Annual Report 2010 03 August 2011 - Banka Qendrore e ...

Annual Report 2010
CBK
from the current NPL level of 5.9 percent in 2010. 11 The growth of NPL was also combined
with the assumption of a decline of interest rates and depreciation of the Euro currency
against. 12 Consequently, it was assessed the impact of these three assumptions on the
banking system regulatory capital, risk-weighted assets and, eventually, on the Capital
Adequacy Ratio (CAR).
The results from this analysis indicate that under the abovementioned scenario, only one of
the banks (out of eight banks operating in Kosovo) would have problems with the
regulatory capital ratio, recording a lower than 12 percent CAR, while the necessary
amount for the recapitalization of this bank would reach at euro 1.5 million, or only 0.03
percent of GDP. For the banking system in general, the NPL to total loans ratio would
reach at 10.4 percent.
Considering the abovementioned results, it can be assessed that the banking system is
quite sustainable against possible deterioration in the loan portfolio quality. This is mainly
due to the sufficient ratio of provisioning against potential loan losses and the high capital
adequacy ratio in the sector in general (capital adequacy ratio was 18.7 percent in
December 2010). The system also appears to be sustainable against eventual changes of
interest rates and exchange rate. Predominantly fixed interest rates offered by banks for
loans and deposits make the sector less sensitive against the interest rate risk. Likewise,
since only less than 1 percent of total banking system assets is held on currencies other
than Euro, the exchange rate risk is only marginal.
ii. Stress-test results - liquidity risk
In assessing the banking system sensitivity against the liquidity risk, it is assumed a
withdrawal of deposits at the rate of 8 percent of total deposits on daily basis for a period of
5 consecutive days. The total amount of deposits withdrawn after 5 days would be
equivalent to 34 percent of total deposits in the banking system. Regarding the availability
of liquid assets to banks during this period, it is assumed that within a day banks would be
able to convert to cash 80 percent of liquid assets and 1 percent of non-liquid assets. It is
assumed that banks can use their reserves, but the possibility of financing through other
sources was excluded. Thus, through this scenario it was assessed the sufficiency of the
available liquid assets to the banking system to cope with such a withdrawal of deposits,
without having access to external financing.
Stress-test results suggest that under such hypothetic scenario, liquidity problems would
start to emerge after the third day, with only one of the banks facing liquidity shortage. The
necessary amount to fulfil the liquidity needs of this bank, under the considered
assumptions, would be euro 1.5 million (0.04 percent of GDP). After the fifth day, the
liquidity problems would appear in four banks. Total additional liquid assets, necessary to
overcome the liquidity problems, would reach at euro 24.1 million or 0.58 percent of GDP
(Table 7). After the fifth day, the loan to deposit ratio for the overall banking system would
reach at 113.3 percent (assuming that the level of loans remains unchanged).
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11 The assumed growth rate of NPL is defined by taking into account the average economic growth rate in Kosovo in the recent years, the assumption on the
economic decline of 1.6 percent in 2011 and the coefficient of elasticity between NPL and the output gap (0.8), which is based on an unpublished IMF study
titled “CESE Bank Loss Projection and Stress Testing Exercise”, July 2010.
12 For detailed information on the methodology, consult the Financial Stability Report, no. 1, page 53 – 54, CBK (2010).