FINANCIAL STABILITY REPORT - bqk-kos.org · Financial Stability Report Number 4 | 3 ABBREVIATIONS:...

FINANCIAL STABILITY

REPORT

Number |04

May 2014

BANKA QENDRORE E REPUBLIKES SË KOSOVËS

CENTRALNA BANKA REPUBLIKE KOSOVA

CENTRAL BANK OF THE REPUBLIC OF KOSOVO

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Efficiency of Banks in South-East Europe: With Special Reference to Kosovo CBK Working Paper no. 4

Number 4 Financial Stability Report

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BANKA QENDRORE E REPUBLIKËS SË KOSOVËS

CENTRALNA BANKA REPUBLIKE KOSOVA

CENTRAL BANK OF THE REPUBLIC OF KOSOVO

Financial Stability Report

Number 4

Financial Stability Report Number 4

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PUBLISHER ©Central Bank of the Republic of Kosovo

Department of Economic Analysis and Financial Stability

33 Garibaldi, Prishtina 10000

Republic of Kosovo

Tel: ++381 38 222 055

Fax: ++381 38 243 763

WEB www.bqk-kos.org

E-mail [email protected];

EDITOR Arben MUSTAFA

AUTHORS Zana GJOCAJ

Sokol HAVOLLI

Bejtush KIÇMARI

Krenare MALOKU

TRANSLATOR and

TECHNICAL EDITOR Butrint BOJAJ

http://www.bqk-kos.org/

mailto:[email protected]


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ABBREVIATIONS:

ATM Automated Teller Machines

CAR Capital Adequacy Ratio

CBK Central Bank of the Republic of Kosovo

CEE Central and Eastern Europe

CIS Commonwealth of Independent States

CPI Consumer Price Index

EBRD European Bank for Reconstruction and Development

ECB European Central Bank

EICS Electronic Interbank Clearing System

GDP Gross Domestic Product

HHI Herfindahl-Hirschman Index

IMF International Monetary Fund

IPI Import Price Index

NIM Net Interest Margine

NPL Nonperforming Loans

FDI Foreign Direct Investments

MLSW Ministry of Labor and Social Welfare

KPSF Kosovo Pension Saving Fund

KAS Kosovo Agency of Statistics

MF Ministry of Finance

MFI Micro-Finance Institutions

MTA Money Transfer Agencies

NFA Net Foreign Assets

NPISH Non-Profitable Instituions Serving Households

NPL Non-performing Loans

POS Point of Sales

PPI Producer Price Index

pp Percentage Points

PTK Post and Telecommunication of Kosovo

ODC Other Depository Corporations

OECD Organization for Economic Cooperation and Devlepoment

REER Real Effective Exchange Rate

RI Raiffeisen International

RLI Rule of Law Index

ROAA Return Average on Assets

ROAE Return on Average Equity

ROE Return on Equity

RWA Risk Weighted Assets

SDR Special Drawing Rights

SEE South-Eastern Europe

TPL Third Party Liabilities

VAT Value Added Tax

CONVENTIONS:

" " event does not exist

" . " event exists, data are not available

" … " nil or negligible

(e) estimate

(p) preliminary

(r) revised

NOTE: Users of the data are requested to cite the source.

Suggested citation: Central Bank of the Republic of Kosovo (2014), Financial Stability Report, No.

4, Prishtina 2014.

The original version of this report is written in Albanian language.

Any correction that may be required will be made in the website version.


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CONTENTS:

1. Foreword ---------------------------------------------------------------------------------------- 9

2. Executive summary-------------------------------------------------------------------------- 11

3. World economy ------------------------------------------------------------------------------- 15

3.1. Southeastern Europe ------------------------------------------------------------------------- 20

4. Kosovo’s Economy -------------------------------------------------------------------------- 24

4.1. Gross Domestic Product --------------------------------------------------------------------- 24

4.2. Fiscal Sector ------------------------------------------------------------------------------------ 25

4.3. Balance of Payments ------------------------------------------------------------------------- 26

4.4. Labor market ------------------------------------------------------------------------------------ 27

4.5. Prices --------------------------------------------------------------------------------------------- 28

5. Kosovo’s Financial Sector ----------------------------------------------------------------- 30

6. Kosovo’s Banking Sector ------------------------------------------------------------------ 33

6.1. Banking system balance sheet ------------------------------------------------------------- 33

6.1.1 Assets --------------------------------------------------------------------------------------------------- 33

6.1.2 Loans ---------------------------------------------------------------------------------------------------- 35

6.1.3 Liabilities ------------------------------------------------------------------------------------------------ 40

6.1.5 Interest rates ------------------------------------------------------------------------------------------- 42

6.2. Performance of the banking sector -------------------------------------------------------- 44

6.3. Banking System Risks ------------------------------------------------------------------------ 48

6.3.1 Liquidity risk -------------------------------------------------------------------------------------------- 48

6.3.2 Credit risk ----------------------------------------------------------------------------------------------- 51

6.3.3 Solvency risk ------------------------------------------------------------------------------------------- 54

6.3.4. Market risk --------------------------------------------------------------------------------------------- 57

6.4. Stress-test Analysis --------------------------------------------------------------------------- 62

6.5. Financial infrastructure in Kosovo ---------------------------------------------------------- 65

6.5.1 Payment system and the banking infrastructure ---------------------------------------------- 65

6.5.2. The new version of credit registry in Kosovo-------------------------------------------------- 70

7. Other Financial Institutions ---------------------------------------------------------------- 73

7.1. Insurance Companies ------------------------------------------------------------------------- 73


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7.2. Pension funds ----------------------------------------------------------------------------------- 75

7.3. Microfinance institutions and financial auxiliaries -------------------------------------- 76

9. Statistical Appendix-------------------------------------------------------------------------- 78

10. References ----------------------------------------------------------------------------------- 98

LIST of FIGURES -------------------------------------------------------------------------------------------------- 15

Figure 1. Inflation in selected euro area countries ---------------------------------------------------------- 15

Figure 2. Unemployment in selected euro area countries ------------------------------------------------ 16

Figure 3. Growth trend of loans --------------------------------------------------------------------------------- 17

Figure 4. Growth trend of deposits ----------------------------------------------------------------------------- 17

Figure 5. Expenditures to income ratio ------------------------------------------------------------------------ 18

Figure 6. Return on equity ---------------------------------------------------------------------------------------- 18

Figure 7. Capital adequacy ratio -------------------------------------------------------------------------------- 19

Figure 8. NPL rate in selected euro area countries -------------------------------------------------------- 19

Figure 9. Capital adequacy ratio for selected euro area countries ------------------------------------ 20

Figure 10. Real GDP growth rates in SEE ------------------------------------------------------------------- 20

Figure 11. Annual average rate of inflation in SEE --------------------------------------------------------- 21

Figure 12. Current account deficit in SEE -------------------------------------------------------------------- 21

Figure 13. Annual growth rates of loans to households and businesses in SEE ------------------- 22

Figure 14. NPL rate in SEE -------------------------------------------------------------------------------------- 22

Figure 15. Macroeconomic map -------------------------------------------------------------------------------- 24

Figure 16. Real GDP growth rate ------------------------------------------------------------------------------- 24

Figure 17. Main components of GDP -------------------------------------------------------------------------- 25

Figure 18. Exports, imports and trade balance -------------------------------------------------------------- 26

Figure 19. FDI by economic sectors --------------------------------------------------------------------------- 27

Figure 20. Unemployment by age and gender -------------------------------------------------------------- 27

Figure 21. Inflation and its main contributors ---------------------------------------------------------------- 28

Figure 22. General inflation and base inflation -------------------------------------------------------------- 28

Figure 23. Consumer, Producer and Import price index -------------------------------------------------- 28

Figure 24. Structure of assets of the financial system ----------------------------------------------------- 30

Figure 25.Net foreign assets by institutions ------------------------------------------------------------------ 31

Figure 26. Structure of claims against external sector ---------------------------------------------------- 31

Figure 27. Structure of liabilities against external sector -------------------------------------------------- 32

Figure 28. HHI for assets, loans and deposits --------------------------------------------------------------- 33

Figure 29. Structure of assets of the banking sector ------------------------------------------------------- 34

Figure 30. Structure of securities ------------------------------------------------------------------------------- 34

Figure 31. Growth rate of loans by sectors ------------------------------------------------------------------- 34

Figure 32. Structure of loans------------------------------------------------------------------------------------- 35


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Figure 33. Structure of loans by economic activity --------------------------------------------------------- 35

Figure 34. Growth trend of loans by economic sectors --------------------------------------------------- 36

Figure 35. Crediting standards applied for enterprises and households ------------------------------ 36

Figure 36. Factors that affected the applied credit standards to enterprises ------------------------ 36

Figure 37. Terms and conditions applied for loans to enterprises -------------------------------------- 37

Figure 38. Factors that affected the applied credit standards to households ------------------------ 37

Figure 39. Terms and conditions applied for lending to households ----------------------------------- 37

Figure 40. Demand for loans by enterprises ----------------------------------------------------------------- 37

Figure 41. Demand for loans by households ---------------------------------------------------------------- 38

Figure 42. Expectations for developments in crediting for the next quarter -------------------------- 38

Figure 43. Structure of loans by maturity --------------------------------------------------------------------- 39

Figure 44. Growth trend of loans by maturity ---------------------------------------------------------------- 39

Figure 45. Growth trend of deposits --------------------------------------------------------------------------- 41

Figure 46. Structure of deposits by sectors ------------------------------------------------------------------ 41

Figure 47. Structure of deposits by maturity ----------------------------------------------------------------- 42

Figure 48. Annual average interest rates --------------------------------------------------------------------- 43

Figure 49. Six-month average interest rates for loans to enterprises ---------------------------------- 43

Figure 50. Balance of income and expenditures ------------------------------------------------------------ 44

Figure 51. Annual growth rates of income and expenditures -------------------------------------------- 44

Figure 52. Structure of income by categories---------------------------------------------------------------- 45

Figure 53. Annual growth rates of income by categories ------------------------------------------------- 45

Figure 54. Expenditures growth by categories -------------------------------------------------------------- 45

Figure 55. Annual growth rates of expenditures by categories ------------------------------------------ 46

Figure 56. Expenditures for provisions and NPL growth rate -------------------------------------------- 46

Figure 57. Structure of expenditures by category ---------------------------------------------------------- 46

