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

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Number 3 Financial Stability Report which consist of loans categorized as doubtful and loss, in June 2012 increased their share to 6.5 percent of total loans (5.9 percent in June 2011), thus representing the highest level of NPL since the establishment of the banking system in Kosovo (Figure 50). The increase of the NPL ratio reflects the increase of this ratio in the most of the banks that operate in Kosovo, but it should be noted that some banks have improved the Figure 51. Annual growth of total loans and NPL ratio of non-performing loans to total loans. The increasing ratio of 60% 51.5% non-performing loans to total 50% loans, besides the increase of the 40% 30% amount of non-performing loans, is 25.6% 27.3% 20% 20.7% also due to slower credit growth in 17.5% 15.7% general, which may even be 10% 9.7% 9.3% 0% considered as the key factor in the June 2009 June 2010 June 2011 June 2012 growth of non-performing loans. The NPL rate was not Growth rate of total loans Growth rate of NPL characterized with an acceleration of the growth trend itself but Source: CBK (2012) rather a lower growth rate compared with the previous year (Figure 51). In June 2012, the value of non-performing loans in the banking system amounted to euro 113.7 million, which represents an annual growth of 20.7 percent, while the annual growth of the amount of NPL in June 2011 was 51.5 percent. At the same time, the annual growth of total loans was 9.3 percent, which represents a significant slowdown when considering the growth rate of 15.7% percent in June 2011. Regarding the structure of NPL, loans classified as loss continue to comprise the largest part along with doubtful loans. During the previous year, a shift from doubtful loans to loss loans has been noted (Figure 52). In June 2012, 67 percent of NPL loans in the banking system were classified as loss loans. Figure 52. Structure of NPL, in percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 62.6% 61.5% 59.5% 37.4% 38.5% 40.5% Regarding the structure of NPL by Doubtful Loss sectors, increase of non-performing loans ratio has been noted in all Source: CBK (2012) sectors. Figure 53 indicates that the largest increase and also the highest level of NPL ratio to total loans of particular sectors was present in the manufacturing sector, where 13.5 percent of loans have been classified as NPL. Another significant increase in the share of NPL is also observed in the hotel services sector, where the share of NPL to total loans almost doubled (from 5.4 percent in June 2011 to 10.4 percent in June 2012). However, similar with the increase of the NPL ratio for the overall banking system, the increase of the NPL ration for the specific sectors also reflects the slower growth of total loans. 67.0% 33.0% June 2009 June 2010 June 2011 June 2012 52 |
Financial Stability Report Number 3 The two key sectors in terms of credit receiving remain trade and households. Hence, exposure and credit quality of these two sectors are key Figure 53. NPL by sectors 16.0% determinants of the quality of 14.0% 12.0% credit portfolio in the banking 10.0% 8.0% system overall. Figure 53 shows 6.0% that the most significant increase 4.0% of NPL remained in the trade 2.0% 0.0% sector, where 9 percent out of the total value of loans in this category were classified as NPL (6.4 percent in June 2011). Loans issued to households continue to have better quality, with only 2.5 percent being classified as non-performing June 2011 Source: CBK (2012) June 2012 (1.8 percent in June 2011). Low level of non-performing loans in the household sector suggests that Figure 54. NPL and Loan loss provisions 7% 140.0% the increased level of nonperforming 6% 135.1% 135.0% 135.0% loans in the banking system is mainly generated by loans issued to enterprises. 5% 4% 3% 130.0% 125.0% 120.0% 117.2% 117.3% Despite the growth of nonperforming 2% 115.0% loans, banks in Kosovo 1% 110.0% 0% 105.0% have continued to be cautious in June 2009 June 2010 June 2011 June 2012 maintaining the coverage of NPL by provisions for loan losses. The NPL/Total loans Provisions / NPL (right axis) value of assets dedicated to Source: CBK (2012) provisions continued to be higher compared with the total value of non-performing loans (Figure 54). In June 2012, provisions for loan losses exceeded the total value of loans classified as NPL for 17.3 percent, a level similar to June 2011. Box 4. Over‐indebtedness and loan performance of microcredit clients in Kosovo 8 Between April and October 2012, the European Fund for Southeast Europe (EFSE) conducted a study with the aim of assessing the indebtedness level of Kosovo’s financial sector clients and identifying the factors that may result in over-indebtedness of the borrowers. This study comprised a sample of 2,200 borrowers from nine financial institutions (commercial banks and microfinance institutions), with loans of euro 10.001 to euro 50.000 at disbursement. The study relies on the compilation of Credit Registry of Kosovo data and management information system data from financial institutions in the country. As a result of the reclassification of the microcredit loans in 2012 9 , the study was divided into two segments, where the first segment comprises clients with loans of euro 10.001 to euro 8 EFSE (2012), The Risk of Over-indebtedness of MSE Clients in Kosovo. 9 In April 2012, the new law on banks, microfinance institutions and non-bank financial institutions became effective. According to the new law, the microcredit loans comprise loans up to euro 25,000. | 53
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