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

Number 1Financial Stability ReportThe low level of linkage among financial institutions is also observed in terms of theownership structure of these institutions. Based on the shareholders’ structure of financialinstitutions operating in Kosovo, only three cases were identified where individuals hadshares both in commercial banks and insurance companies.The low level of interdependence between financial institutions operating in Kosovo impliesa low level of potential systemic risk in the financial sector. In other words, financialdifficulties in one sector are not likely to have a substantial impact on other sectors.However, given the good performance and stability that financial institutions that operatein Kosovo have demonstrated, an increased interaction between them would contribute to amore rapid expansion of their activity, without posing substantial increase of risk for thestability of the financial sector.6. Banking Sector6.1. General characteristics of the banking sector28 |The structure of the banking sector with regard to the number and the ownership of banksin June 2010 was similar to the same period of the previous year. In this period, Kosovo'sbanking sector consisted of eight commercial banks, of which six were foreign-owned andtwo domestically-owned (Figure 12). The dominance of foreign-owned banks in the bankingsector is expressed also by the largeshare of the assets of these banks tototal banking sector assets. In June2010, foreign-owned bank assetsrepresented 89.8 percent of totalbanking sector assets, whiledomestically-owned banks accountedfor the remaining 10.2 percent.Figure 12. Number of banks and ownershipstructure108642Commercial banks continued to00June 2007 June 2008 June 2009 June 2010expand their infrastructure, thusDomestic bankscreating conditions for easier access ofForeign banksclients to banking services. However,Foreign banks assets/total assets, in % (right axis)the slowdown of intermediation Source: CBK (2010)activity that began in 2009 andcontinued during 2010 had a negative impact on banking sector income. As a consequence,banks were pushed to take measures for reducing their expenditures, causing a slowdownof banking sector network expansion (Table 2). In June 2010, Kosovo’s banking sector had296 branches and sub-branches, which is shows an expansion by only 7 units since June2009. A slower trend of expansion was observed also with regard to the number ofAutomated Telles Machines (ATM) and Points of Sale (POS) installed during this period.Despite the recent slowdown, Kosovo appears to compare well with other region countrieswith regard to the the scope of banking sector infrastructure. The number of bank branchesper 1000km 2 in Kosovo stands at 26.8, while the average for the region in 23.8. Similarly,the number of ATM per 1000km 2 in Kosovo is equivalent to the average for the region,which in 2009 was 38. Among measures taken by commercial banks to reduce expenditures242 2 26 6 610080604020