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

Number 1Financial Stability ReportFirms in Kosovo are not only more financially constrained compared to firms in othercountries of the region. They differ from firms in the SEE countries also in terms of thepurpose for which loans are used by firms. In Kosovo, only 25.3 percent of firms have statedthat they use bank financing for investment, while the regional average for this indicator is49.6 percent (Figure 75). Survey data also indicate that only 9.4 percent of firms in Kosovofinance their investments through bank financing (the regional average was 28.2 per cent),while the rest of investments arefinanced through other financingsources such as own funds,borrowing from family, etc. (Figure76).Figure 76. Percentage of investments covered bybank financing50454035A constrained access to bank3025financing in Kosovo is related to20many factors. The global financial 1510crisis of recent years has led to5credit tightening worldwide, which0was also expressed in the financialmarket in Kosovo. Banks havetightened lending, especially for Source: www.enterprisesurvey.orgfirms, presenting a constraint inaccess to finance for firms. Moreover, firms in the country face many obstacles whendeciding to approach bank financing. If we consider the value of collateral needed to obtaina loan, we will notice that the ratio of the loan coverage with collateral in Kosovo is veryhigh and exceeds the average of the region. According to the survey data, the coverage ratioof credit with collateral in Kosovo stood at an average of 236.1 percent, while the averagefor the region was 126.6 percent (Figure 77). This makes it more difficult for firms to accessbank financing and discourages them to apply for bank loans. Regarding firm size, thesmaller the firm is, the higher theFigure 77. Collateral-to-loan ratio, in percentratio of loan coverage by collateralappeared to be, which adversely 250affects the small firms opportunities200to access bank finance. The high rate150of collateral needed for obtaining bankloans in Kosovo can relate to the need 100for higher efficiency of the judicial50system, which would contribute to a0facilitation of the execution ofcollateral for loans that have failed.The high coverage ratio of credit withcollateral in Kosovo, to some extent,Source: www.enterprisesurvey.orgcan also be attributed to the structureof the firms surveyed, where small firms dominated. The constrained access to bank financein Kosovo can also be attributed to interest rates, which are considered to be higher thanelsewhere in the region. The average interest rate on loans of about 14 percent in Kosovoexceeds the average interest rate of 7.9 percent in the region. High interest rates maydiscourage firms to apply for funding in financial institutions in Kosovo, which negativelyaffects the activity and growth of their business. Moreover, in addition to the abovementioned factor, access to finance in Kosovo also depends on investment projects that96 |