Figure 58. Profitability indicators -------------------------------------------------------------------------------- 47

Figure 59. Expenditures to income ratio ---------------------------------------------------------------------- 47

Figure 60. Efficiency indicators ---------------------------------------------------------------------------------- 47

Figure 61. Net Interest Margin ----------------------------------------------------------------------------------- 48

Figure 62. Loans and deposits of the banking sector ------------------------------------------------------ 48

Figure 63. Broad liquid assets ratio to total assets --------------------------------------------------------- 49

Figure 64. Banking system reserves --------------------------------------------------------------------------- 51

Figure 65. Liquidity gap ------------------------------------------------------------------------------------------- 50

Figure 66. NPL ratio to total loans ratio ----------------------------------------------------------------------- 51

Figure 67. Annual growth of total loans and NPL ----------------------------------------------------------- 51

Figure 68. NPL to total loans ratio ------------------------------------------------------------------------------ 52

Figure 69. Structure of loans by maturity --------------------------------------------------------------------- 52

Figure 70. Structure of NPL -------------------------------------------------------------------------------------- 52

Figure 71. NPL and provisions ---------------------------------------------------------------------------------- 53

Figure 72. Concentration of credit risk ------------------------------------------------------------------------ 53


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Figure 73. Banking system capitalization --------------------------------------------------------------------- 54

Figure 74. Regulatory capital and RWA ---------------------------------------------------------------------- 54

Figure 75. Additional capital against regulatory capital --------------------------------------------------- 55

Figure 76. Capital structure of the banking system -------------------------------------------------------- 55

Figure 77. Structure of Tier 1 capital --------------------------------------------------------------------------- 56

Figure 78. Structure of RWA by risk weight ------------------------------------------------------------------ 57

Figure 79. Opened positions in foreign currency against Tier 1 capital ------------------------------- 58

Figure 80. Loans and liabilities in foreign currency --------------------------------------------------------- 58

Figure 81. Loans and deposits sensitivity to interest rates ----------------------------------------------- 59

Figure 82. Structure of insurance companies assets ------------------------------------------------------ 73

Figure 83. Structure of insurance companies liabilities --------------------------------------------------- 73

Figure 84. Written premiums and paid claims --------------------------------------------------------------- 74

Figure 85. Structure of gross written premiums of non-life insurance --------------------------------- 74

Figure 86. Structure of paid claims of non-life insurance ------------------------------------------------- 75

Figure 87. Share price of FKPK and DJI index -------------------------------------------------------------- 75

Figure 88. HHI for MFI assets ----------------------------------------------------------------------------------- 76

Figure 89. MFI assets, by size ---------------------------------------------------------------------------------- 76

Figure 90. Loans issued by MFI-s ------------------------------------------------------------------------------ 77

LIST OF TABLES -------------------------------------------------------------------------------------------------- 15

Table 1. Main macroeconomic indicators -------------------------------------------------------------------- 15

Table 2. Public debt and budget balance in selected euro area countries --------------------------- 16

Table 3. Annual average growth rate of loans and deposits for the first semi-annual ------------- 22

Table 4. Number of financial institutions ---------------------------------------------------------------------- 31

Table 5. Structure of the banking sector assets ------------------------------------------------------------- 35

Table 6. Structure of the banking system liabilities --------------------------------------------------------- 40

Table 7. Selected indicators of the banking system -------------------------------------------------------- 48

Table 8. The indicators for assessments of the systemic importance of the banks in Kosovo -- 60

Table 9. The summary of stress test result: liquidity risk ------------------------------------------------- 65

Table 10. Participation of payment instruments in total IECS transactions -------------------------- 68

Table 11. Banking system network ----------------------------------------------------------------------------- 70

LIST OF BOXES --------------------------------------------------------------------------------------------------- 17

Box 1. The performance of foreign banking groups operating in Kosovo ----------------------------- 17

Box 2. Kosovo’s Bank lending survey ------------------------------------------------------------------------- 36

Box 3. Identification of banks with systemic importance in Kosovo ------------------------------------ 59

Box 4. SWIFT membership -------------------------------------------------------------------------------------- 66


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1. Foreword

Macroeconomic stability which has characterized Kosovo’s economy in the recent years,

continued also in 2013. Favorable situation from income generated abroad, followed by fiscal and

financial stability, resulted in accelerated economic growth rate compared with the previous

year. Factors that generated the economic growth in 2013 were the narrowing of the trade deficit,

the increase of remittances and foreign direct investments. Macroeconomic stability of the

economy has contributed to the maintenance of the financial system stability, which represents a

significant promoter of overall economic activity in the country.

Kosovo’s financial system has continued to expand its activity and, at the same time, has

continued to reflect the high level of sustainability in all its components. Banking sector during

this period has shown a high level of stability, based on satisfactory liquidity position, qualitative

loan portfolio and high level of capital adequacy ratio. Despite favorable macroeconomic

environment and conditions of banks operating in Kosovo, the slowdown of bank lending

continued during this period, which slightly diminishes the role of this sector in financing the

economic activity in Kosovo. However, this trend of bank lending in Kosovo is in line with trends

of other countries in the region that share similar characteristics of the banking sector. Financial

intermediation activity of Kosovo’s banking sector is characterized by continuous increasing in

efficiency, which is expressed also through the decline of interest rates on loans. Despite the

decline, interest rates on loans still can be considered as high, which implies the need for further

improvement of the efficiency in the banking sector.

Central Bank of the Republic of Kosovo continues to be committed in ensuring financial stability

of the country, which represents the main objective that has to be implemented stated also by

the law on the Central Bank. In compliance to this objective is also the publication of this report,

which provides an assessment overview of financial stability in Kosovo, with a focus on the

banking sector, in terms of the ability of this sector to cope with potential shocks that could be

caused from outside, as well as the ability of the sector to continue providing financial services to

the Kosovo’s economy. In order to ensure financial stability, the Central Bank during 2013 was

engaged in the implementation of the recommendations that have emerged from the Financial

Sector Assessment Program that was conducted in 2012 along with the IMF and the World Bank.

An important activity during this period was the harmonizing of the secondary regulation with

the new law on banks and microfinance institutions through which was strengthened the

corporate governance of these institutions and banks capabilities for managing banking risks.

Significant advancement has been made also in the area of payment system infrastructure, in

particular the provision of a specific country code SWIFT for Republic of Kosovo, through which

will be improved the efficiency of the implementation of international transfers.

Bedri HAMZA Governor


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2. Executive summary

Kosovo’s financial system continued to reflect high level of sustainability in all its constituent

sectors. The banking sector as a main component of Kosovo’s financial system has maintained

the level of sustainability, while financial intermediation activity has continued to grow but at

slower rate. Improvement of the main macroeconomic indicators in Kosovo, compared to the

previous year, shows encouraging signs for the business environment in the country, but that has

not affected the banking sector’s readiness for a more rapid lending expansion to the local

economy.

The global economy during 2013 was characterized by a positive growth rate, but still lower

compared with the previous year. Positive rate of global economic growth was achieved mainly as

a result of the growth in developing economies and the U.S. economy, while the euro area

countries are estimated to have marked an economic decline in 2013. The weaker performance of

the real sector in the euro area economies is accompanied by a continuous increase of the public

debt, which has raised concerns about the sustainability of public finances, especially in some of

the euro area countries. These unfavorable economic developments have increased the

unemployment rate in these countries, with possible implications also for the economies of the

region countries which highly rely on remittances. The slowdown in economic activity in the euro

area and in the developed countries in general, has made the year 2013 to be characterized by

declining inflationary pressures, which has raised concerns about the possibility of entering into

a period of deflation, especially for euro area countries. Despite of the continuous reduction of

interest rate by the European Central Bank, the banking sectors of these countries continued to

have weak role in stimulating economic activity, while the weak performance of economies

continued to be reflected in the deterioration of credit quality in these countries. However, in

2014 the global economy including euro area, projected to have a better performance of the global

economy, which is expected to help overcome the challenges faced by the developed economies.

For Southeastern European (SEE) countries, year 2013 in general is estimated to have been a

year of economic recovery as a result of positive economic growth rates in all countries of the

region. Increased economic activity in these countries has been reflected by a slight decrease in

the unemployment rate during the first half of 2013, while increased inflationary pressures have

been noticed. Regardless of the improvement of the budget balance, public debt of SEE countries

has continued to increase, but still remains below the level of the euro area. Similar to the euro

area countries, the banking sectors in SEE countries have emphasized the continuous tightening

of lending standards, and deposits had a slower growth trend. The quality of the loan portfolio

continued to deteriorate; nevertheless a slight improvement in the capital adequacy ratio has

been marked.

Favorable economic developments of the region during 2013 were also present at Kosovo’s

economy. Real economic growth in Kosovo for 2013 is estimated to have been about 3.1 percent,

which continues to maintain Kosovo as a country with the highest rate of economic growth in the

region. Compared to the previous year when the real growth rate was 2.5 percent and was

marked a slowdown in economic growth, 2013 was characterized by acceleration of economic

growth which shows signs of an economic recovery expected to continue in the following year.

However, to fully address the main challenges for Kosovo’s economy, such as the further decline

of the unemployment rate, requires higher economic growth rates. Kosovo’s economic growth

during this period is mainly expected to be attributed to consumption growth, while the decline

in imports and increase in exports is expected to result in a positive effect of real economic

growth rate. On the other hand, the effect of investments in the real growth rate can be

considered as neutral.


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Kosovo’s economy during this period has also continued to be characterized by high deficit of the

current account, which is mainly caused by the large trade deficit. However, in the first half of

2013, imports marked only a slight increase of 0.6 percent, while exports marked an annual

growth of 9.9 percent. More favorable situation in terms of revenues from abroad was reflected by

the growth of remittances to 4.2 percent during the first half of 2013, and an increase in Foreign

Direct Investments (FDI) for 66.4 percent compared to the same period of the previous year.

During the first half of 2013, inflation had a moderate rate of 2.7 percent which was higher

compared to the same period of the previous year, but started to decline during the second half of

the year as a result of deflationary pressures in the euro area countries; with which Kosovo has

the largest trade activity. In terms of the fiscal sector Kosovo’s economy continues to have

favorable position in the context of budget balance and public debt.

