Financial Stability Report No1 20 December 2010 - Banka Qendrore ...
Financial Stability Report No1 20 December 2010 - Banka Qendrore ... Financial Stability Report No1 20 December 2010 - Banka Qendrore ...
Number 1Financial Stability ReportThe structure of investments in securities is primarily focused on three main categories,consisting of investments in government bonds, financial corporations’ bonds and nonfinancialcorporations’ bonds. Figure 31 shows that there was a large shift frominvestments in financial corporations’ bonds to government bonds from the third quarter of2009. While in June 2009, 98.1 percent of commercial banks' investments in securitiesconsisted of financial corporations’ bonds, in June 2010, 81.5 percent of securities consistedof government bonds. The share of financial corporations’ bonds to total bank investmentsin securities, in June 2010, was only 18.2 percent. Meanwhile, banks' investments in nonfinancialcorporations’ bonds represent only 0.3 percent of total investments in securities.The shift of investments from financial corporations’ to government bonds might beattributed to the increase of premiums in the bonds of some foreign governments in therecent period.Maturity mismatch between assets and liabilities represents another important aspect ofliquidity risk. A more pronouncedmaturity mismatch is noticed in thematurity bucket of ‘more than 1Figure 32. Liquidity Gap, difference between totalassets and liabilities based on maturityyear’, where the assets of thismaturity considerably exceed theliabilities (Figure 32). The maturity40,00030,00020,000mismatch between assets and10,0000liabilities mostly reflects the1-7 days 8 - 30 days 31 - 90 days 91 - 180 181 - 365 More than 1-10,000days days yeardifferences between the maturity of -20,000loans and deposits, given that theyconstitute the majority of assets and-30,000-40,000liabilities, respectively. In June-50,0002010, 53 percent of loans hadmaturity of ‘more than 1 year’, whileJune 2009 June 201098.4 percent of deposits had Source: CBK (2010)maturity of ‘less than 1 year’.Banking sector activity should be focused more on attracting liabilities with longermaturity, which will narrow the liquidity gap, and hence decrease the liquidity risk.Furthermore, the increase of funds with longer maturity ensures a more sustainablegrowth of long-term lending.Credit riskDespite the better performance of the economy in the first half of 2010, Kosovo’s bankingsector continued to apply more stringent lending criteria. This reflects the conservativeapproach applied by banks in managing their credit risk as a consequence of the globalcrisis. Despite the positive economic growth rate that was registered in Kosovo in 2009, andprojections for even higher growth in 2010, the effects of global crisis were present also inthe economy of Kosovo, causing a slower growth rate. This may have had an impact on thedebt servicing capacity of the borrowers, resulting in a deterioration of the quality of loanportfolio at the banking sector.The structure of loans based on quality classification changed marginally, with a slightshift from the category of standard loans (which represent loans without problems) towards42 |
Financial Stability ReportNumber 1categories of loans that have lower quality. 5 In June 2010, substandard loans increasedtheir share to total loans by 0.8pp, compared to the same period of last year; whereas, loansclassified as watch and standard recoded a slight decline as a share to total loans (Figure33).The category of classified loans hasincreased the share to total loans at10.2 percent in June 2010 from 9percent in June 2009, suggesting aslight deterioration in the quality ofloan portfolio. Also, the category ofloans with problems has increased itsshare from 5.6 in June 2009 to 7.1percent of total loans in June 2010.Figure 33. Structure of loans according to theirclassification100%98%96%94%92%90%88%86%2.5% 1.0% 1.5%1.9%1.5% 1.7%3.7% 5.0% 3.4%90.4% 89.8%Regarding loan quality, NonperformingLoans (NPL) represent the84%June 2007 June 2008 June 2009 June 2010most important category. In June2010, share of NPL in the overall loanStandard Watch Substandard Doubtful Lossportfolio of Kosovo’s banking sector Source: CBK (2010)was 4.5 percent, which indicates an increase of 0.6pp compared to the same period of theprevious year (Figure 34). During the period 2008-2010, the average annual growth rate ofNPL was 26.8 percent, while average credit growth was 22 percent. The continuation of thistrend would imply a furtherdeterioration of the quality of loan Figure 34. Total loans and NPLportfolio; therefore, banks should1,50050.0%ensure that further expansion of40.0%lending activity should be based on30.0%1,000prudent lending policies. In June20.0%2010, four of the banks operating in5003.7% 3.9% 4.5%Kosovo reported improvement in thequality of their loan portfolio, while10.0%0.0%-10.0%0-20.0%three of the