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

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<strong>Financial</strong> <strong>Stability</strong> <strong>Report</strong>Number 1production in Kosovo and the high dependence on imports. As a result of improvements inthe external sector during the first half of <strong>20</strong>10, positive developments were noticed in theeconomy of Kosovo as well. During this period, remittances increased by 1.4 percent andamounted at euro 225.8 million until June <strong>20</strong>10 (euro 222.8 until June <strong>20</strong>09), while FDIincreased by 13.0 percent amounting at euro 125.1 million (euro 117.7 million until June<strong>20</strong>09). Also, imports grew by 9.5 percent, amounting at euro 938.7 million, suggesting thatdomestic demand during this period increased compared to the same period of the last year.The most significant impact is observed in the volume of exports, which until June <strong>20</strong>10amounted at euro 141.7 million, representing an annual growth rate of 121.6 percent(Figure 8). The increase of exports is largely attributed to the export of base metals,representing 64.5 percent of total exports. Exports of base metals mostly consist of nickel(76 percent of base metal exports). High concentration of Kosovo’s exports on only fewproducts increases the sensitivity of the exports performance against external shocks, as ithappened during <strong>20</strong>09 when the export of base metals decreased by nearly 30 percent. Suchdevelopments, despite the low base of exports, might increase the vulnerability of theoverall performance of the economy.5. The <strong>Financial</strong> Sector in Kosovo5.1. General CharacteristicsIn June <strong>20</strong>10, financial sector assets amounted at euro 2.9 billion, recording an annualgrowth rate of 17.5 percent that is similar to the annual growth rate recorded in theprevious year (18.4 per cent in June <strong>20</strong>09), despite the lower growth rate of banking sectorassets, which represent the largest share of total financial sector assets. The annualincrease of insurance companies’ assets by 35.8 percent and pension funds’ assets by <strong>20</strong>.1percent, respectively, contributed significantly to the growth of financial sector assets in thefirst half of <strong>20</strong>10.Table 3. Number of financial institutionsSource: CBKDescription June <strong>20</strong>07 June <strong>20</strong>08 June <strong>20</strong>09 June <strong>20</strong>10Commercial banks 7 8 8 8Insurance companies 10 12 11 11Pension funds 2 2 2 2<strong>Financial</strong> auxiliaries 30 29 28 29Microfinance institutions 16 16 19 17The number of financial institutions operating in Kosovo in June <strong>20</strong>10 was 68, which issimilar to June <strong>20</strong>09, when the financial system consisted of 67 financial institutions.During this period, the Central Bank revoked the license of two microfinance institutions,while a new institution that acts as a financial auxiliary entered the market (Table 3).Banking sector continues to represent the largest sector within Kosovo’s financial sector,although its share to total financial sector assets recorded a slight decrease (Figure 9). InJune <strong>20</strong>10, banking sector assets amounted euro 2.2 billion, representing an annualincrease of 15.1 percent. However, since banking sector assets are mainly dominated by| 25

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