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

Number 1Financial Stability ReportTable 5. The structure of banking sector assetsJune 2007 June 2008 June 2009 June 2010DescriptionIn millions of euro In percent In millions of euro In percent In millions of euro In percent In millions of euro In percentCash and balances w ith CBK 152.8 12.4 184.5 11.5 241.9 12.6 268.1 12.1Balances w ith commercial banks 211.1 17.1 200.4 12.5 286.7 14.9 351.6 15.8Securities 46.6 3.8 43.4 2.7 34.1 1.8 114.0 5.1Loan and leasing 784.4 63.4 1089.7 68.1 1280.9 66.5 1404.6 63.3Fixed assets 23.1 1.9 33.4 2.1 40.1 2.1 42.6 1.9Other assets 18.6 1.5 48.2 3.0 43.5 2.3 37.8 1.7Total 1236.6 100% 1599.6 100% 1927.1 100% 2218.8 100%Source: CBK (2010)The activity of Kosovo’s banking sector continues to be concentrated in lending to thedomestic economy, with loans accounting for 63.3 percent of total banking sector assets inJune 2010 (Table 5). However,compared to the previous year, banksmarked a slowdown of lending to thedomestic economy, while increased theinvestments abroad, such as insecurities. As a consequence, the shareof loans to total assets in June 2010was lower by 3.2 pp compared to June2009, while a larger share of bankingsector assets allocated to investmentsin securities (3.4 pp). As a result,securities became the second largestcontributors to the growth rate of totalbanking sector assets (Figure 13).Figure 13. The contribution in asset growth bycategory30%20%10%0%-10%June 2007 June 2008 June 2009 June 2010Other assetsLoans and leasingBalances with commercial banksY-o-Y growth of assets (right axis)Source: CBK (2010)Fixed assetsSecuritiesCash and balances with CBKFollowing the decline that started in year 2008, in the first half of 2010 investments insecurities picked up again, reaching an amount of euro 114 million (euro 34.1 million inJune 2009). The decline of investments in securities in the previous period is mainlyattributed to the rapid expansion of banking sector loans during that period, whichprovided a higher rate of return to the banks due to the high interest rates prevailing in themarket. In addition, financial market turbulences during 2008 and 2009 increased thereluctance of banks to invest in securities abroad. However, the slowdown of credit growthduring the first half of 2010, together with improved conditions in the internationalfinancial markets during 2010, led to a sharp increase in investments in securities duringthis period. These developments suggest that banks shifted a part of their resources fromlending to the domestic economy towards investments in securities in the external sector.The structure of bank investments in securities consists primarily of investments ingovernment bonds, financial corporations and non-financial corporations.40%30%20%10%0%6.2.1.1 LoansThe decline of income from abroad and possible implications on economic growth raiseduncertainty over the capability of borrowers to repay their debts. This resulted in slowdownof credit growth, while the funding sources of commercial banks (mainly deposits)30 |