Despite of more favorable macroeconomic environment and a satisfactory level of liquidity, the

lending activity of the banking sector continued to have a slow growth trend. Thus, in June 2013

the value of total loans amounted to euro 1.83 billion, marking an annual increase of 2.8 percent,

compared to a growth rate of 9.3 percent in June 2012. Credit tightening was present in loans to

enterprises as well as in loans to households. The tightening of lending generally is estimated to

be a result of the criteria tightening on applications approval for loans by banks, but according to

the banks’ reports through the Bank Lending Survey it is considered that there also was a

decrease in demand for loans by enterprises. The tightening of lending criteria may have

influenced the strategies of foreign banking groups to increase the level of capitalization by

reducing their credit exposure.

Deposits continue to be the main source of financing for the banking sector. In June 2013, total

deposits reached a value of euro 2.2 billion, representing an annual increase of 4.4 percent (7.7

percent in June 2012). Despite the slowdown of growth trend, deposits continued to grow with a

higher rate compared to loans, which shows that banks continue to have sustainable financing

and the credit tightening is not related to the lack of funds in the banks. The main source of

deposits in the banking sector continues to be the households whose deposits are considered to be

more stable than other funding sources. Kosovo’s banking sector continues to have low levels of

exposure to the external sector on the assets and deposits as well, making the sector’s sensitivity

against the developments in foreign markets stand at low levels.

Financial intermediation activity of banks in Kosovo during the first half of 2013 was

characterized by a decline of interest rates on loans and slight increase in interest rates on

deposits. During this period, the average interest rate on loans decreased to 12.8 percent from

13.7 percent as it was in the same period of the previous year. Different categories of loans have

different interest rates, where investing loans to enterprises were observed to have the lowest

average interest rates of 10.3 percent. In terms of deposits, the average interest rate during the

first half of 2013 was 3.5 percent, compared to 3.4 percent as it was in the same period of the

previous year. Consequently, the interest rate spread on loans and deposits declined from 9.3 to

10.3 pp as it was previously.

Despite the slowdown of lending activity and narrowing of interest rate margin, the banking

sector during the first half of 2013 significantly increased the profit. The net profit until June

2013 amounted to euro 16.2 million, marking an annual growth of 58.2 percent. The profit

generated during this period was a result of expenditures reduction of banking sector for 5.7

percent, while income declined by 1.2 percent. Given the fact that expenditures reduction was

largely as a result of decreased expenditures on provisions, a more significant deterioration of

loan portfolio quality, which would imply the need for new provisions, would be reflected in an

increase of total expenditures, and consequently could reduce the profitability of the banking

sector. Hence, banks should take the appropriate measures to increase their efficiency by making


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the necessary adjustments to reduce operating expenses, especially at a time when income

generated by banks is decreasing.

Kosovo’s banking sector has continued to be efficient in managing the banking risks, which

resulted in satisfactory liquidity position of the banking system, credit portfolio quality and high

level of capitalization. Faster growth of deposits compared to credit caused the loans to deposit

ratio to reach 83 percent in June 2013, which shows a satisfactory level of liquidity in the

banking sector. Also, liquid assets ratio to short-term liabilities, which by the regulations of the

Central Bank is required to be maintained at a minimum level of 25 percent, in June 2013 stood

at 38.5 percent. Banks have continued during the first half of 2013 to maintain higher level of

reserves in the Central Bank than the minimum level required. Stress-test results for the

banking sector, based on very conservative scenario in terms of the available liquid assets and

the potential rate of withdrawal of deposits, represent very favorable results in terms of the

ability of the Kosovo’s banking sector to withstand significant deposit withdrawals.

The banking sector continued to have good credit portfolio quality, with a share of 7.8 percent of

non-performing loans to total loans in June 2013, representing the lowest level within the region.

However, compared with the same period of the previous year, it is observed an increase of the

share of non-performing loans of 1.3 pp. The Increase of the non-performing loans to total loans

share is primarily attributed to the slowdown of total loans growth, while the value of non-

performing loans continued to grow at a similar trend to the previous year. However, the increase

of non-performing loans may also be a reflection of the borrowers’ solvency, given that the

economic growth rates in recent years, despite of being positive, was lower compared with the

period before the global financial crisis. Sectors which were characterized by weaker credit

quality were manufacturing and the energy sectors, where the share of non-performing loans to

total loans issued to these sectors were 15.7 and 11.5 percent, respectively. While loans issued to

households were characterized by a better quality, with a share of 2.5 percent of non-performing

loans to total loans. Despite this growth, non-performing loans continue to be well covered by

provisions for loan losses. In June 2013, provision coverage rate was 113.2 percent, which

indicates that banks have allocated a satisfactory level of reserves to cope with potential loan

losses. Within the structure of banking sector loans, is observed a growth of the value of large

credit exposures, as well as an increase of the number of exposures, which implies that the credit

risk was spread to larger borrowers.

The level of capital adequacy in Kosovo’s banking sector continued to be high. In June 2013,

Capital Adequacy Ratio stood at 16.5 percent, exceeding the minimum level of 12 percent

required by the Central Bank. Compared to the same period of the previous year, it is observed

that the capital adequacy ratio declined by 0.7 pp, mainly due to the entry into force of the new

banking regulations that have changed the method of calculation of regulatory capital. Besides

the high level of capitalization, Kosovo’s banking sector also has a good quality of capital, where

Tier 1 capital represents 81 percent of total regulatory capital. Satisfactory level of capitalization

of the banking sector is also shown by the stress-test results which suggest that the current level

of capitalization enables banks to withstand even more significant growth rates of non-

performing loans or other banking risks such as market risk. Banks operating in Kosovo can be

considered to have low level of exposure to market risk as a result of the fact that most of the

loans and deposits have fixed interest rates and that the majority of the assets and liabilities are

in euro currency.

While the banking infrastructure during this period was followed by a decrease in the number of

banking sub-branches, and number of employees, and an increase in the number of ATMs

network and POS equipment, which led to an increased efficiency of the banking services. The

payment system has advanced during 2013 in terms of the legal infrastructure and efficiency. In


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May 2013, entered into force the Law on Payment System which enabled the strengthening of

CBK powers to supervise, monitor and control the payment system and financial market

infrastructure, with the aim of ensuring a stable and efficient payment system. The increase of

security in the payment system has further increased the number and the value of transactions

conducted through the only interbank payment system in Kosovo (IECS). Within the expansion

of the payment system infrastructure, it is worth mentioning the beginning of the trading system

including, Central Securities Depository (CSD) within the payment system, where it is processed

the clearance of securities transactions. By the end of 2013, Kosovo has also been provided with

the special country code SWIFT, with which will be identified the financial institutions operating

in Kosovo during the process of international transfers. This is expected to contribute in

increasing the efficiency and reduction of the cost of international transfers.

Concerning other financial institutions, pension fund assets continued to grow, reaching the

value of euro 808.8 million in June 2013 (an annual growth of 22.7 percent). The largest part of

the assets of the pension system continued to be managed by the Kosovo’s Saving Pension Fund

(KSPF), whose return on assets improved due to an increase of unit price of the shares.

Insurance sector improved during the first part of 2013, whose assets reached a value of euro

130.1 million, marking an annual growth of 8.3 percent. Despite the good performance of

insurance companies, the sector incurred losses of euro 1.4 million, which resulted from the

faster increase of expenditures compared to the generation of revenues. Unlike other components

of the Kosovo’s financial system, microfinance sector experienced a decrease in its activities. The

value of loans and leasing issued by microfinance institutions in June 2013 was euro 95.9 million,

which represents a decline of 6.5 percent.


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3. World economy

Global economic growth in 2013 is projected to be 2.9 percent, which is a lower level compared to

the previous year. This level of economic growth is mainly as a result of the slowdown in

domestic demand growth in some of the large developing countries and the prolonged recession in

the euro area as a result of uncertainty in the fiscal sector. Economic growth in developing

countries is expected to be 4.5 percent in 2013, while the economic decline in the euro area is

expected to be 0.4 percent (IMF, WEO 2013, table 1). On the other hand, Eurostat estimated that

in Q2 2013 the euro area marked an increase of 0.3 percent compared to Q1 2013, which may

have raised expectations for a growth in the rest of the year. Regarding the U.S., its economy is

expected to grow by 1.6 percent, which is a slower pace than in the previous year.

Table 1. Main macroeconomic indicators

Source: IMF (2013)

In euro area the main contributors of the recession are expected to be the decline of investments

and private consumption which are expected to mark an annual decline of 3.5 and 0.7 percent,

respectively. Among the euro area countries, almost all the most powerful countries are expected

to mark an economic decline except Germany and France which are expected to have positive

growth rate of 0.5 percent and 0.2 percent, respectively. Unlike the euro area, the main

contribution to the U.S. GDP growth are expected to be investments and private consumption

which are expected to increase by 2.6 percent and 2.0 percent, respectively, while public

consumption is expected to mark a decline of 2.0 percent.

Global inflation during 2013 is expected

to decline to 3.2 percent from 3.8 percent

as it was in the previous year, and is

projected to remain around this level in

2014. The decline of oil prices and,

consequently, the decline of the food and

energy prices are expected to be the

major contributors to the decline of

inflationary pressures in developed

countries, while in the developing

countries inflation is expected to mark a

slight increase. Inflation in developed

countries for 2013 is expected to be 1.4

percent (2.0 percent in 2012), while in

the developing countries inflation is expected to be 6.2 percent (6.1 percent in 2012). According to

current data, the average inflation in the U.S. in the first half of this year has declined to 1.4

percent (2.1 percent in 2012), while in the euro area declined to 1.7 percent (2.5 percent in 2012).

Due to the recession, there is observed a more significant decrease of the inflation rate in

2012 2013 2012 2013 2012 2013

USA 2.8 1.6 2.1 1.4 -2.7 -2.7

Euro area -0.6 -0.4 2.5 1.5 1.9 2.3

Developing countries 4.9 4.5 6.1 6.2 1.4 0.8

Southeastern Europe 1.4 2.3 5.8 4.1 -4.3 -4.4

GDP Inflation Description

Current account (% of GDP)

-0.5

0.5

1.5

2.5

3.5

4.5

Austr

ia

Spain

Italy

Ge

rma

ny

Fra

nce

Po

rtu

ga

l

Gre

ece

2011 2012 June 2013

Figure 1. Inflation in selected euro area countries, in percent

Source: Eurostat (2013)


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Portugal whereas in Greece it is marked a deflation of 0.2 percent (figure 1). Regarding the prices

for certain categories, oil prices on the global level marked a decline of around 4.0 percent in the

first half of 2013 compared to the same period of the previous year which is an indication of the

decline of the global demand for this product. Besides oil prices, also metal prices marked a

decline of 5.5 percent. Despite the decline in the prices of key products in the global markets, food

prices recorded a slight increase of 0.9 percent compared with the same period of the previous

year.

