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

Financial Stability ReportNumber 1The growth of liquid assets largely reflects the slowdown of lending activity by the bankingsector, which implies that part of funds that could be used to lend to the economy, now arebeing invested in assets such as securities and placements with commercial banks abroadthat are considered to be highly liquid compared to loans. Another factor that might haveinfluenced the decision of banks to increase liquidity was the anticipation of withdrawal ofPTK deposits from the banking sector. Since October 2009, a substantial part of thesedeposits were transferred from PTKaccounts to the accounts of Kosovo’sGovernment in commercial banks.The possibility of immediatewithdrawal of these deposits posed apotential risk for the liquidity of somebanks. As a result, banks showed acautious behaviour, allocatingadditional funds as reserves at theCBK. At the end of 2009, commercialbank reserves at the CBK exceededthe required reserve by euro 126.2million (Figure 29). In June 2010,balances with CBK were euro 216.9Figure 30. Liquid assets, in millions of euro500.0400.0300.0200.0100.00.0June Sep Dec Mar June Sep Dec Mar June Sep Dec Mar June2007 2008 2009 2010Source: CBK (2010)Cash in hand and balance with CBKBalance with commercial banksSecuritiesmillion or 57 million more than the required reserves under the current bankingregulations.The structure of liquid assets of the banking sector consists of cash and balances with theCBK, balances with commercial banks and investments in securities (Figure 30). Duringthe period June 2009-June 2010, the category ‘cash and balances with CBK' did not changesignificantly. Whereas, a significant change in the structure of liquid assets was the shift offunds from the category of ‘balances with commercial banks’ towards ‘investments insecurities’. Assets in the category ‘balances with commercial banks’ increased from euro 200million in June 2009 to euro 351million in June 2010, an increase of 22Figure 31. The structure of securitiespercent. In the absence of the120.0%140.0100.0%120.0interbank market in Kosovo, assets in100.080.0%the category ‘balances with80.0commercial banks’ are invested as60.0%60.040.0%placements with banks abroad.40.0Nevertheless, the increase was more20.0%20.0pronounced for the banking sector0.0%0.0June Sep Dec Mar June Sep Dec Mar June Sep Dec Mar Juneassets invested in securities. In June2007 2008 2009 20102010, investments in securitiesGovernmentOther financial corporatesreached at euro 114 million comparedto euro 13.3 million in June 2009. Oneof the main determining factors forOther nonfinancial corporatesSource: CBK (2010)Total bondsthe increase of the banking sector investements in securities are more optimisticexpectations regarding the performance of financial markets. This development isreasonable considering the fact that international financial markets were characterized byrecovery and were less volatile during this period. However it should be emphasized thatthe increase in the amount of funds invested abroad limits the amount of funds availablefor lending to the domestic economy.| 41