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

More documents

Recommendations

Info

Number 3 Financial Stability Report 25.000 at disbursement, i.e. loans classified as micro-loans. The second segment comprises clients with loans amounting from euro 25.001 to euro 50.000 at disbursement. Given that the results of the study indicated a similar debt level and borrowing structure in both segments, the results of this analysis will be presented as the average of the two segments, with the exception in cases where the differences between the segments are considered as significant. Of the total number of clients involved in this study, 96.5 percent were clients of the banking system, while the remaining were microfinance institutions clients. Regarding the type of credit represented in this study, loans comprised the highest share in the sample (60 percent), followed by overdrafts (20 percent) and credit cards (13 percent). In the study, the debt level was calculated through the information about household and business net income against the monthly debt payments by the respective clients. The findings suggest that about 30 percent of the clients involved in this study (households and businesses) appear close to being overloaded with debt. The study provides a clear picture of the level of over-indebtedness for households and businesses separately. Regarding households, the index of over-indebtedness appears to be around 35 percent 10 , while for businesses this index is slightly above 30 percent 11 . However, the study suggests that there is no correlation between the indebtedness level and the loan repayment performance of clients in Kosovo. The report shows that about 61 percent of clients involved in the study have been engaged in multiple borrowing (more than one active credit contract), while 39 percent of customers reported only one active contract credit. On average, customers in this sample had 2.3 active credit contracts. It should be noted that clients engaged in multiple borrowing were mostly categorized in the second segment (loans up to euro 25,001 to euro 50,000). This may occur because customers belonging in the second segment appear to have more problems in loan repayment thus they might consider new credit contracts as a potential solution for debt repayment. The findings of the study indicate that over-indebtedness appears to be more present for the clients who use cross-borrowing (loans from several financial institutions at the same time). On average, it is found that one customer uses loans from 1.5 financial institutions at the same time. About 37.5 percent of clients involved in the study claimed to have active credit contracts from several financial institutions. Cross-borrowing was more pronounced among banks (95 percent of clients), while only 2 percent of clients in the sample reported cross-borrowing from the banks and microfinance institutions. Also, an exceptional attention in this study was given to other liabilities category, given that about 41.5 percent of clients have resulted to be co-debtors or guarantors for other borrowers. The study shows that about 34 percent of clients have been a guarantor for other borrowers while 12 percent of customers were co-debtors. Tendency to engage in more than one active credit contract is found to have had a positive correlation with the guarantees provided for other borrowers. The findings of the study indicate that customers who had guaranteed loans which experienced delays in monthly payments tended to have problems in repaying their own loans. The findings of this study also suggest that the majority of clients (about 89.7 percent) were characterized with a good repayment performance, managing to make their monthly repayment on time or within 30 days, while 10.3 percent of the clients experienced a delay of 30 days or more. Clients that were classified in the second segment proved to have a worse repayment performance (11.9 percent of clients) compared with the first segment clients (8.6 percent). The repayment performance proved to be poorer also for clients who have been engaged in multiple borrowing contracts as well as clients who cross borrowed from several financial institutions. Moreover, experienced borrowers have shown a tendency of being less disciplined in repaying their loan on time. While only 5 percent of clients who had taken loans for the first time had declared a delay of more than 30 days, about 11 percent of clients who borrowed in the past were characterized with delays in 10 Monthly debt repayments / net household income. 11 Monthly debt repayments / net income of the businesses. 54 |
Financial Stability Report Number 3 monthly repayments. Also, clients approaching the maturity of the loan resulted less disciplined according to the study. The tendency for a poorer repayment performance in the case when loans drew closer to maturity might be due, among others, to the inadequate assessment of the expected performance of the borrower by the lending institutions when the loan was issued, or the unforeseen circumstances which may affect the performance of the borrower. It is worth noting that delays were more pronounced in loans issued by microfinance institutions compared to the banking system loans. Although the debt level is not considered to be problematic in the case of Kosovo, it is crucial that lending institutions should pay attention particularly to the aspects that may lead to overindebtedness. In this context, particular attention is required by financial institutions for the phenomena of cross-borrowing. Moreover, it is evident that multiple borrowing as well as the participation as co-debtor or guarantors may result in a worsening of the repayment performance. In this context, in addition to an increased attention during the approval of loans to clients engaged in more than one credit contracts, it is very important that lending institutions pay special attention to the education of their customers about the potential consequences in engaging into other liabilities such as guarantees and co-debts. 6.4.2.1 Concentration of credit risk To analyze the concentration of credit risk, we have taken into account the ratio between large credit exposures and Tier 1 capital. According to the CBK regulations, loans that exceed 10 percent of Tier 1 capital are classified as large exposures. It is worth noting that these borrowings, except loans and overdrafts (considered as direct exposures), also include indirect exposures such as guarantees, unused commitments and credit letters. This indicator enables the identification of potential risks to the banking system (or even for individual banks in particular) arising from the large credit exposures to a certain number of borrowers. The increase of large exposures can be seen as increase of credit risk, since in this case the banking system is more sensitive to the quality of certain loans, especially the ones which have significant weight in the credit portfolio of banks. In June 2012, the amount of large exposures of the banking system amounted to euro 182.7 million, which represents an annual growth of 38.7 percent, while Tier 1 capital increased by 7 percent. As a result, the ratio of Figure 55. Concentration of credit risk 300 250 72.0% 80% 70% 60% large exposures to Tier 1 capital 200 55.6% 50% 41.2% reached at 72.0 percent, from 55.6 150 39.9% 40% percent in June 2011 (Figure 55). 100 30% 20% Despite the increase of 50 10% concentration of credit risk 0 0% recently, it should be noted that in June 2009 June 2010 June 2011 June 2012 the same period the number of large exposures increased, indicating that concentration of credit risk was scattered among Overall large exposures Source:CBK (2012) Tier 1 capital Large exposures to Tier 1 capital (right axis) more borrowers. Until June 2011, the number of large exposures was 41, whereas in June 2012 their number increased to 54 which consequently led to the growth of large exposures ratio to Tier 1 capital. In milions of euros The quality of loans which are considered as large exposures will directly threaten the stability of the banking system; therefore in the stress-test analysis on the banking system we have examined such scenarios in order to test the sensitivity of the system against a | 55
Page 1 and 2:
BANKA QENDRORE E REPUBLIKES SË KOS
Page 3 and 4:
Financial Stability Report Number 3
Page 5 and 6: Financial Stability Report Number 3
Page 55: Financial Stability Report Number 3
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
show all

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?