Moldovan rule requiring central bank OK for bank ownership over 1% is temporary, says central bank governor

BUCHAREST (Reuters) - A rule that requires central bank approval for share ownership exceeding 1% in Moldovan banks is temporary and has worked, but could be lifted this year as the country seeks to boost capital markets, central bank Governor Anca Dragu said on Wednesday.

Credibility of Moldova, a small country of 2.6 million sandwiched between Ukraine and Romania, was badly damaged by a fraud scandal in which $1 billion disappeared from its banking system in 2014-15.

The rule on requiring central bank approval for having a stake over 1% in a bank was put in place as a temporary measure to improve transparency and governance in the wake of the theft of the $1 billion.

The central bank's former governor Octavian Armasu was dismissed late last year for failing to recover the missing funds, and was replaced with Dragu, an experienced economist who has previously served as Romania's finance minister.

"It is a tight, restrictive measure that is temporary until the central bank has the instruments in place to ensure the integrity of the banking system," Dragu told Reuters in an interview.

"I think we have all the reasons to believe ... the measure has worked and that its temporary deadline is coming due," she said on the sidelines of a financial conference in Romanian capital Bucharest.

Dragu said the bank was working with experts from the European Bank for Reconstructions and Development and the International Monetary Fund on legislation to enable it to remove hostile shareholders from the market.

The removal of the restrictive 1% rule would help a planned initial public offering on the Bucharest bourse of Moldova Agroindbank (MAIB), the country's largest bank.

Moldova, which applied for EU membership in 2022 and began accession negotiations in March, has seen its economy hurt by soaring energy prices and the fallout of Russia's war in Ukraine, including supporting tens of thousands of refugees.

Reduced reliance over the past two years on Russian gas, falling energy prices and other measures have helped bring inflation down dramatically from a peak of 34% in 2022 to 4.3% in February.

Since Dragu took over the bank at the start of the year, policymakers have cut the main policy rate twice to 3.75%.

Dragu said she expected inflation at 4-5% in 2024, well within the bank's target.

"At the moment, there are no inflationary pressures, nor do we expect any throughout this year. We see no pressure on monetary policy or inflation and we expect to remain at around these levels."

(Reporting by Luiza Ilie; Editing by Bernadette Baum)