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

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Number 3 Financial Stability Report Provisions aimed at covering potential loan losses are another non-interest expense category that continued to rise. In June 2012, expenses for provision amounted to euro 27.5 million, marking an annual increase of 39.5 percent. The increased provision expenses are attributed mainly to the increase of non-performing loans in the banking system over the observed period, which led banks to allocate additional funds for covering potential losses. General and administrative expenses remain the prevailing category of the total banking system expenses (44.5 percent of total expenses in June 2012), although all the items in this category followed a decelerating growth trend (Figure 41). Compared to June 2011, personnel costs recorded a slower growth, which was mainly due to the Figure 40. Annual growth rate of expenditures by category, in percent 120% 100% 80% 60% 40% 20% 0% -20% -40% -60% 100% 80% 60% 40% 20% Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun 2009 2010 2011 2012 Source: CBK (2012) 0% Deposit interest rate Provisions General and administrative expenditures Figure 41. Structure of expenditures by category, in percent 53.2% 50.3% 46.9% 44.5% banking system employee growth slowdown. Specifically, personnel costs rose by 3.5 percent in June 2012 as opposed to 8.9 percent in June 2011. 19.3% 27.4% 15.8% 24.4% 28.2% 33.9% 28.8% 27.3% June 2009 June 2010 June 2011 June 2012 General and administrative expenditures Non-interest expenditures Iterest expenditures Source: CBK (2012) 6.3.2. Banking system Profitability and Efficiency Figure 42. Profitability indicators Net profit reduction impacted the 18 16.0% 14.8% 16 deterioration of banking system 14.0% 14 12.8% 12.9% 12.0% profitability indicators such as 12 10.0% Return on Average Assets (ROAA) 10 8.1% 8.0% and Return on Average Equity 8 6.0% 6 (ROAE). In June 2012, ROAA 4 4.0% declined to 0.8 percent from 1.2 1.3% 1.5% 1.2% 0.8% 2 2.0% percent in June 2011 (Figure 42). 0 0.0% ROAE declined likewise, dropping June 2009 June 2010 June 2011 June 2012 to 8.1 percent from 12.9 percent in June 2011. The more rapid expenditure than Profit Source: CBK (2012) ROAA (right axis) ROAE (right axis) revenue growth has resulted in the deterioration of efficiency indicators for the banking system. The cost to income ratio increased to 89.9 percent in June 2012 from 85.4 percent in June 2011 (Figure 43). Nevertheless, the country’s banking system marked improvement in In millions of euro 46 |
Financial Stability Report Number 3 terms of revenues generation from Figure 43. Cost-to-income ratio, in percent its assets. This is shown by the ratio of income to total assets, 92% 89.9% which in June 2012 increased 90% slightly to 4.7 percent from 4.6 88% percent in June 2011. The asset 87.9% 86% growth slowdown led also to a 85.4% 84% lower average value of assets 82% managed by an employee, which 81.2% 80% stood at 4.4 percent in June 2012 78% as opposed to 7.3 percent in June 2011. On the other hand, the 76% June 2009 June 2010 June 2011 June 2012 average number of loans issued per employee rose by 22.9 percent in Source: CBK (2012) June 2012 compared to the annual growth of 21.8 percent in June 2011.In June 2012, Net Interest Margin (NIM) stood at 2.8 percent, marking a slight increase compared to the 2.7 percent level recorded in the previous year (Table 8). Table 8. Banking system efficiency indicator, in thousands of euros Description June 2009 june 2010 June 2011 June 2012 Assets/no. of employees Net profit/no. of employees Number of loans/no. of employees Net Interest Margin (in percent) 503.6 637.9 684.4 714.3 3.2 5.4 4.1 2.8 66.6 75.8 92.3 113.4 3.4 3.0 2.6 2.7 Source: CBK (2012) 6.4. Banking System Risks 6.4.1 Liquidity Risk The liquidity position in the Kosovo’s banking system remained satisfactory also during the first half of 2012. All the indicators on the liquidity of the banking system were maintained at a satisfactory level and in compliance with the CBK recommendations. The satisfactory level of liquidity was also confirmed by the stress-test analysis, whose results suggest that even in worst case scenarios of deposits withdrawals, the potential liquidity problems would be withstanded by the banking system and isolated in the individual banks. Given the liquidity indicators and the continuous sustainable growth of deposits in the banking system, which reflects the confidence of citizens in the system, the liquidity risk in the Kosovo banking system can be considered as low. The high level of liquid assets and the low exposure to liquidity risk is directly related to the structure of the Kosovo’s banking system activity which is based on traditional banking activities, with loans and deposits as main components of the system’s balance sheet. The high dependency on deposits as a key financing source offers banks a more stable source of financing and enables them to not rely on short-term funds, which are more volatile and | 47
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financial stability report - Banka Qendrore e RepublikÃ«s sÃ« KosovÃ«s

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