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

Financial Stability ReportNumber 1continued to grow at a similar trend with previous periods. In June 2010, loans issued byKosovo’s banking sector reached at euro 1.4 billion, recording an annual growth rate of 9.6percent, while in June 2009 the annual growth rate of loans was 17.5 percent. Credittightening by the banking sector mostly affected loans to enterprises, which increased at avery low rate compared to previousperiods. In the first half of 2010,Figure 14. Strucutre of loans by sectorloans issued to enterprises recorded100%an annual growth rate of only 2.390%21.7% 21.9% 24.3%percent, compared to the growth rates29.1%80%of 13.9 percent and 38.5 percent in2009 and 2008, respectively. On the70%60%50%other hand, the growth rate of loans 40% 78.3% 78.1% 75.7% 70.9%30%issued to households seems not to20%have been affected. Loans issued to 10%0%households in June 2010 recorded anJune 2007 June 2008 June 2009 June 2010annual growth rate of 31.4 percent(30.4 percent in June 2009).Consequently, the share of loans toHouseholdsSource: CBK (2010)Enterprisesenterprises to total loans decreased at 70.9 percent (75.7 percent in June 2009), while loansto households increased their share at 29.1 percent (Figure 14).Reluctance of banks to expand lending to enterprises reflects banks' uncertainty about theperformance of this sector, which is characterized by a higher level of sensitivity todomestic and global economic developments. On the other hand, lending to households isperceived as less risky primarily because household revenues are considered to be morestable since a large proportion are employed by the public sector.The improvements in theperformance of global economy during2010 had a positive impact on theKosovo’s economy as well. Banks’perceptions on the economicenvironment in the country improved,which was expressed through ahigher rate of credit growth duringthis period compared to the end of2009. The growth rate of 9.6 percentin June 2010 is slightly higher thanthe growth rate of 8.9 percent inDecember 2009, showing a slightrecovery of the credit growth.Figure 15. Structure of loans by industry, inpercent100.0%80.0%60.0%40.0%20.0%0.0%June 2007 June 2008 June 2009 June 2010Other Trade Construction Manufacturing Mining AgricultureSource: CBK (2010)Moreover, the new loans issued during the first half of 2010 marked an annual increase of5.6 percent, compared to the amount of loans issued during the first half of 2009. Theincrease in the amount of new loans issued during this period is primarily attributed to theincrease of household loans, while credit tightening for enterprises remains present. Thecredit tightening for loans to enterprises might largely restrict investment potentials in thecountry, with negative consequences for the overall performance of the economy.The structure of loans extended to enterprises continues to be dominated by loans extendedto the services sector, which represent 67.1 percent of total loans to enterprises. Within| 31