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

Financial Stability ReportNumber 1the perceptions of banks and the regulator on the increase of uncertainty in the real sectorof the economy as a consequence of the crisis, thus affecting the classification of credit risk.Taking into account only the aspectof delays in loan repayment, it isnoticed that the share of loans inarrears to total loans declined to 3.5percent, from 3.7 percent in June2009. The structure of loans thathave been in arrears for over 90days is dominated by loans issuedto the construction sector thatrepresent 36 percent of total loansin arrears for over 90 days, followedloans issued to the manufacturingsector that are represented with28.3 percent (Figure 38). Thisshows that loans issued to themanufacturing sector represent aFigure 38. Structure of loan in arrears over 90 daysby industry100%80%60%40%20%0%AgricultureManufacturingCommunication8.76% 13.47%28.24% 28.30%2.63% 2.60%June 2009 June 2010significant portion of both loans in arrears and NPL, what may affect banks’ and regulator’sperceptions on the potential default of loans issued to this sector as well as the interestrates for these loans.Loans issued to households appear to have better quality also in terms of the number ofdays in arrears. In June 2010, only around 4.5 percent of total loans in arrears for over 90days consisted of loans issued tohouseholds. The household sector is Figure 39. NPL and provisionsconsidered by banks to be less risky,5.0%140%which is also reflected in the lower 4.5%135%4.0%interest rates charged on household3.5%130%loans, compared to those for3.0%125%enterprises.2.5%Although the amount of NPL has 1.5%115%increased in the past years, Kosovo’s 1.0%110%0.5%banking sector has continuously0.0%105%maintained a high coverage level ofJune 2007 June 2008 June 2009 June 2010NPL with provisions for loan losses. InNPL/Total loansProvisions/ NPL (right axis)June 2010, provisions covered 135Source: CBK (2010)percent of the total amount of NPL,whereas the average for the past four years was 129 percent (Figure 39). The total amountof provisions in June 2010 amounted at euro 75 million or euro 22.8 million highercompared to the previous year.28.54%2.66%28.96%Property and constructionOther loansSource: CBK (2010)2.0%13.99%4.54%36.82%Mining and energyServices, tourism and hospitalityFinancial servicesIndividual loans120%Concentration of credit riskThe analysis of the concentration of credit risk enables the identification of potentialvulnerabilities for the banking sector, arising from large credit exposures, which threatenthe stability of the banking sector in case of default. The increase of large exposuresincreases the credit risk, because the system becomes more sensitive to the performance of| 45