banks reported increaseJune 2008 June 2009 June 2010in the share of NPL in their loanportfolios.Total LoansGrowth rate of loans (right axis)The structure of NPL is mainlySource: CBK (2010)dominated by loans classified as loss,which in June 2010 represented 62 percent of total NPL, while the rest consists of loansclasified as doubtful (Figure 35). During this period, the category of doubtful loansincreased by 30.8 percent (euro 5.6 million), while loss loans increased for 22.5 percent(euro 7.7 million) compared to the previous year.Deterioration of the quality was noticed both in loans issued to households and loans issuedto enterprises. However, the deterioration of the quality is more pronounced in loansissued to enterprises, which could be one of the factors that led banks to significantlytighten lending to this sector. In June 2010, 5 percent of total loans issued to enterprisesended up as non-performing loans, representing an annual increase of 1.3pp compared to1.6%Growth rate of NPL (left axis)2.7% 2.4% 2.8%91.0%NPL/ Total Loans1.7%2.6%3.1%89.8%5 According to CBK regulations, loans are classified as: standard, watch, substandard, doubtful and loss. Classified loans include: watch, substandard, doubtfuland loss. Loans with problems include: substandard, doubtful and loss. Nonperforming loans include: doubtful and loss.| 43
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<strong>Financial</strong> <strong>Stability</strong> <strong>Report</strong>Number 1categories of loans that have lower quality. 5 In June <strong>20</strong>10, substandard loans increasedtheir share to total loans by 0.8pp, compared to the same period of last year; whereas, loansclassified as watch and standard recoded a slight decline as a share to total loans (Figure33).The category of classified loans hasincreased the share to total loans at10.2 percent in June <strong>20</strong>10 from 9percent in June <strong>20</strong>09, suggesting aslight deterioration in the quality ofloan portfolio. Also, the category ofloans with problems has increased itsshare from 5.6 in June <strong>20</strong>09 to 7.1percent of total loans in June <strong>20</strong>10.Figure 33. Structure of loans according to theirclassification100%98%96%94%92%90%88%86%2.5% 1.0% 1.5%1.9%1.5% 1.7%3.7% 5.0% 3.4%90.4% 89.8%Regarding loan quality, NonperformingLoans (NPL) represent the84%June <strong>20</strong>07 June <strong>20</strong>08 June <strong>20</strong>09 June <strong>20</strong>10most important category. In June<strong>20</strong>10, share of NPL in the overall loanStandard Watch Substandard Doubtful Lossportfolio of Kosovo’s banking sector Source: CBK (<strong>20</strong>10)was 4.5 percent, which indicates an increase of 0.6pp compared to the same period of theprevious year (Figure 34). During the period <strong>20</strong>08-<strong>20</strong>10, the average annual growth rate ofNPL was 26.8 percent, while average credit growth was 22 percent. The continuation of thistrend would imply a furtherdeterioration of the quality of loan Figure 34. Total loans and NPLportfolio; therefore, banks should1,50050.0%ensure that further expansion of40.0%lending activity should be based on30.0%1,000prudent lending policies. In June<strong>20</strong>.0%<strong>20</strong>10, four of the banks operating in5003.7% 3.9% 4.5%Kosovo reported improvement in thequality of their loan portfolio, while10.0%0.0%-10.0%0-<strong>20</strong>.0%three of the banks reported increaseJune <strong>20</strong>08 June <strong>20</strong>09 June <strong>20</strong>10in the share of NPL in their loanportfolios.Total LoansGrowth rate of loans (right axis)The structure of NPL is mainlySource: CBK (<strong>20</strong>10)dominated by loans classified as loss,which in June <strong>20</strong>10 represented 62 percent of total NPL, while the rest consists of loansclasified as doubtful (Figure 35). During this period, the category of doubtful loansincreased by 30.8 percent (euro 5.6 million), while loss loans increased for 22.5 percent(euro 7.7 million) compared to the previous year.Deterioration of the quality was noticed both in loans issued to households and loans issuedto enterprises. However, the deterioration of the quality is more pronounced in loansissued to enterprises, which could be one of the factors that led banks to significantlytighten lending to this sector. In June <strong>20</strong>10, 5 percent of total loans issued to enterprisesended up as non-performing loans, representing an annual increase of 1.3pp compared to1.6%Growth rate of NPL (left axis)2.7% 2.4% 2.8%91.0%NPL/ Total Loans1.7%2.6%3.1%89.8%5 According to CBK regulations, loans are classified as: standard, watch, substandard, doubtful and loss. Classified loans include: watch, substandard, doubtfuland loss. Loans with problems include: substandard, doubtful and loss. Nonperforming loans include: doubtful and loss.| 43
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