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

Financial Stability ReportNumber 1Table 15. Structure of banking sector income statement and profit margins(in thousands of national currencies and as % of total assets)DescriptionKosovoMacedonia Croatia Albania Serbia2006 2007 2008 2009 2009 2009 2009 20091. Interest Received 89 118 156 163 19,131 22,830 154,831 168,9207.65 8.21 8.61 7.41 7.12 6.03 4.53 7.232. Interest Paid 20 26 38 52 8,436 13,279 78,804 68,3901.71 1.81 2.11 2.37 3.14 3.51 2.31 2.933. Interest Margin (1-2) 69 92 118 111 10,695 9,551 76,027 100,5305.93 6.40 6.50 5.04 3.98 2.52 2.22 4.304. Other Income (net) 26 39.0 38.2 38 3,423 13,436 23,280 31,5902.26 2.72 2.11 1.70 1.27 3.55 0.68 1.355. Gross Margin (3+4) 95 131 156 149 14,118 22,987 99,307 132,1208.19 9.12 8.61 6.74 5.26 6.08 2.91 5.666. Operating Costs 61 69.7 86.0 87 10,278 7,564 52,859 104,4205.23 4.86 4.76 3.95 3.83 2.00 1.55 4.477. Net Margin (5-6) 34 61 70 62 3,840 15,423 46,448 27,7001.43 4.08 1.36 1.198. Provisions 14 18 17 26 5,254 3,515 31,525 138,3621.18 1.24 0.94 1.16 1.96 0.93 0.92 5.929. Profits Before Tax 27 41 48 29 1,725 4,216 7,503 20,0302.29 2.88 2.63 1.31 0.64 1.11 0.22 0.8610. Profits After Tax 20 33 36 25 1,676 3,278 5,489 20,0301.74 2.33 2.01 1.15 0.62 0.87 0.16 0.86A. Total assets 1,161 1,435 1,808 2,204 268,543 378,371 3,417,473 2,336,046B. Loans 637 892 1,183 1,289 178,195 252,428 1,596,615 1,989,552C. Loans/ total assets 54.82 62.17 65.45 58.48 66.36 66.71 46.72 85.17Source: Central banks of respective countries and own calculations.As can be observed from Table 15 interest margin is the highest in Kosovo (around 1pphigher compared to Macedonia and Serbia, and over 2.5pp higher compared to Albania andCroatia). This difference is mainly driven by higher interest received. Interest margin inthe Kosovo’s banking sector has maintained an increasing trend from 2005 until 2008,mainly due to the increase in loans to domestic economy as proportion of total assets, whichare characterized with higher interest rates. On the other hand, for the period 2005-2008,loan interest rates have declined modestly, while interest rates on deposits followed anupward trend. In 2009, however, interest margin decreased and this development can beattributed to the slowdown of credit growth and higher funding costs.Also in terms of gross margin Kosovo is ahead compared to the countries in the region,mainly due to the higher level of other income in the banking sector. This category includesincome generated from fees and commissions, trading profit and other operating income.Operational costs and provisions add substantial proportion to the intermediation cost.These indicators for Kosovo are substantially higher compared to Albania and Croatia,comparable to Macedonia, but lower compared to Serbia. This reflects cost inefficiencies,risk perception of banks/regulators in the loan portfolio, which to some extent may explainthe high interest rates.| 77