financial stability report - Banka Qendrore e RepublikÃ«s sÃ« KosovÃ«s

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Number 3 Financial Stability Report Kosovo's banking system continues to be characterized by a high degree of capitalization and capital quality. Capital adequacy ratio (CAR) remains at 17.2 percent, significantly exceeding the 12 percent minimum required by the CBK. Moreover, 60 percent of the total capital consists of the share capital. The indicated high level of capitalization and capital quality do point to the stability of Kosovo’s banking system and its satisfactory ability to cover potential losses from external shocks. In addition, the satisfactory sustainable position of the system is confirmed by stress-test analysis, the results of which show that the banking system in Kosovo, in general, would be able to cope with “extreme” scenarios of liquidity, credit, exchange rate, and interest rate risks. More specifically, the results suggest that Kosovo's banking system would be able to withstand high degrees of hypothetically instant deposit withdrawal rates, with the current level of liquidity. Additionally, due to the high level of capitalization, Kosovo's banking system appeared able to cope with the considerable potential increase in the level of non-performing loans, in which case the need for recapitalization would arise to only a few individual banks. On the other hand, the banking system's exposure to currency and interest rate risks continues to be marginal, due to the low presence of flexible interest rate loans and deposits and low level of foreign currency loans. The infrastructure of the existing banks, albeit with a slower growth trend of branches and sub-branches expansion, has continued its overall expansion - thus further increasing the quality and volume of banking services accessed by citizens and businesses. Significant contribution to the increased quantity and effectiveness of banking services has been made by the continuous expansion of the ATM network and POS devices, which enable payment processing at the points of sale. Although these services are growing at a fast pace, Kosovo lags behind in the level of development and usage of electronic banking services compared to the region. The development of the payment system has advanced in terms of both increased security and sustainability, as well as increased efficiency. The number and value of transactions processed through the Kosovo payment system has increased, along with the increased payment security and sustainability supervisory measures. The issuance of securities by the Government of the Republic of Kosovo, which commenced in January 2012 and for which the CBK acted as government’s fiscal agent, had a significant impact in increasing the number of transactions processed through the payment system. It also marked a significant increase in Kosovo’s financial sector stability and efficiency, thus setting the grounds for country’s capital market development. The CBK is also in the final stage of development of a more advanced payments’ system (RTGS system) which enables real-time settlement of urgent and systemic payments between banks and local government institutions, thereby reducing the potential risks from delays in settlements. Other Financial Institutions, which in June 2012 accounted for 25.4 percent of total financial sector assets, consist of pension funds, insurance companies, microfinance institutions and financial auxiliaries. Kosovo’s pension system assets, most of which are managed by the Kosovo Pension Savings Trust (KPST), marked an annual growth of 19.5 percent, amounting to 659.1 million euros. Most of these assets consist of investments in overseas shares, the price of which increased over the observed period, and of investments in overseas securities, which account for a significant share. In 2012, KPST invested 5 percent of its assets in the domestic market by placing deposits in commercial banks in Kosovo, thus increasing the money supply in the market. The assets of insurance companies also marked a significant increase of 16.3 percent, amounting to 120.2 million euro in June 2012. Nevertheless, their profit halved, falling to 0.6 million compared with 16 |
Financial Stability Report Number 3 1.2 million in June 2011. Participants in the microfinance industry increased during this period, reaching a number of 19 as opposed to 17 in June 2011. Despite this fact, the value of total sector assets decreased by 4.1 percent, mainly due to the reduction in the number of loans issued. The sector performance also deteriorated, recording a loss of 2.4 million euro as June 2012. In this edition of the Financial Stability Report, the practice of including thematic analyses that address specific topics of interest for the economy and the financial sector in the country and the region has been continued. The topics analyzed for this edition of the financial stability report include: 1. The Relationship between Banking Competition and Loan-Loss provisions, and 2. The Identification of Systemically Important Banks in Kosovo. | 17
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financial stability report - Banka Qendrore e RepublikÃ«s sÃ« KosovÃ«s

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