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

Number 1Financial Stability Reportcapital which was generally lacking in the Kosovo also had an impact on higher operationalcost. Risk costs, proxied by the level of provisions, also play an important role indetermining lending rates in Kosovo. This is particular because of young and costinefficiencies in the short-run and the risk perception of bankers and/or the regulatorentailing lending shortfalls and high provisioning. Unlike Kosovo, in other countries of theregion, funding costs appear to have a significant impact in explaining lending rates.The large share of operational costs in the overall structure of banking sector costs inKosovo indicates cost inefficiencies in this sector. This necessitates the undertaking ofmeasures by banks to improve the cost efficiency in order to have a decline of lendinginterest rates. The increase of competition in the banking sector can also have a substantialimpact on the enhancement of banking sector efficiency. In addition, the evidence found inthis study poses the need for improvements in the risk assessments techniques by banksoperating in Kosovo, bearing in mind that risk costs have resulted to be one of the maincomponents of the intermediation. In this regard, improvements in the sharing ofinformation such as credit registry, and accounting disclosure and transparency by firms iscrucial in reducing risk costs. Additionally, the improvement in the system of noticetogather with improvement of courts’ efficiency to process default cases can also give asubstantial contribution to the reduction of credit risk and, hence, to the decline of lendingrates in the banking sector of Kosovo.82 |