The main feature of the recent global crisis was the continuous growth of the public debt in the

developed countries. In this context, the weaker performance of the real sector has further

increased the uncertainty of market participants about the sustainability of the public finances.

At the end of 2012, the level of public debt in the euro area reached 90.6 percent of GDP

compared with the rate of 87.3 percent of GDP marked in 2011. Data for Q2 2013 show a further

increase of public debt, which reached 93.4 percent of GDP. Almost all euro area countries

deepened their public debt level in Q2 2013, especially countries which are qualified with a high

level of public debt (table 2). The deepening of the euro area public debt was also caused by the

budget deficit, which reached at 2.3 percent of GDP in Q2 2013. Besides the continued growth of

the budget deficit, also the lack of the economic growth challenges the maintenance of the debts

sustainability in the euro area, but expectations for higher growth in 2014 on the global level

including the euro area is expected to improve debt sustainability and overcome the public debt

crisis, which would be reflected in the increased level of confidence in the markets and cost

reduction of financing.

Table 2. Public debt and the budget balance in selected euro area countries


Current data show a decline of

unemployment rate in the most of

powerful world economies. In the U.S the

unemployment rate decreased to 7.6

percent in June 2013 (8.1 percent in

2012), while in Japan declined at 3.9

percent (4.3 percent in 2012). On the

other hand, the unemployment rate in

the euro area has continued to rise,

increasing from 11.4 percent in 2012 to

12.1 percent in June 2013. Greece,

Spain, and Portugal continue to be the

countries with the highest rate of

unemployment in the euro area and at

the same time representing the countries in which unemployment has increased mostly in the

first half of 2013 compared with 2012. Austria, Germany and France are the countries with the

lowest unemployment rate (figure 2).

Jun 2012 Jun 2013 Jun 2012 Jun 2013 Jun 2012 Jun 2013 Jun 2012 Jun 2013 Jun 2012 Jun 2013

Public debt, % of GDP 149.2 169.1 125.6 133.3 118.1 131.3 110.2 125.7 102.7 105.0

Budget balance, % of GDP -7.7 -30.3 -2.2 -1.0 -7.7 -4.2 -8.2 -5.8 0.8 1.7

Belgium Description

Greece Italy Portugal Ireland

0

5

10

15

20

25

30

Spain

Gre

ece

Po

rtu

ga

l

Ire

lan

d

Italy

Fra

nce

Ge

rma

ny

Austr

ia

2011 2012 June 2013

Figure 2. Unemployment in selcted euro area countries



| 17

Box 1. Performance of the foreign banking groups operating in Kosovo1

ProCredit Holding – PCH (Germany)

In 2012, ProCredit Holding (PCH) has

marked positive performance in most of the

financial indicators. The value of assets at

the end of the year amounted to euro 5.77

billion which represents annual growth of 5.0

percent. Regarding business activity, total

loans of PCH amounted to euro 4.19 billion,

marking an annual increase of 4.0 percent.

Deposits in 2012 amounted to euro 3.62

billion, representing an annual increase of

6.1 percent (figure 3 and 4).

Expenditure to income ratio in 2012 marked

an increase of around 1.2 pp (figure 5). This

slight increase is due to the faster growth of

operating expenditures, which amounted to

euro 376.4 million (an increase of 8.0 percent) against the increase of operational income which reached

euro 435.5 million (an increase of 7.3

percent). Consequently, also the net profit in

2012 marked a decline of 1.1 percent

decreasing to euro 46.3 million (compared

with euro 46.8 million as it was in 2011).

Similar to 2011, the return on equity (ROE)

remained at a relatively high level (10.3

percent). The same level of the profit to the

previous year was also reflected in the

capitalization rate which maintained a

similar level as in the previous year. Capital

Adequacy Ratio (CAR) in 2012 stood at 15.1

percent (15.3 percent in 2011) which

represents a satisfactory level of

capitalization of PCH (figure 4).

Credit rating of PCH remains the same as in the previous year BBB-, assessed by Fitch. Also international

rating remained the same except for PCB in Kosovo which upgraded from B- to B. The largest part of the

group consists of its branches in SEE. While, the largest branch of the group is in Kosovo whose assets

amount to euro 805.1 million, or around 14 percent of total assets of PCH.

In the first half of 2013 compared with the same period of the previous year, PCH assets marked a slight

increase of 1.0 percent, reaching the value of euro 5.81 billion. The increase of total assets of PCH is

attributed to the customers lending increase.

The expenditure to income ratio marked an increase of 1.2 pp. A decrease is observed in the net profit of the

whole PCH group. In the first half of 2013 net profit decreased to euro 21.9 million compared to euro 27.6

million in the first half of 2012.

Raiffeisen Bank International – RBI (Austria)

At the end of 2012, assets of Raiffeisen Bank International recorded the value of euro 136.1 billion, marking

a decline of 7.4 percent. The value of loans to non-financial sector amounted to euro 83.3 billion which

1The source of data for the analysis of the banking groups are annual reports of the respective groups. In the analysis are included only banking groups in which are

included three largest banks operating in Kosovo.

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2008 2009 2010 2011 2012

ProCredit Holding Raiffeisen International

NLB Group

Figure 3. Growth trend of loans

Surce: Annual Reports of the appropriate bank gropus (2013)

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2008 2009 2010 2011 2012

ProCredit Holding Raiffeisen International NLB Group

Figure 4. Growth trend of deposits

Source: Annual Reports of the appropriate bank groups (2013)


18 |

represents an annual growth of 2.2 percent, while deposits of households and non-financial enterprises had

a value of euro 66.3 billion which represents an annual decline of 0.7 percent (figure 5 and 6).

In 2012, the expenditure to income ratio

marked an increase, thus reaching 63.5

percent compared with 57.0 percent in 2011

(figure 7). The growth of this ratio was a

result of increased general administrative

expenses, from euro 3.1 billion to euro 3.3

billion, during the consolidation of financial

statements of RBI that include also the

Polbank. Also, during this period there was

an increase in other costs such as

information technology. Besides expenditures

growth, also the decline of operating income

from euro 5.5 billion to euro 5.1 billion led to

an increase in the expenditure to income

ratio.

Consolidated net profit of RBI in 2012 was euro 725 million, representing a decrease of 25 percent compared

to the previous year. Consequently, profitability indicator ROE decreased to 7.0 percent compared with 9.7

percent in 2011. Despite the profit decline, the level of capitalization of the RBI marked an increase

reaching 15.6 percent compared to 13.5 percent in 2011.

RBI is the only of the three banking groups

of the three largest banks operating in

Kosovo that trades its shares on the stock

exchange market. At the end of 2012, the

share price of RBI in Vienna Stock Exchange

was euro 31.46, marking an increase of 56.8

percent in 2012 compared to the previous

year. Regarding credit rating, RBI is

assessed by the three evaluation companies,

Moody‘s, S&P and Fitch. Moody’s has

assessed RBI with the grade A2 for long term

and P-1 for short term period, which

compared to the previous year represents a

better ranking for one grade, while prospects

have been considered as stable. Regarding

S&P, the assessment was graded by A for the long term and A-1 for short term period, with generally

negative prospects, which represents the same rating to the previous year.2 Whereas Fitch assesses with A

for long term and with F1 for short-term period, with stable prospects representing the same rating as in

2011. The share of the branch of Raiffeisen Bank in Kosovo to total assets of RBI Group at the end of 2012

was 0.45%.

In June 2013, the value of the RBI assets was euro 130.3 billion which represents an annual decline of 4.3

percent. Expenditure to income ratio marked a more moderate growth. In June 2013, the level of this

indicator amounted to 60.2 percent (2.1 pp higher than in June 2012). Regarding profitability, as a result of

lower activity, the profit was euro 277 million compared to euro 701 million in June 2012. However,

capitalization remains at a relatively high level with 15.1 percent.

NLB Group (Slovenia)

The value of total assets at the end of 2012 was euro 14.3 billion, which compared to the previous year

represents a decline of 12.8 percent. The decline of the value of assets, besides the deterioration of the

market conditions, came as a result of the decreased activity of NLB Group in countries which are

2 Indices ATX and EURO STOXX Banks, in which RBI is included, marked a decline of 35 and 38 percent, respectively.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009 2010 2011 2012


Figure 5. Expenditures to income ratio, in percent

Source: Annual reports of the appropriate banking groups (2013)

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012


Figure 6. Return On Equity, in percent



| 19

considered as non-strategic and which keep conservative policies for the market risk. With a decline were

characterized also the other indicators of the NLB Group. Loans of the NLB Group to non-financial sector

marked a value of euro 9.6 billion, which compared to the previous year represent a decline of 11.1 percent.

Similar behavior was also observed in deposits which amounted to euro 9.1 billion representing an annual

decline of 10.4 percent (figure 6 and 7).

However, the NLB Group increased its efficiency by improving the expenditure to income ratio. Compared

to the previous year when expenditure to income ratio was 59.7 percent, in 2012 this ratio declined to 54.6

percent (figure 7).

Profitability indicators were characterized by a decline which is also attributed to increased loan loss

provisions. However, despite the negative

results of the profitability, the increase of

efficiency in expenditures and also the

increase of non-interest income had an

impact on compensating some part of the

losses. Return on Equity (ROE) was negative

standing at -25.0 percent, representing a

weaker performance than in the previous

year (figure 6). Consequently, the level of

capitalization (CAR) was lower than in the

previous year marking a rate of 10.6 percent

compared to 11.1 percent in the previous

year (figure 7).

As a result of the decline of profitability, the

crediting ability of NLB was downgraded by

Moody’s and Fitch from BA1 to B2 and from BBB to BBB-. The share of the NLB Prishtina branch in

Kosovo to total assets of the NLB Group at the end of 2012 was 2.94 percent. The first half of 2013 for NLB

Group was characterized by an acceleration of the declining trend of total assets which reached euro 13.8

billion from euro 16.3 billion as they were in June 2012. However, as a result of the sharp decline of income,

the expenditure to income ratio increased to 81.2 percent in June 2013 (45.0 percent in June 2012). It

should be noted that the expenditures have consistently declined but the decline of income was more

significant. Within the NLB Group, consolidated net profitability continued to be negative compared to the

first half of the previous year. Consequently, return on equity was negative at a rate of -16.8 percent and

the level of capitalization (CAR) continued to decline, reaching 10.1 percent compared with 12.1 percent in

June 2012.

