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

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Number 3 Financial Stability Report have a higher financing cost, especially in these times of economic and financial difficluties that developed countries are facing. Deposits continue to comprise about 80 percent of commercial banks liabilities, while loans account for 67 percent of total banking system assets. In June 2012, loan-to-deposit ratio stood at 83.2 percent, which slightly exceeds the level of 80 percent recommended by the Central Bank (Figure 44). However, figure 44 shows that the presence of seasonality is evident in the trend of this ratio. It is certain that during the last five years, the midyear was continuously characterized with higher levels of loan-to-deposit ratio which reversed back to the level recommended by the Central Bank in the remaining part of the year. This seasonality relates mainly to the faster growth rate of deposits during the second half of the year. Another important indicator for the level of liquidity in the banking system is the ratio between liquid assets and total assets. Although indicators on liquid assets had a slight decrease compared to June 2011, generally it is considered that the value of liquid assets in the Kosovo’s banking system is considerably high. In June 2012, ‘core’ liquid assets 5 accounted for 22.6 percent of total assets (24.3 percent in June 2011), while ‘broad’ liquid assets accounted for 28.9 percent of total assets (29.8 percent in June 2011). The decrease in the share of liquid assets to total assets is mainly attributed to the decrease in assets invested as placements by banks operating in Kosovo in banks abroad. In June 2012, these placements accounted for 10 percent of total assets, or 2.8pp less compared to June 2011. Figure 44. Loans and deposits of the banking system, in millions of euros 2500 2000 1500 1000 500 0 2500 2000 1500 1000 500 0 JunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJun 2008 2009 2010 2011 2012 Loans Deposits Loans to deposit ratio (right axis) Source: CBK (2012) Figure 45. Liquid assets "broad"/short term liabilities Another important liquidity indicator is the ratio between liquid assets and short-term liabilities 6 (Figure 45). The ratio of ‘core’ liquid assets to short-term liabilities was 28.3 percent in June 2012 (31.1 percent in June 2011), while the ratio of ‘broad’ liquid assets to short-term liabilities was 36.2 percent (38.1 percent in June 2011). Although a decline has been noted in these indicators compared to the previous year, current levels are considered 40.5% 38.1% June 2010 June 2011 June 2012 Liquid assets 'Broad' Short-term liabilities Liquid assets' Broad' / Short-term liabilities Source: CBK (2012) 36.2% 88% 86% 84% 82% 80% 78% 76% 74% 72% 70% 68% 66% 41% 40% 39% 38% 37% 36% 5 ‘Core’ liquid assets include cash and balances with CBK, and current account in other banks and placements in other banks with a maturity of up to 90 days. ‘Broad’ liquid assets include core marketable as well as trading assets and securities with maturity of up tok 90 days. 6 Short-term liabilities include deposits, short-term borrowings and other liabilities with a maturity of up to one year. 48 |
Financial Stability Report Number 3 to be high and satisfactory in terms of preserving the ability of the system to cope with potential liquidity risk. Not only the satisfactory levels of the abovementioned indicators, but as well the content of liquid assets shows that banks consistently were prudent with respect to the investment structure. Investments in securities represent 8.1 percent of total assets of the banking system, and in addition to investments in foreign markets a part of them is now invested also in Kosovo. Banks’ investments in external markets are mainly focussed in investments that are considered as more secure, both in the context of the type of financial product as well as the country where the funds are invested. The structure of bank investments in securities is focused on three main categories: government bonds, financial corporations bonds and non-financial corporations bonds. With respect to investment countries, banks are essentially oriented in Figure 46. Structure of securities, in percent governements securities of those 120% 250 countries that have higher 100% 200 financial stability, such as: 80% 150 Germany, France, Austria and 60% 100 United States. 40% Assets invested in foreign markets maintained the structure of the 0% 0 last three years (initiated in late 2007 2008 2009 2010 2011 2012 2009), where the major share is Securities (right axis) Government of Kosovo invested in government bonds and Foreign governments Financial corporations Nonfinancial corporations less is invested in financial corporations bonds (Figure 46). In Source: CBK (2012) June 2012, 76.1 percent of securities consisted of bonds issued by foreign governments, and 10 percent of financial corporatations bonds. Contrarily to the previous years, when a very small share of assets invested in securities were also invested in non-financial corporations bonds (an average of 0.5 percent of total investments in securities), during 2012 banks had almost no investments in these bonds. Since the beginning of 2012, in addition to foreign markets, banks in Kosovo have an additional option for investments, i.e. in Kosovo’s government treasury bills. This new opportunity is being appreciated by banks operating in Kosovo. In June 2012, 13.8 percent of assets invested in securities were comprised of tresuary bills issued by the Kosovo’s Government (Figure 46). 20% 350 300 250 200 150 100 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Figure 47. Banking system reserves, in millions of euro With such a structure of 50 investments in securities, mainly 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 in government bonds which are considered of low risk, the Required reserves Balance with CBK Cash Total reserves exposure of commercial banks in Kosovo to liquidity risk is Source: CBK (2012) minimized. However, concerning the profitability, lower risk implies also a lower return, 50 | 49
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