Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

Financial Stability ReportNumber 1Rapid economic growth of developing countries was a key contributor to the increase ofcapital flows and the return of investors’ confidence in these countries. Despite the highcapital inflows, the currencies of developing countries and especially of China continue tobe undervalued.During 2009, lending activity in developed countries declined, while in early 2010 firstsigns of recovery showed up. During this period, increased activity is noticed also withregard to the bond markets. This development is attributed to the fact that credit growth bybanks is still insufficient to meet financing needs of enterprises, which are then directed tobond markets. This trend is more pronounced especially in the U.S., where bonds arewidely used as a source of finance. In the eurozone countries, bonds represent a lessimportant source of finance with banking loans having a much wider use.Improvements in the performance of the global economy during 2010 led to a decline ofbanking sector losses in many countries. According to IMF projections, potential losses foryear 2010 declined from USD 2.8 trillion to USD 2.3 trillion. Whereas, realized lossesduring the first half of 2010 were USD 1.5 trillion (Table 2; for the performance of bankinggroups operating in Kosovo see Box 1).Box 1. The performance of foreign banking groups operating in Kosovo 1During 2009, the global economy continued to face the consequences of the financial crisis. In 2009,financial systems of countries where the foreign banking groups that have subsidiaries in Kosovo arebased were characterized with slower growth, difficulties in securing financing and deterioration ofloan portfolio quality. During thisperiod, all banks shifted the focus fromthe expansion of the banking operationstowards the management of the crisis.Performance indicators for 2009 markeda decline for all banking groups includedin this analysis. The largest contributorsto the decline of performance werehigher costs for provisions for loan lossesthat are attributed to the deteriorationof quality in their loan portfolios.During the first half of 2010, theincrease in global economic activityPCB Group Raiffeisen International NLB Groupresulted in the improvement of thebanking sector performance in general.Source: Annual reports of the banking groupsThe financial crisis necessitated banks to be more conservative in managing their assets. In thisperiod, banks were focused on improving loan portfolio quality and therefore tighter criteria wereapplied regarding the expansion of lending activity. However, the performance of banking groupsoperating in Kosovo, in the first half of 2010 was different between groups. While RaiffeisenInternational recorded higher profits than in 2009, Procredit Group and NLB Group recorded losses.Procredit Group (Germany)Figure 3. Return on equity for the banking groups inpercentage40.0%35.0%30.0%25.0%20.0%15.0%10.0%5.0%0.0%-5.0%-10.0%2006 2007 2008 20091 Banking groups included in the analysis are: Procredit Group, Raiffeisen International and NLB Group.| 17