The budget crisis besides increasing the

uncertainty of banks to issue loans has

also led to deterioration of the credit

portfolio quality. Regarding the euro

area, despite the fact that the key

European Central Bank (ECB) interest

rate is declined in order to facilitate

access to finances for the European

banking system, the crediting level

decreased by about 1 percent while the

level of non-performing loans increased

on average with 2.0 pp (figure 8). On the

other hand, in most countries of the euro

area, banks reported an improvement in

capital adequacy ratio (figure 9).

Growth forecasts on export of 6.8 percent in 2013 (4.9 percent in 2012) and the same level of the

growth of import as in the previous year (5.1 percent) is expected to improve the current account

0 5 10 15 20 25 30

Greece

Ireland

Italy

Portugal

Euro area…

Spain

France

Germany

2011 2012/2013

Figure 8. NPL rate in selected euro area countries, in percent

Source: IMF (2013)

8%

10%

12%

14%

16%

18%

2008 2009 2010 2011 2012


Figure 7. Capital Adequacy Ratio



20 |

on the global level during 2013. U.S. are expected to have lower growth rate of exports of goods

(3.1 percent) compared to the previous year (4.2 percent). Meanwhile, also the imports are

expected to mark higher growth rates in 2013 (2.5 percent) compared to the previous year (2.1

percent). Despite the deterioration in the trade balance, the U.S. is expected to have almost the

same level of current account deficit as in the previous year with 2.9 percent of GDP. Unlike the

U.S., the euro area is expected to increase the level of current account surplus from 1.8 percent in

2012 to 2.3 percent of GDP in 2013

primarily as a result of increased exports

of goods for 2.2 percent (1.6 percent in

2012), while imports of goods are

expected to increase for 1.0 percent in

2013 compared with the decline of 2.3

percent recorded in the previous year.

Regarding the exchange rate, euro has

appreciated against the most of the

world major currencies during the first

half of 2013. More significant

appreciation euro marked against the

British Pound with 3.49 percent, then

against the Swiss Franc with 2.08

percent and the U.S Dollar with 1.29 percent. Euro currency movements against other major

currencies are as a result of the economic developments but also of the market perceptions of

fiscal and economic perspective of the euro area countries. In this context, the appreciation of

euro mainly resulted from positive growth in the second quarter of 2013 and positive growth

forecasts for 2014.

3.1. Southeastern Europe

The year 2013 is expected to mark an

economic recovery for all the SEE

countries as the average growth rate of

GDP is expected to reach 1.8 percent,

whereas in the previous year SEE faced

an economic stagnation. Kosovo is

expected to mark the highest growth

rate compared to the other countries (3.1

percent), followed by Macedonia and

Serbia (2.2 percent and 2.0 percent,

respectively), Albania (1.7 percent) and

Montenegro (1.5 percent), while Bosnia

and Herzegovina is expected to have the

lowest growth rate (0.5 percent) (figure

10). Also the current data of European Commission suggest that the economic activity in SEE in

the first half of 2013 was positive.

The growth of the economic activity in the region countries has slightly improved the situation in

the labor market. Recent estimates indicate an average unemployment rate of 26.8 percent in

SEE, which is for 0.3 pp lower compared to the previous year. The highest unemployment rate

continues to be in Bosnia and Herzegovina (44.4 percent), Kosovo (30.9 percent), Macedonia (28.8

percent), and Serbia (24.1 percent), while the lowest rate of unemployment continues to be in

Montenegro (13.1 percent) and Albania (12.8 percent).

-2 3 8 13 18

Ireland

Germany

Euro area average

France

Italy

Portugal

Spain

Greece

2011 2012/2013

Figure 9. Capital Adequacy ratio for selected euro area countries, in percent

Source: IMF (2013)

-2

-1

0

1

2

3

4

5

6

Kosovo

Ma

ce

do

nia

Serb

ia

Alb

an

ia

Mo

nte

ne

gro

B a

nd

H

2010 2011 2012 2013

Figure 10. Real GDP growth rates in SEE, in percent

Source: IMF (2013)


| 21

Due to increased economic activity

during 2013 the inflationary pressures

are expected to increase as well.

According to the European Commission,

the average inflation rate for the first six

months of 2013 was 3.8 percent

compared with an average of 2.5 percent

that was recorded in the same period of

the previous year. Serbia, Macedonia,

and Montenegro reported higher rates of

inflation (10.5, 3.6, and 3.2 percent,

respectively), Kosovo and Albania,

reported an inflation level of 2.7 and 2.4

percent, respectively, while Bosnia and

Herzegovina reported the lowest level of inflation with 0.8 percent (figure 11).

The average rate of the current account deficit for the SEE countries in 2013 is expected to

decrease to 9.1 percent of GDP, which is an improvement of 0.9 pp compared to the previous

year. Montenegro, Albania and Bosnia and Herzegovina continue to report the highest rates of

current account deficit, while Macedonia, Kosovo, and Serbia represent the countries with the

lowest rates of the deficit. Apart from Macedonia, which is expected to increase the level of

current account deficit compared to 2012, in other countries the current account deficit is

expected to decline (figure 12). According to IMF projections for 2013, in almost all countries of

SEE exports are foreseen to have an average increase of 6.7 percent compared with 6.6 percent

decline recorded in the previous year. On the other hand, imports are foreseen to mark an

increase but at a lower rate than exports (5.5 percent). The current account deficit in the region

has improved as a result of the increased current transfers in most of these countries, while also

the balance of the Foreign Direct Investment (FDI), which represents a very important

component of the financing of the current account deficit has marked a slight improvement,

increasing from 5.3 percent of GDP in 2012 to 5.6 percent in the first half of 2013.

As a result of the austerity measures

taken by the governments of the region

countries, it is expected an improvement

in the budget balance. The budget deficit

is expected to decline from an average of

3.9 percent of GDP as it was in the

previous year, to an average of 3.5

percent in 2013. The highest budget

deficit is expected to be marked by

Serbia (5.5 percent of GDP), followed by

Macedonia and Montenegro (3.6 percent

of GDP each), while other countries are

expected to have lower levels of budget

deficit. Despite the reduction of the

budget deficit, in 2013 the public debt in SEE is expected to mark slight increase from 43.5

percent of GDP in 2012 to an average of 44.0 percent of GDP. Serbia and Albania continue to

have the highest public debt with 64.7 and 61.8 percent of GDP, respectively, while Kosovo

continues to have the lowest public debt in the region with only about 9.0 percent of GDP.

During the first half of 2013 the exchange rate of euro against the currency of SEE countries

marked a slight appreciation compared with the same period of the previous year. Euro was

0

2

4

6

8

10

12

14

Se

rbia

Maced

onia

Mo

nte

ne

gro

Kosovo

Alb

an

ia

B a

nd

H

2010 2011 2012 June 2013

Figure 11. Annual average rate of inflation in SEE, in percent

Source: European Commission (2013)

-30

-25

-20

-15

-10

-5

0

Maced

onia

Serb

ia

B a

nd

H

Alb

an

ia

Kosovo

Mon

ten

eg

ro

2010 2011 2012 2013

Figure 12. Current account deficit in SEE, in percent of GDP

Sourcei: IMF (2013)


22 |

appreciated against the Albanian Lek by 0.5 percent (140.2 ALL/EUR), against the Serbian

Dinar by 1.0 percent (111.9 RSD/EUR), and against the Macedonian Denar was appreciated by

0.2 percent (61.60 MKD/EUR).

Lending and depository activity of the banking sector in SEE countries marked a significant

increase compared to the same period of the previous year. Banking sector loans marked an

average increase of only 2.4 percent in the first half of 2013, compared with the growth of 7.1

percent recorded in the same period of the previous year. Deposits marked an average growth of

5.8 percent compared with 7.5 percent in the same period of the previous year. According to the

data published by the European Commission, the highest growth rate of loans was registered in

Montenegro (5.4 percent) and Macedonia (4.2 percent), followed by Bosnia and Herzegovina (3.4

percent), Kosovo (2.8 percent), and Albania (1.2 percent), while Serbia marked a decline of 2.4

percent. Regarding deposits, Montenegro has recorded the highest growth rate, followed by

Serbia and Albania, while other countries have marked lower rates (table 3).

Table 3. Annual average growth rate of loans and deposits in the first semi-annual, in percent


Increased lending activity was mainly

focused in loans to households, which in

the first half of 2013 have increased with

an average of 4.2 percent, while loans to

businesses marked an average growth of

only 1.2 percent.

As regards to the countries, besides

Serbia which has decreased lending to

businesses and stagnation of lending to

households, all other countries marked

positive rates for both sectors (figure 13).

Besides marking lower growth rates of

loans and deposits, banking systems in

SEE were characterized also with the

deterioration of the quality of credit

portfolio during this period. In the first

half of 2013, Albania reported the

highest rate of non-performing loans of

24.4 percent (21.7 percent in 2012),

followed by Serbia 19.9 percent (18.6

percent in 2012), then Montenegro with

18.8 percent (17.6 in 2012). Even in

Bosnia and Herzegovina was marked a

deterioration rate of non-performing

loans from 12.7 percent in 2012 to 14.3

percent. The lowest level of non-performing loans continues to be in Kosovo, with only 7.8 percent

Jun 2012 Jun 2013 Jun 2012 Jun 2013 Jun 2012 Jun 2013 Jun 2012 Jun 2013 Jun 2012 Jun 2013 Jun 2012 Jun 2013

Loans 10.2 1.2 5.1 3.4 8.2 4.2 -5.2 5.4 15.2 -2.4 9.3 2.8

Deposits 10.6 5.4 2.8 4.1 8.9 4.0 0.4 10.3 15.0 6.9 7.7 4.4

Serbia KosovoDescription

Albania B and H Macedonia Montenegro

-10

-8

-6

-4

-2

0

2

4

6

8

10

Maced

onia

Monte

negro

Serb

ia

B a

nd

H

Kosovo

Households Businesses

Figure 13. Annual growth rates of loans to households and businesses in SEE

Source: Europeand Commission (2013)

0

5

10

15

20

25

Kosovo

Maced

onia

B a

nd

H

Mo

nte

ne

gro

Serb

ia

Alb

an

ia

2010 2011 2012 June 2013

Figure 14. NPL rate in SEE



| 23

of total loans in June 2013 (6.6 percent in 2012) (figure 14). As in the euro area, in SEE, despite

the increase of non-performing loans banks reported an improvement in the capital adequacy

ratio from 16.7 percent in December 2012, to an average of 17.0 percent in June 2013. Serbia and

Macedonia have marked higher rates of capitalization level (19.9 and 17.3 percent, respectively),

while Albania represents the country with the lowest level of capitalization (about 15 percent).

