financial stability report - Banka Qendrore e Republikës së Kosovës

Financial Stability Report
Number 3
1. Foreword
Kosovo's economy continues to maintain a positive growth rate and solid macroeconomic
stability, particularly in the fiscal and financial 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 financial sector has continued to expand its activity, thus reflecting high levels of
stability in all its constituent parts. The banking system, as the core component of the
financial 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 financial sector, ensuring the achievement of its primary objective, namely ensuring
country’s financial stability. Throughout this period, the supervisory activities have been
adapted in line with developments in the financial 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 financial sector, could be faced with. The advancement of financial
infrastructure has continued to be an important priority for our institution, thus resulting
in a more favorable setting for financial sector efficiency and stability 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 financial 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 stability of the Kosovo's financial sector, the positive prospects for
the overall economic activity in the country, and the country’s economy need for further
support from the financial sector, the Central Bank of the Republic of Kosovo encourages
all financial 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 financial practices.
Gani Gërguri
Governor
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