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

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Number 3 Financial Stability Report 5. Financial Sector in Kosovo 5.1. General Characteristics Financial sector in Kosovo continued to be characterized by a satisfactory level of stability in 2012, while the overall financial sector assets marked a slowdown in the growth trend. By June 2012, the total financial sector assets amounted to euro 4.8 billion, reflecting a slowdown to 4.8 percent in June 2012, from 13.2 percent in June 2011. While commercial bank assets continued to dominate the structure of Figure 17. Structure of assets of the financial system by sector 0.2 4.1 3.1 16.7 June 2011 financial sector assets with 74.6 percent of total assets in June 2012, the slowdown of their growth trend has influenced the overall growth trend of financial sector assets. In June 2012, banking system assets recorded an annual increase of 6.0 percent, compared with the annual growth rate of 12.7 percent in the same period of the previous year. The second largest sector participating in total financial sector assets are pension funds which in June 2012 accounted for 18.6 percent of total assets (16.7 percent in June 2011) (Figure 17). The number of financial institutions in Kosovo’s financial sector has not shown any significant change recently. The number of commercial banks has remained unchanged, standing at eight (8) banks, while the insurance industry has 2 new companies increasing the total number of insurance companies to 13. Including 19 microfinance institutions, 36 financial auxiliaries and 2 pension funds, the country’s financial sector is comprised of 78 financial institutions (Table 4). 75.9 Commercial banks Insurance companies Microfinancial institutions Financial auxiliaries Pension funds Source: CBK (2012) 0.0 3.4 3.4 18.6 June 2012 74.6 Commercial banks Insurance companies Microfinancial institutions Financial auxiliaries Pension funds Table 4. Number of financial institutions Description June 2009 June 2010 June 2011 June 2012 Commercial banks 8 8 8 8 Insurance companies 11 11 11 13 Pension funds 2 2 2 2 Financial auxiliaries 28 29 32 36 Microfinance institutions 19 17 17 19 Source: CBK (2012) The value of Net Foreign Assets (NFA) 4 of the financial sector continued to grow in 2012, but the growth was slower compared to 2011. By June 2012, the value of NFA amounted to euro 2.08 billion, which represents an annual increase of 4.7 percent (14.7 percent in June 4 In this context, financial sector consists of Central Bank of the Republic of Kosovo and all financial institutions operating in Kosovo. 32 |

Financial Stability Report Number 3 2011) (Figure 18). In June 2012, the NFA of CBK amounted euro 1.1 milion, while commercial banks NFA and other financicial institutions NFA amounted to euro 434.5 and 532.4 milion, respectively. Claims on the external sector reached a value of euro 2.45 billion in June 2012, where the highest share is divided among deposits (60.4 percent) and securities (11.5 percent). Similar to the previous year, the CBK has increased investments in deposits against investments in securities, whereas commercial banks have increased their investments in securities against deposits. In June 2012, Figure 18. Net foreign assets by institutions , in millions of euro 1400 1200 1000 800 600 400 200 0 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun 2009 2010 2011 2012 NFA of the CBK NFA of other financial institutions Source: CBK (2012) NFA of commercial banks around 81.6 percent of the CBK claims on external sector consisted of investments in deposits (68.5 per cent in June 2011), and 4.0 percent were investments in securities (18.8 per cent in June 2011). At the same time, around 39.2 percent of commercial banks investments in the external sector were investments in deposits (44.2 percent in June 2011), while 32.0 percent of these investments consist of securities (32.4 percent in June 2011). Financial sector liabilities to the external sector amounted to euro 363.9 million in June 2012, an annual decline of 16.0 percent compared with the previous year. External sector liabilities primarily consist of loans that financial institutions operating in Kosovo obtained from the financial institutions operating abroad and non-resident deposits in banks operating in Kosovo. Hence, the decline of these loans by 32.8 percent and at the same time, the decline of non-resident deposits by 24.2 percent led to lower overall financial sector liabilities to the external sector. In June 2011, claims on net domestic sector amounted to euro 1.1 billion, which represents an increase of 25.8 percent compared to the same period of the previous year. Increased claims on net domestic sector mainly resulted from the reduction of government deposits by 8.2 percent in this period, and from the increased claims on the real sector by around 6.5 percent. | 33

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