During this period, also the Tier 1 capital ratio to risk weighted assets recorded an average

improvement of 13.4 percent in December 2012 to 13.8 percent in June 2013.


24 |

4. Kosovo’s Economy

Developments in the main macroeconomic

indicators suggest that the economic activity

in the country continued its positive growth

rate, making Kosovo among the fastest

growing countries in the region. Growth rate

for 2013 is expected to be around 3.1 percent,

which is for 0.6 pp higher than the in the

previous year.

The main sources of financing the economic

activity during 2013 are showing better

performance, thus reflecting to a positive

economic growth (figure 15). In this context,

it is worth mentioning the higher growth

rate of exports than imports led to improved

trade deficit and consequently to a reduction of the current account deficit during 2013. Exports growth can

be attributed to a more positive development in the economies of the euro area and SEE and to the stability

of metal prices, while the decrease of oil prices and increased domestic production has led to a decline in

imports. Economic growth in the countries where the Kosovo’s diaspora is concentrated resulted in positive

growth rate of remittances. With a significant growth were also characterized the foreign direct

investments, which are mainly generated from the privatization process and re-invested profits of the

companies.

Private sector activity continued to be supported by banking sector lending, which despite the slowdown,

continued to record positive growth rates. Also government expenditures increased, but with a lower rate

than in the previous year, mainly due to lower rate of budget execution than in the previous year.

Kosovo’s economy this year continued to have moderate rate of inflation. Inflation in Kosovo was quite

fluctuating in recent years, being significantly influenced by price developments in the international

markets. This is a result of the high degree of dependence of the country’s economy on imported goods.

4.1. Gross Domestic Product

The main macroeconomic indicators

suggest that the economic activity in

Kosovo during 2013 has improved

slightly. Consequently, according to the

CBK projections, it is expected that the

real GDP growth will be 3.1 percent or

0.6 pp higher than in the previous year

(figure 16). The main contribution to

GDP growth is expected to have been

driven by the increase of consumption,

followed by net exports, while

investments are expected to have a

neutral impact on the growth of the real

GDP. The nominal value of GDP for

2013 is projected to be around euro 5.3

billion.

Consumption is the component with the highest share to GDP, which in 2013 is expected to have

a share of 103.6 percent. Projections for 2013 suggest that consumption is expected to have a

nominal growth of 4.6 percent. Private and public consumption are expected to have the same

Figure 15. Macroeconomic map

-5

0

5

10

15

GDP growth (change in%)

Current accountdeficit/GDP

Remittences/GDP

Exports/GDP

FDI/GDP

Loans (change in %)

Governmentexpenditures (change

in %)

Inflation in Kosovo

2012 2013*

*2013 annualized

Source: CBK (2013)

3.5

3.2

4.4

2.5

3.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2009 2010 2011 2012 2013*

* CBK projection

Source: KAS (2013)

Figure 16. Real GDP growth rate


| 25

growth rate of 4.6 percent each. However, private consumption is expected to be the main

contributor to the growth of the total consumption as it has a higher share (85 percent to total

consumption). The growth of the private consumption is mainly attributed to the growth of

remittances and consumer loans, while the growth of the public consumption is attributed to the

increase of the government current expenditures.

Net exports, which have a negative share of about 30.6 percent to GDP, are expected to mark a

nominal decline of 5.8 percent. Consequently, the deficit of euro 1.73 billion in 2012 is expected to

narrow to euro 1.63 billion in 2013. The narrowing of the deficit positively contributes to the

economic growth rate of the country. Current projections suggest an increase in exports of goods

and services of 3.6 percent, while imports of goods and services are expected to mark a decline of

2.6 percent.

Investments, which have a share of 24.3 percent to GDP, despite the neutral impact on the real

GDP is expected to mark an increase of 3.9 percent during 2013 while in the previous year

investments marked a nominal decline of 10.7 percent. The growth of investments is expected to

be the result of private investments growth of 6.8 percent, while public investments are expected

to record a slight decline of 0.3 percent. The increase of private investments, which comprise

about 60 percent of total investments, among others is expected to be a result of increased FDI

and investment loans.

The data for the GDP by economic

activity are available only for the period

2006-2011, but taking into account the

economic structure of the country, it is

expected that the changes during 2012

and 2013 will be marginal. Based on the

changes in the structure of imports but

also on other indicators such as the

registration of new businesses, FDIs,

loans from banks for certain sectors, etc.

it can be expected that the processing

and manufacturing industry,

agriculture, construction, and real

estate may increase their share, while

the trade sector is expected to decline. These developments in 2013 are supported by surveys of

Kosovo’s Chamber of Commerce about the perception of the business environment in Kosovo.

According to this survey, wholesale and retail trade reported a weaker performance compared

with expectations, while the manufacturing and the services sectors had better performances.

4.2. Fiscal Sector

Budget expenditures by the end of June 2013 amounted to euro 612.2 million which represents

an increase of 0.9 percent. On the other hand, budget revenues marked an annual growth of 7.3

percent, reaching at euro 606.8 million. Consequently, the Kosovo’s budget in the first half of

2013 recorded a primary deficit of euro 5.4 million. Budget execution, until June 2013, reached at

around 38 percent of the planned for 2013 (39 percent in the same period of the previous year),

while budget revenue execution was almost the same compared with the first half of 2012 (43

percent of the annual plan).

Public investments, which in the recent years have significantly contributed to the economic

growth, through capital expenditures, in the first half of 2013 declined by 13.4 percent and were

executed only at the 30 percent of the annual plan for 2013 (40 percent in the first half of 2012).

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009 2010 2011 2012 2013*

Net exports Invetments Consumption GDP

* CBK projections

Source: KAS (2013)

Figure 17. Main components of GDP


26 |

Despite this decline, capital expenditures continue to represent the main category of

expenditures within the budget, with a share of 31.8 percent to total expenditures or euro 194.8

million. Also, until June, government expenditures on goods and services marked an annual

decline of 0.9 percent, reaching a value of euro 88.5 million. On the other hand, government

expenditures on wages and salaries and government expenditures on subsidies and transfers

have marked an increase of 2.9 percent and 23.5 percent, respectively, thus reaching euro 173.9

and euro 157.4 million, respectively, contributing positively to the total consumption growth.

Regarding the structure of the budget revenues until June 2013, it is observed a lower

performance in revenues collected at the border which marked a growth of only 2.2 percent and

have reached the level of euro 362.0 million. This lower growth of the revenues collected at the

border, compared to the previous years, is in line with the trend of imports, while the

performance of the revenues collected within the country has increased by 9.4 percent amounting

to euro 147.8 million. The increase of the domestic revenues is primarily the result of increasing

efficiency of KTA in collecting the revenues and facilitating the procedures for the declaration

and payment of tax obligations but also the growth of economic activity in the country. As a part

of the increase of the effectiveness of KTA it is worth mentioning the mandatory regulations

about the fiscal coupon equipment by businesses, a project which has continued also in 2013.

4.3. Balance of Payments

Balance of Payments in Kosovo continues to be characterized by a current account deficit and the

surplus on the capital and financial account. Current account deficit (mainly driven by the trade

deficit) despite improvements during 2012 and in the first half of 2013, remains at a relatively

high level. The financing of this deficit from capital and financial account remains stable, mainly

due to increased FDI and trade credit.

Trade of goods, as the main component

of the current account, is consistently

characterized by a high level of deficit

(figure 18). In the first half of 2013, the

trade deficit marked a decline of 0.6

percent and amounted to euro 984.5

million. Imports reached the value of

euro 1.13 billion (annual increase of 0.6

percent), while exports amounted to euro

148.8 million (annual growth of 9.9

percent). The slower growth of imports

may be attributed to the decline of oil

prices, while exports growth can be

attributed to the increase of food

exports, plastic and wood products. The higher growth of exports than imports resulted in higher

imports by export coverage ratio; 13.1 percent until June 2013 compared to 12.0 percent in the

first half of 2012.

Another category with a significant share in the current account is the current transfer account,

dominated by remittances. This category is continuously characterized by positive balance and

has significantly contributed to narrowing the current account deficit and the growth of

consumption. Until June 2013, remittances reached at euro 272.4 million which is 4.2 percent

higher compared to the same period of the previous year (figure 19). Based on the current trend

of remittances but also on expectations for better economic performance in countries in which

-700

-500

-300

-100

100

300

500

700

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2009 2010 2011 2012 2013

Exports Imports Trade balance

Figure 18. Exports, imports and trande balance, non-cummulative

Source: KAS (2013)


| 27

Kosovar diaspora is settled, remittances

are expected to reach the level of over

euro 632 million by the end of the year,

or about 4.5 percent more than in the

previous year.

Capital and financial account continues

to be characterized by a positive balance

mainly derived from FDI. FDI inflows in

Kosovo during the first half of 2013

reached a value of euro 143.4 million,

representing an increase of 66.4 percent

compared to the same period of the

previous year. As shown in figure 19,

despite the dominance of FDI in real

estate sector, there is a slight decrease in the construction sector, while it is observed an increase

of FDI in transport and telecommunications and financial services. FDI in the first half of 2013

have been mainly in the form of the equity capital with 62.5 percent, followed by inter-company

loans with 19.1 percent and reinvested earnings of companies with 18.4 percent. All these

components of FDI have increased significantly compared to the same period of the previous

year, where the equity capital leads with an increase of 79.3 percent, followed by re-invested

earnings with 55.0 percent and intercompany loans with an increase of 40.2 percent. By the end

of 2013, FDI is expected to show an increase of about 12 percent amounting to about euro 258

million.

4.4. Labor market

One of the main challenges in Kosovo

remains the high unemployment rate

which is considered as the main burden

to the domestic economy. According to

the results of the Labor Force Survey

published by the Kosovo Agency of

Statistics (KAS), the unemployment rate

in Kosovo in 2012 was 30.9 percent.

