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

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Number 3 Financial Stability Report According to the European Commission data, the highest credit growth rate was registered in Serbia (15.2 percent), Albania (10.2 percent), Kosovo (9.3 percent), Macedonia (8.2 percent), Bosnia and Herzegovina (5.1 percent), and Croatia (3.4 percent), while Montenegro reported a decline of 5.2 percent. Table 3. Annual growth rates of loans and deposits Description Albania B and H Croatia Macedonia Montenegro Serbia Kosovo Jun 2011 Jun 2012 Jun 2011 Jun 2012 Jun 2011 Jun 2012 Jun 2011 Jun 2012 Jun 2011 Jun 2012 Jun 2011 Jun 2012 Jun 2011 Jun 2012 Loans 10.3 10.2 4.8 5.1 6.5 3.4 7.8 8.2 -11.8 -5.2 17.3 15.2 15.7 9.3 Deposits 15.8 10.6 2.7 2.8 1.5 13.9 11.0 8.9 1.3 0.4 7.1 15.0 11.8 7.7 Source: European Commission, Third quarter report 2012; for Kosovo CBK data. Note: the average of first and second quarter is shown. Regarding the growth rate of deposits, Albania, Macedonia, Kosovo, and Montenegro reported slower growth rate, while Serbia and Croatia reported the highest growth rates (Table 3). SEE banking systems were characterized by a deterioration of loan portfolio quality during this period. In the first half of 2012, Albania, Serbia, Montenegro, and Bosnia and Herzegovina reported the highest rates of non-performing loans in the region, with 21.2, 19.5, 17.1 and 12.6 percent, respectively. Kosovo continues to have the lowest rate of non-performing loans, with only 6.5 percent in June 2012. 26 |
Financial Stability Report Number 3 4. The Economy of Kosovo Kosovo’s economy continues to be one of the economies with the highest growth rate in the region, though the growth rate in 2012 is expected to be lower than in the previous year. The main financing sources for the economic activity during the first half of the year have shown weaker performance, thus contributing to the slowdown of the economic growth (Figure 11). In this context, the deterioration of the performance of the global economy led to a decline of exports, Figure 11. Macroeconomic map GDP in eurozone (change in %) Inflation in eurozone foreign direct investments and remittances. Private sector activity continued to be supported by loans of the banking system, which also were characterized by a slower growth rate. On the other hand, the public sector continues to be the main driver of the economic activity through public expenditures, especially capital outlays, which are continuously recording positive growth rate. As a result of the high level of imports of goods from abroad, Kosovo’s economy continues to be characterized by a high trade deficit, which represents the main cause of the high current account deficit in the country. The decline of exports and the continuous growth of imports made the current account deficit continue growing in 2012. Kosovo’s economy this year is facing lower inflationary pressures compared to the previous year. Inflation in Kosovo has been highly volatile during the recent years, largely reflecting price developments in external markets, a correlation that derives from the heavy reliance of the country’s economy on imported goods from abroad. Despite the problems in the external sector, Kosovo’s economy continues to have fiscal sustainability. This fiscal sustainability is explained by the low level of public debt (5.8 percent of GDP in June 2012), and budget balance, which until June 2012 was characterized by surplus (0.5 percent of GDP). Inflation GDP in Kosovo (change in %) 20 15 10 5 0 -5 Current account deficit /GDP Exports/GDP FDI/GDP Government expenditures (change Loans (change in %) in %) Remitances/GDP 2011 2012(p) 4.1. Real Sector 4.1.1. Gross Domestic Product Economic developments in the first six months of 2012 suggest that the economic activity in Kosovo is continuously expanding but at a slower pace compared to the previous year. The slowdown of economic activity is mainly driven by the external sector developments, which are adversely affecting the level of exports, foreign direct investments and remittances. Also, the slowdown in the credit growth of the banking sector is contributing to the slowdown of consumption growth and private sector investments. The continuous expansion of public expenditures represents an important contributor to the expansion of economic activity in the country. The real economic growth rate in 2012 is projected to be | 27
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financial stability report - Banka Qendrore e RepublikÃ«s sÃ« KosovÃ«s

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