Number 3 Financial Stability Report 10 |
Financial Stability Report Number 3 1. Foreword Kosovo's economy continues to maintain a positive growth rate and solid macroeconomic <strong>stability</strong>, particularly in the fiscal and <strong>financial</strong> areas. Despite the growing risks from the external sector, Kosovo’s economy is expected to record positive growth in 2012. Nevertheless, as an open economy, Kosovo’s economy has not remained unaffected by the crisis which is being faced by developed economies, especially those of the euro area. The economic growth rate in Kosovo, albeit positive, is expected to be lower compared to the previous periods. The risks comming from the Eurozone crisis are being reflected mainly through the negative impact on the external demand for Kosovo’s products (even though the level of exports is already low), the slight negative impact on remittances, and through a more pronounced impact on the foreign direct investments. Kosovo's <strong>financial</strong> sector has continued to expand its activity, thus reflecting high levels of <strong>stability</strong> in all its constituent parts. The banking system, as the core component of the <strong>financial</strong> sector, continued to maintain a satisfactory liquidity position, high capitalization level and high quality loan portfolio, despite the slight increase of non-performing loans to total loans ratio. Banking system activity has continued to expand, but at a slower pace both with regard to loans and deposits growth. This slowdown is related to the decelerated growth trend of the overall country’s economic activity, as well as the tightened credit measures employed by banks in the wake of the increased risks at the global economic level. The Central Bank of the Republic of Kosovo continues to closely follow the developments in the <strong>financial</strong> sector, ensuring the achievement of its primary objective, namely ensuring country’s <strong>financial</strong> <strong>stability</strong>. Throughout this period, the supervisory activities have been adapted in line with developments in the <strong>financial</strong> sector and the economy in general, and special attention has been paid to the analysis of the potential risks that the country's economy, and thus the <strong>financial</strong> sector, could be faced with. The advancement of <strong>financial</strong> infrastructure has continued to be an important priority for our institution, thus resulting in a more favorable setting for <strong>financial</strong> sector efficiency and <strong>stability</strong> developments. The Financial Sector Assessment Program, conducted jointly by the IMF and the World Bank, provides a strong basis for the classification of the state of our <strong>financial</strong> sector as sound, as well as for laying the path for further advancement of the system. The approval of the Law on Banks, Microfinance Institutions and Non-Bank Financial Institutions has led to the advancement of the principles of corporate governance in these institutions, whereas the operationalization of the Deposit Insurance Scheme this year has further enforced the citizens' trust in Kosovo’s banking system. Given the high level of <strong>stability</strong> of the Kosovo's <strong>financial</strong> sector, the positive prospects for the overall economic activity in the country, and the country’s economy need for further support from the <strong>financial</strong> sector, the Central Bank of the Republic of Kosovo encourages all <strong>financial</strong> institutions operating in Kosovo, especially lending institutions, to adjust their strategies in accordance with the Kosovo's economy conditions, and hence to continue the expansion of their activity based on the principles of sound <strong>financial</strong> practices. Gani Gërguri Governor | 11