Unemployment is dominated by young

age and is higher among females (figure

20). The largest part of the un-

employees are classified as long-term

unemployed people (over 12 months)

which resulted in the high number of

individuals who are discouraged to seek work (14.8 percent of the working age population).

Regarding employees by sectors, manufacturing sector employs the largest number of employees

in the country with over 14 percent, followed by trade and repairing services with 13.4 percent

and the education sector with 12.0 percent. Construction also presents a relatively high share of

employed people with 9.5 percent of total employees.

0%

5%

10%

15%

20%

25%

30%

35%

40%

Re

al e

sta

te

Constr

uction

Tra

n.

and t

ele

c.

Fin

. se

rvic

es

Ma

nu

factu

rin

g

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Figure 19. FDI by main economic sectors

Source: CBK (2013)

0%

10%

20%

30%

40%

50%

60%

70%

15-24 25-34 35-44 45-54 55-64

Total Male Female

Source: KAS (2013)

Figure 20. Unemployment rate by age and gender


28 |

4.5. Prices

Inflation in Kosovo, measured by the

consumer price index (CPI), in the first

half of 2013 was 2.7 percent, or 1.1 pp

higher than in the same period of the

previous years. In the second half of

2013 the inflationary pressures

decreased as a result of euro area prices,

which represent the main trading

partner for Kosovo. The main

components of the CPI which have

contributed to the increase of inflation in

the first half of the year were food

products, beverages and tobacco and to

some extent, the energy prices (figure 21).

Food prices have determined the price

movements also in the past, and this

impact of food prices on overall prices is

expected since the movements of food

prices had been more significant.

Moreover, Kosovo consumer basket is

dominated by food category with 37.8

percent of the total basket, resulting in

higher impact of this category in the

price developments in Kosovo compared

to other countries. Consequently, the

core inflation, which excludes food

category and thus excludes the effect of

seasonal supply fluctuations, presents a clearer picture regarding price stability in Kosovo. As

seen in figure 22, the movement of core inflation was more stable and experienced weaker

fluctuations compared to the overall inflation.

As a result of the high dependence of the

economy on imports, the overall price

level in the country is affected by the

price movements of imported goods.

This is reflected also by the Import Price

Index (IPI). The annual average of IPI

until June 2013 marked an increase of

1.1 percent, and as presented in figure

23, the CPI has shown similar behavior

to the IPI. Meanwhile, Producer Prices

Index (PPI) until June 2013 marked an

annual growth of 4.9 percent. This

growth was driven by increased share of

metallic minerals to 14.9 percent of the

total producer index in the country (5 percent in 2012). Additionally, the metallic minerals prices

have increased for 17.9 percent. The increase of the share of this category is a result of the

overall increase of the production of metallic minerals.

-8.0

2.0

12.0

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

2009 2010 2011 2012 2013

Other TransportFurnishing HH equipment Housing and electricityClothing and footwear Alcoolic beverages and tobacco

Source: KAS (2013) with CBK calculations

Figure 21. Inflation and its main contributors

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

Sep

De

c

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

2009 2010 2011 2012 2013

Annual inflation Base inflation

Source: KAS (2013) with CBK calculations

Figure 22. General inflation and base inflation

80

90

100

110

120

130

140

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

Se

p

De

c

Mar

Ju

n

Se

p

De

c

Mar

Jun

Se

p

De

c

Mar

Ju

n

2009 2010 2011 2012 2013

IPI PPI CPI

Source: KAS (2013)

Figure 23. Consumer, Import and Producer Price Index


| 29

Price stability was also reflected in the real effective exchange rate (REER) of euro in Kosovo

against the currencies of trading partners. REER until June 2013 was appreciated by only 0.3

percent, which was driven by price increase in Kosovo more than in the trading partner

countries. REER stability in Kosovo is observed with EU members as well as with the members

of CEFTA. Specifically, REER was appreciated by 0.8 percent against EU countries and

depreciated by 0.7 percent against the CEFTA countries, which means that Kosovo products may

have gained some competitiveness against CEFTA countries and reduce against EU members.


30 |

5. Kosovo’s Financial Sector

Financial system activity in Kosovo

continued to expand, while maintaining

a satisfactory level of sustainability in

all of its constituent segments. Until

June 2013, the total value of the

financial assets amounted to euro 3.8

billion, which represents an annual

increase of 8.1 percent (8.0 percent in

June 2012). Unlike the previous year,

assets of the financial system have

started recovering their growth rate

pace, and the main contributor to this

growth were assets of pension funds.

The good performance of pension funds,

especially in the second half of 2012, which was mainly a result of the recovery of financial

markets and capital markets, has had an impact on the increase of the assets of this segment

from 22.7 percent in June 2013 compared with the same period of the previous year. The banking

sector continued to be characterized by asset growth, while sustainability indicators continued to

promote the safety and soundness of the sector. In June 2013, assets of the banking sector

reached a value of euro 2.8 billion, which represents an annual increase of 5.1 percent (6.0

percent in June 2012). The slowdown of growth pace that characterized the banking sector assets

since 2009 continued also in 2013, when the annual growth rate was slower compared to the

previous year. With slower growth trend was characterized also the insurance industry, whose

assets marked a growth of 8.2 percent in June 2013 compared with the growth of 16.2 percent in

June 2012. As in the previous year, due to the contraction of their business, assets of

microfinance institutions and financial auxiliaries assets continued to decline.

The banking sector remains the main segment of the financial intermediation in the country,

whose assets accounted for 72.6 percent of total financial system assets in June 2013 (74.7

percent in June 2012). The rapid growth of assets of the pension fund, which is the second

segment by size in the financial system, led to an increase of their share in 21.1 percent of the

total assets of the financial sector in June 2013 (18.5 percent in June 2012 and 16.8 percent in

June 2011). Regarding the other segments, the share of assets of insurance companies remained

unchanged from the previous year with 3.4 percent, while the share of assets of the microfinance

institutions continued to be reduced thus reaching 2.9 percent of total assets of the financial

sector (3.4 percent in June 2012) (figure 24).

The structure of the financial system of Kosovo remained similar to the previous periods as

regard to the number of financial institutions operating in the financial market of the country. In

June 2013, in Kosovo operated a total of 82 financial institutions, where the largest number of is

comprised of financial auxiliaries and microfinance institutions that together are 58 institutions,

but which manage a smaller part of financial sector assets. While after licensing the branch of

Türkiye İş Bankası the number of commercial banks operating in Kosovo has increased to nine

(9) at the end of 2012, the number of companies in the insurance industry has remained

unchanged from the previous year standing at thirteen (13) and the number of pension funds

remaind two (2), (table 4).

74.7

3.4

3.40.0

18.5

2012

Commercial banksInsurance companiesMicrofinance institutionsFinancial auxiliariesPension funds

72.63.4

2.9

0.0 21.1

2013

Commercial banksInsurance companiesMicrofinance institutionsFinancial auxiliariesPension funds

Figure 24. Structure of assets of the financial system by sector

Source: CBK (2013)


| 31

Table 4. Number of financial institutions

Source: CBK (2013)

A significant part of the assets of the financial system of Kosovo (including CBK) continue to be

invested abroad, while the use of financing from abroad continues to be at a relatively low level.

The value of Net Foreign Assets (NFA)3 in June 2013 amounted to approximately euro 2.35

billion, marking an annual increase of 13.0 percent (4.7 percent annual growth in June 2012).

The highest share to total NFA continues to have the assets of CBK (53.2 percent), followed by

commercial banks assets (16.2 percent) and other financial institutions (30.6 percent) (figure 25).

Microfinance institutions, whose

liabilties (mainly in the form of credit

lines) are larger to the external sector

compared to the claims of this sector to

external sector, have continued to mark

a negative balance of NFA. With

exception of NFA of microfinance

institutions, all other segments of the

financial system have marked a positive

balance of NFA in this period. In June

2013, the claims to the external sector

reached a value of euro 2.79 billion, a

growth of 14.2 percent (1.0 percent in

June 2012). Within the claims of the

financial system of Kosovo to the external sector, the highest growth was marked by securities

investments, a category that has a share of 23.1 percent to total claims to the external sector

(figure 26).

Investments in securities amounted to

euro 646.2 million in June 2013 (euro

239.1 million in June 2012). This

increase in investments in securities

primarily is attributabed to the increase

of CBK investments in this instrument

during this period. Besides increasing

investments in securities, Kosovo's

financial system has reduced

investments in deposits in foreign

markets. In June 2013, the value of

deposits in foreign markets was 19.8

percent lower compared to the same

period of the previous year. However, deposits continue to represent the instrument in which the

3 In this context, the financial system includes the Central Bank of the Republic of Kosovo and all financial institutions operating in Kosovo.

Description Jun 2010 Jun 2011 Jun 2012 Jun 2013

Commercial banks 8 8 8 9

Insurance companies 11 11 13 13

Pension funds 2 2 2 2

Financial auxiliaries 29 32 39 40

Microfinance institutions 17 17 19 18

0

200

400

600

800

1000

1200

1400

Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun

2009 2010 2011 2012 2013

NFA of the CBK NFA of commercial banks

NFA of other financial institutions

Source: CBK (2013)

Figure 25. Net foreign assets by institutions, in millions of euro

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

June 2010 June 2011 June 2012 June 2013

Monetary gold and SDR Securities other then shares

Shares and other equities Cash

IMF quota Deposits

Loans Other

Figure 26. Structure of claims against external sector, in percent

Source: CBK (2013)


32 |

largest part the Kosovo’s financial sector assets are invested in the foreign markets. With a share

of 27.9 percent to total claims to the external sector, the financial investments of Kosovo in

shares and other equities increased their value to euro 777.9 million in June 2013 (598.7 million

in June 2012).4

Observed by specific sectors, the data

show that the CBK has shifted a part of

investments from deposits to securities,

while commercial banks have reduced

their investments in the external sector

in deposits and in securities as well,

while pension funds have continued to

invest in shares and other equities.

