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

Number 1Financial Stability Report6.4. Banking sector risks6.4.1 Liquidity riskDeposits continue to represent the main source of finance for Kosovo’s banking system,representing 79 percent of total banking sector liabilities. Other financing sources consist ofown resources and subordinated debt, which represent 10 percent and 1.1 percent of totalliabilities, respectively. The banks that are operating in Kosovo are financed mainly formthe domestic sources and therefore do not depend much on the external funding.Consequently, liquidity shortages inthe international financial marketsduring the crisis did not have asignificant impact on the bankingsector of Kosovo.The banking sector of Kosovo wasconsistently characterized withsatisfactory level of liquidity. All thebanks have reported improvement intheir liquidity position, whichrepresents a positive development forthe resilience of the banking system.The growth rate of deposits washigher compared to the growth rate of loans, resulting in a lower loan-to-deposit ratio. InJune 2010, loan-to-deposit ratio stood at 80.2 percent, whereas in June 2009 this ratio was84.7 percent (Figure 28). The actual loan-to-deposit ratio is in line with Central Bankrecommandations, which suggest that commercial banks operating in Kosovo in generalshould maintain a loan-to-deposit ratio of around 80 percent. This ratio reduces the needfor banks to borrow short-term funds for liquidity support, which generally arecharacterized with higher costs.The slowdown of credit growth wasalso reflected in the share of liquidassets to total assets of the bankingsector. In June 2010, the share ofliquid assets to total assets stood at34.4 percent, which represents anincrease of 5pp compared to the sameperiod of 2009. The current ratio ofliquid assets to total assets indicatesa satisfactory liquidity position of thebanking sector. In June 2010, theratio between liquid assets and shorttermliabilities stood at 67 percent,Figure 28. Banking sector loans and deposits2,0001,8001,6001,4001,2001,0008006004002000June Sep Dec Mar June Sep Dec Mar June Sep Dec Mar June2007 2008 2009 2010Loans Deposits Loan to Deposit ratioSource: CBK (2010)Figure 29. Banking sector reserves, inmillions of euro300.0250.0200.0150.0100.050.00.0compared to 64 percent in June 2009. This indicator explains the ability of the bankingsector to cover short-term liabilities with liquid assets. The improvement of this indicatorwas due to the higher growth rate of liquid assets, which recorded an annual growth rate of35.4 percent, compared to the growth rate of 29.2 percent for short-term liabilities.88.0%86.0%84.0%82.0%80.0%78.0%76.0%74.0%72.0%70.0%68.0%66.0%2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Reserve requirmentCash in handSource : CBK (2010)Balance with CBKTotal reserves40 |