarter 3, 2008 as compared to quarter 3, 2007, all 16 banks
Increase (+)/decrease (-) 3rd quarter 2008 to 3rd quarter
3rd quarter, 2007 3rd quarter, 2008 2007
in the in the
Average loan number of average
Number of Average loan Average interest Number of amount, Average interest granted in the amount of granted loans interest rate,
No granted loans Amount of granted loans (thou. lei) amount, thou. lei rate, % granted loans Amount of granted loans (thousand lei) thou. lei rate, % loans (thou. lei) %
Type of credit as % of the
.
as % of the total as % of the total total loans
in in in in in in in
foreig foreig foreig foreig foreig foreig foreig
n n loans loans in n n loans loans in n n n
curren in foreign in foreign curren issued foreign curren in foreign in foreign curren issued foreign curren in foreign curren loans curre
in lei cy in lei currency in lei currency in lei cy in lei currency in lei cy in lei currency in lei currency in lei cy in lei currency in lei cy in lei currency in lei cy in lei ncy

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Loans issued to
agriculture and
1 food industry 266 65 347.950 464.447 8,2% 12,9% 1.308 7.145 17,8% 10,4% 839 114 453.389 427.625 10,2% 12,7% 540 3.751 22,0% 12,4% 573 49 105.439 -36.823 2,0% -0,2% 4,1% 2,0%
Loans issued to
2 industry/trade 1.347 759 1.126.142 2.262.846 26,5% 63,0% 836 2.981 18,2% 11,2% 1.431 1.116 1.632.848 2.215.479 36,8% 65,8% 1.141 1.985 21,4% 13,1% 84 357 506.707 -47.367 10,3% 2,8% 3,2% 1,9%
Loans issued to
power engineering 17.42 19.31
3 and fuel industry 27 18 52.930 313.598 1,2% 8,7% 1.960 2 19,2% 11,3% 19 15 39.348 289.689 0,9% 8,6% 2.071 3 21,6% 12,7% -8 -3 -13.582 -23.909 -0,4% -0,1% 2,4% 1,4%
Loans issued for
road construction
4 and transportation 66 20 65.541 44.004 1,5% 1,2% 993 2.200 18,5% 11,5% 39 11 16.469 22.753 0,4% 0,7% 422 2.068 22,2% 12,2% -27 -9 -49.072 -21.252 -1,2% -0,5% 3,7% 0,8%
Loans for real 10.45
5 estate 604 20 396.189 209.137 9,3% 5,8% 656 7 16,2% 10,8% 589 40 614.186 164.155 13,8% 4,9% 1.043 4.104 20,8% 13,0% -15 20 217.997 -44.982 4,5% -0,9% 4,6% 2,3%
6Consumer loans 37.454 49 876.645 6.985 20,6% 0,2% 23 143 19,3% 10,7% 40.413 70 719.101 3.341 16,2% 0,1% 18 48 22,7% 16,1% 2.959 21 -157.544 -3.644 -4,4% -0,1% 3,4% 5,4%
Loans issued to the
7 Government 7 0 2.870 0 0,1% 0,0% 410 19,6% 3 0 644 0 0,0% 0,0% 215 - 29,0% - -4 0 -2.225 0 -0,1% 0,0% 9,4% -
13.25 -
8Inter-bank loans 55 7 763.750 46.077 18,0% 1,3% 13.886 6.582 12,2% 5,7% 4 5 53.000 11.213 1,2% 0,3% 0 2.243 19,1% 8,1% -51 -2 -710.750 -34.864 16,8% -0,9% 6,9% 2,4%

9Other loans 1.548 167 622.265 247.410 14,6% 6,9% 402 1.481 19,3% 12,5% 1.663 291 913.191 235.252 20,6% 7,0% 549 808 22,8% 13,7% 115 124 290.926 -12.158 5,9% 0,1% 3,5% 1,2%

Total 41.374 1.105 4.254.281 3.594.504 100,0% 100,0% 963 6.725 18,2% 11,0% 45.000 1.662 4.442.176 3.369.506 100,0% 100,0% 873 5.211 21,8% 13,3% 3.626 557 187.895 -224.998 0,0% 0,0% 3,6% 2,3%
Note: total averages for columns 9 to 12, 19 to 22 and 29 to 30 do not include last three categories of loans

In conclusion, relegating the commercial agricultural sector to a credit rating similar to that of household loans, while preferring to invest
funds in low interest bearing inter-bank loans and state securities instead of economically productive activities, does not represent an
economic development policy approach conducive for promoting the commercial expansion of this important component of the rural
economy.

Ion Tornea
Agribusiness Development Advisor
ADP/CNFA December 12, 2008