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

Financial Stability ReportNumber 1sources of income for the banking sector also consist of fees and commissions on bankingservices, which in the first half of the year generated 16.8 percent of total banking sectorrevenues.Since the beginning of thefunctioning of Kosovo’s bankingsystem, the first half of 2010represents the first period whenbanking sector expenditures recordeda decline (Figure 24). In June 2010,banking sector expenditures reachedat euro 83.8 million, marking anannual decline of 6.5 percent. Thereduction of banking sectorexpenditures mainly relied on thereduction of operating expenses inorder to maintain the efficiency of thesector. In this context, general andadministrative expenses of thebanking sector in June 2010 recorded an annual decline of 11.6 percent. Among theseexpenditures, a more pronounced reduction was observed in other non-interest expenseswhich decreased by 50 percent, while personnel expenditures rose by just 0.6 per cent (20.4percent in June 2009). Within non-interest expenses, the highest decline was noticed in theprovisions for loan losses, which inJune 2010 recorded an annual declineof 33.2 percent. The reduction of thesecosts has occurred despite the factthat the share of non-performingloans to total loans in June 2010 washigher than in June 2009. This isbecause the growth of non-performingloans has mainly taken place duringthe second half of 2009 and theprovisions for new non-performingloans were allocated during thatperiod. On the other hand, interestexpenditures recorded a higher level,Figure 24. The trend of banking sectorexpenditures, in percent100.050.00.0-50.0June 2007 June 2008 June 2009 June 2010Source: CBK (2010)Interest for depositsInterest for other borrowingProvisionsGeneral and administrative expendituresFigure 25. Structure of banking sectorexpenditures, in percent100%80%60%40%20%0%June 2007 June 2008 June 2009 June 2010Source: CBK (2010)General and Administrative expendituresNon-interest expendituresInterest expenditureswhich is mainly attributed to interest expenditures on deposits that recorded an annualincrease of 13.3 percent. Increased interest expenditures on deposits resulted mainly fromthe increase in the value of deposits during this period, while interest rates on depositsrecorded a slight decline.The structure of banking sector expenditures during the first half of 2010 remained similarto previous periods. General and administrative expenditures continue to represent thelargest category, with a share of 50.3 percent to total expenditures of the banking sector(53.2 percent in June 2009).The second largest category of banking sector expenditures are interest expenses, the shareof which rose to 33.9 percent of total revenues in June 2010 from 27.4 percent in June 2009| 37