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

Financial Stability ReportNumber 1days. The scenario is also built on the assumption that during this period, the possibility ofconverting liquid assets into cash will be 80 percent, while the possibility of convertingilliquid assets would be 1 percent within a day. In this scenario it is assumed that bankshave full access to their reserves, but it was not considered the possibility of banks to haveaccess to external sources.The assessment of the banking sector sustainability against liquidity risk, based on theabove scenario, is done by assessing the adequacy of banks’ liquid assets to meet the depositwithdrawal.ResultsUnder the assumption that the abovementioned scenario is likely to happen, in the first dayof deposit withdrawal none of the banks operating in the country would need additionalliquid assets to meet deposit withdrawals, while in the second day one bank would needadditional liquid assets, amounting at only euro 1.6 million (Table 10). After the fifth day,five banks would need additional liquid assets worth euro 42 million (1 percent of GDP),while the loan-to-deposit ratio (assuming that the value of loans remains constant) for thewhole system would reach 134.7 percent. Under such a scenario, where during fiveconsecutive days 10 percent of deposits would be withdrawn daily, the total amount ofdeposits withdrawn in the end of the five-day period would be 41 percent of total deposits inthe banking system.Table 10. Summary results of the Stress-Test: Liquidity RiskDescription Number of banks 1/Additional liquid asets needed (inthousands of euos)After first dayAfter second dayAfter third dayAfter fourth dayAfter fifth day0 01 1,6211 4,3124 14,2325 41,969Note:1/ Number of banks that would need additional liquid assets.The banking sector stress-test against liquidity risk was based on a hypothetical scenario,with quite conservative assumptions, which meant very high rates of deposit withdrawalsand exclusion of the possibility of banks to have access to other funding, except their liquidassets. Stress-test results suggest that the banking sector of Kosovo would show a strongliquidity position, even under the assumption of the occurrence of this hypotheticalscenario. The amount of additional liquid assets that would be needed by banks under sucha scenario, at the end of the five-day period, results to be relatively low. Relatively highability of the banking sector to withstand the liquidity shocks is attributed to the relativelyhigh level of liquid assets maintained by the banks.| 53