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

Number 1Financial Stability Reporta certain number of loans, which have larger weight in the total loan portfolio. In thiscontext, the increase of the concentration of credit risk represents a higher sensitivity of thebanking system to the performance of a particular industry or a certain group of borrowers.According to the CBK rules, loans that exceed 10 percent of Tier 1 capital are classified aslarge exposures. In June 2010, the amount of loans that were classified as large exposuresincreased to 88.4 million euro (euro 83.6 million in June 2009), while the number of largeexposures increased to 45 from 20 in June 2009. However, the ratio between total largeexposures and Tier 1 capital declined to 39.9 percent, from 41.4 percent in June 2009,which can be interpreted as a reduction of credit risk.6.4.3. Solvency RiskCapital Adequacy Ratio (CAR) for the Figure 40. Capitalization of the banking sectorKosovo’s banking system rose to 18.7 20.0% 18.8% 17.9%17.4% 18.7%18.0%percent in June 2010 compared to16.0%17.4 percent in the same period last 14.0%year (Figure 40). 612.0%This ratio is10.0%satisfactory considering that 8.0%significantly exceeds the minimumregulatory level of 12 percent required6.0%4.0%2.0%0.0%by the Central Bank. The increase ofJune 2007 June 2008 June 2009 June 2010CAR was mainly due to the fasterincrease of capital compared to theCAR Tier 1/RWA Capital/Assetsincrease of Risk-Weighted Assets(RWA). While the annual growth of Source: CBK (2010)capital was 12.8 percent, RWArecorded an increase of only 4.8 percent. The slowdown in RWA growth rate reflects theslowdown of growth rate for loans, which represent the main component of the RWA.Table 8. Distribution of assets by CAR levelDescription Number of banks Market share12-15 % 15-18% > 18 % 12-15 % 15-18% > 18 %2007 1 1 4 40.0% 35.5% 24.5%2008 1 1 6 38.9% 35.6% 25.5%2009 0 6 2 0.0% 84.6% 15.4%2010 3 1 4 13.9% 14.7% 71.4%Source: CBK (2010)While in June 2009 most of the banking sector assets were managed by banks with CAR of15 – 18 percent, in June 2010 around 71 percent of total assets were managed by bankswith CAR of over 18 percent (Table 8). The high level of CAR in commercial banks that6 Based on CBK rules, all banks shall maintain a minimum total capital to RWA ratio of 12 percent and a Tier I capital to RWA ratio of 8 %.46 |