In June 2013, total liabilities of Kosovo’s

financial system to the external sector

reached euro 440.4 million (annual

increase of 21.0 percent). Liabilities to

external sector mainly consist of loans to

financial institutions operating in Kosovo which are received from financial institutions

operating abroad (29.7 percent of total liabilities to the external sector), non-resident deposits in

the banks operating in Kosovo (17.6 percent) and IMF quota (37.2 percent) (figure 27). The

increase of financial system liabilities to the external sector was mainly a result of increased IMF

quota in June 2013 to euro 163.7 million (euro 79.6 million in June 2012). While non-resident

deposits in the banking sector in the country marked a growth of 0.2 percent, loans which were

received by the financial institutions in the country from the external sector declined by 3.0

percent. As observed by sectors, CBK liabilities to the external sector mainly consist of IMF

quota, while liabilities of commercial banks and microfinance institutions are comprised of credit

lines received from abroad and non-resident deposits in commercial banks.

In June 2013, claims on the domestic sector reached a value of euro 11.1 billion, representing an

annual increase of 5.1 percent compared with the annual growth of 25.8 percent in June 2012.

Claims on the domestic sector primarily consist of claims on the central government and on the

real sector. Claims on the central government (mainly the banking sector claims) reached a value

of euro 110.9 million in June 2013 (euro 29.9 million in June 2012). At the same time, the central

government liabilities which mainly consist of government deposits at the central bank reached a

value of euro 909.5 million, an annual increase of 9.4 percent (annual decline of 8.2 percent in

June 2012).

4 It is worth mentioning that the "cash" category within claims of the financial system to the external sector presents assets that are in the financial system in the country,

but for classification issues of the euro as a foreign asset it is categorized within the claims on the external sector. In June 2013, cash amounted to euro 141.7 million.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Deposits SDR alocation Loans IMF account Other

Figure 27. Structure of liabilities against external sector, in percent

Source: CBK (2013)


| 33

6. Kosovo’s Banking Sector

A new bank was added to the banking sector in Kosovo at the end of 2012, increasing the total

number of commercial banks to nine (9). The structure of ownership in the banking sector

remained similar to previous periods, where banks with foreign ownership dominate the banking

sector. From nine banks operating in the banking market, seven are under foreign ownership and

comprise 89.0 percent of total assets of the banking sector, while two have local ownership and

manage the remaining assets of 11.0 percent.

The more rapid growth of assets of small

banks compared with large banks has

resulted in a lower degree of

concentration of the banking market. In

June 2013, the share of assets of the

three largest banks declined to 67.9

percent of the total banking sector

assets, compared with the share of 72.1

percent in the same period of the

previous year. The decrease of the

degree of the concentration in the

banking market is also shown by the

Herfindahl Hirschman Index (HHI),

whose declining trend shows a decrease

of concentration of assets, loans and deposits of the banking sector (figure 28). According to HHI

for total assets, the banking market was characterized by a large concentration of 1,911 points in

June 2013, which compared to the same period of the previous year shows a decline in the level of

concentration for 131 points of HHI. The degree of concentration of the banking market has

declined also based on HHI for total deposits and loans of the banking sector.

Exposure of the banking sector of Kosovo to the external sector remains low within assets, and

liabilities as well. In June 2013, 19.1 percent of total banking sector assets and 5.4 percent of

total banking sector liabilities were invested in the external sector. The dependency of the

banking sector of external financial resources remains limited, while deposits of non-residents

continue to have a higher share in total liabilities to external sector (51.2 percent in June 2013)

compared with the received credit lines from abroad (45.6 percent in June 2013). The share of

credit lines that banks have received from abroad in total liabilities of the banking sector in June

2013 was only 2.5 percent. Low reliance of the Kosovo’s banking sector in financing from abroad

has limited the risk of contraction of lending by parent banks with which currently are facing

many countries mainly due to the current pressures of the European banks to reduce

deleveraging.

6.1. Banking system balance sheet

6.1.1 Assets

The value of the assets of the banking sector marked a growth, albeit at slower rate compared to

the previous periods. Total assets of the banking sector reached a value of euro 2.79 billion in

June 2013, representing an annual increase of 5.1 percent (6.1 percent in June 2012 and 12.7

percent in June 2011). The growth of the banking sector assets during this period had limited

contribution to the financing of the economy, as the largest growth within the assets category

was marked by the balance category at the CBK. Regarding the asset performance, there is

0

500

1000

1500

2000

2500

3000

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Assets Loans Deposits

Figure 28. HHI for assets, laons and deposits

Source: CBK (2013)


34 |

observed an expansion in banking

portfolio securities investments, while

the contribution of the lending activity

to the total growth of the assets has been

declining since 2011.

The category of balance with the CBK

marked an annual growth of 31.0

percent in June 2013, compared with an

annual growth of 14.2 percent in June

2012, reaching euro 254.1 million (figure

29). The value of total banking sector

investments in securities amounted to

euro 246.3 million in June 2013,

representing an annual growth of 14.3

percent (4.8 percent in June 2012), which indicates a larger orientation of the banking sector

investments to investments in securities. Regarding the structure of investments in securities,

investments in the Kosovo’s government

securities reached euro 99.3 million in

June 2013 (euro 29.8 million in June

2012), while the value of securities

invested in external economy declined to

euro 147.0 million (euro 185.7 million in

June 2012).

On the other hand, lending to the

domestic economy, that represents the

largest share of the total Kosovo’s

banking sector assets was characterized

by a slower growth trend. In June 2013,

total loans amounted to euro 1.8 billion,

which represents the lowest annual

growth rate recorded since the beginning of the operation of the banking system in Kosovo with

2.8 percent (9.3 percent in June 2012 and 15.7 percent in June 2011).

The trend that characterized the main

asset categories up to June 2013 was

reflected in the structure of the banking

sector assets as well. Loans continued to

dominate the structure of total assets

with a share of 65.5 percent in June

2013 (67.0 percent in June 2012),

although the slow growth rate that

characterized total loans during this

period resulted in a decline of their

share to total assets. Within the

structure of banking sector assets, the

share of the category of cash and

balances with commercial banks also

declined to 3.6 and 9.4 percent respectively, in June 2013 (3.9 and 10.0 percent, respectively, in

June 2012). On the other hand, the category of the balance with the CBK grew faster during this

period. In June 2013, balance with the CBK, which represents the commercial banks’ reserves at

0

2

4

6

8

10

12

14

16

0

500

1000

1500

2000

2500

3000

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Cash and balance with CBK

Balance with commercial banks

Securities

Loans and leasing

Fixed assets

Other assets

Annual growth rate of assets (right axis)

Figure 29. Structure of assets of the banking sector, in millions of euro

Source: CBK (2013)

13.8

40.3

92.1 96.7

86.2

59.7

0%

20%

40%

60%

80%

100%

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Other financial and non-financial corporationsForeign governmentsGovernment of Kosovo

Figure 30. Structure of securities, in percent

Source: CBK (2013)

0

5

10

15

20

25

30

35

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Growth rate of total loans

Growth rate of loans to enterprises

Growth rate of loans to enterprises

Figure 31. Growth rate of loans by sectors, in percent

Source: CBK (2013)


| 35

CBK increased their share to total banking sector assets to 9.1 percent (7.3 percent in June

2012). At the same time, investments in securities increased their share to 8.8 percent of total

banking sector assets, compared with 8.1 percent in June 2012 (table 5).

Table 5. Structure of the banking system assets

Source: CBK (2013)

In June 2013, the share of investments

in securities of the Government of the

Republic of Kosovo has increased to 40.3

percent (13.8 percent in June 2012),

which indicates a high interest of the

banks in Kosovo for investments in

treasury bills of the Government of

Kosovo (figure 30). The structure of

assets invested in foreign markets

remained unchanged from the previous

years, where the majority of them are

invested in government bonds, while the

share of investments in corporate

securities in total financial portfolio

investments in securities abroad remained very low. The expansion of portfolio investments in

securities during this period, in particular the concentration of investments in the Government of

Kosovo securities and the growth of

commercial banks’ reserves at the CBK

against the growth of the credit activity

reflects a more conservative approach of

the commercial banks by favoring

investments which carry lower risks.

6.1.2 Loans

The total value of loans issued by the

Kosovo’s banking sector amounted to

euro 1.83 billion in June 2013,

representing an annual growth rate of

2.8 percent compared with the annual

growth rate of 9.3 percent in June 2012.

The growth rate of loans in June 2013 represents the lowest growth rate since the beginning of

In millions of euro Share (%) In millions of euro Share (%) In millions of euro Share (%) In millions of euro Share (%)

Cash and balance w ith the

CBK268.1 12.1 265.3 10.6 298.4 11.3 355.4 12.8

Balance w ith commercial

banks351.6 15.8 319.5 12.8 265.3 10.0 261.4 9.4

Securities 114.0 5.1 205.6 8.2 215.6 8.1 246.3 8.8

Loans and leasing1404.6 63.3 1624.9 65.0 1776.3 67.0 1,825.7 65.5

Fixed assests 42.6 1.9 45.0 1.8 49.9 1.9 57.6 2.1

Other assets 37.8 1.7 40.7 1.6 46.9 1.8 40.5 1.5

Total 2,218.8 100.0 2,501.0 100.0 2,652.3 100.0 2,787.0 100.0

Description June 2013June 2010 June 2011 June 2012

70.3 69.0 67.5 67.7

29.4 29.7 30.3 30.8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Enterprises Households Other

Figure 32. Structure of loans, in percent

Source: CBK (2013)

0%

20%

40%

60%

80%

100%


Other services Trade Construction Manufacturing Mining Agriculture

Figure 33. Structure of loans by economic activity, in percent

Source: CBK (2013)


36 |

operation of the banking sector in Kosovo. The slowdown of the lending activity to the economy

by commercial banks was reflected in loans to households, as well as in loans to enterprises.

Loans to households marked a growth of 4.4 percent in June 2013, compared with the annual

growth of 11.7 percent in the previous year. Similarly, loans to enterprises were characterized by

a slower growth of 3.1 percent from 6.9 percent in June 2012 (figure 34). This indicates that the

slowdown in lending is no longer related to loans to enterprises, but it is a general tightening of

bank lending activity in the country.

The volume of lending activity continued

to slowdown in a period when the

banking sector was characterized by

satisfactory liquidity and soundness in

terms of the degree of capitalization and

loan portfolio quality. Also,

macroeconomic developments during

2013 indicate an improve in the

economic activity compared with the

previous year and the expectations for

2014 show a further improvement of

economic growth, which will potentially

reduce the risk perceived from the

banking sector that may arise from

macroeconomic developments in the country.

Credit tightening by the banking sector can be attributed to supply side factors as well as

demand side factors. The Bank Lending Survey that CBK conducts with commercial banks in

Kosovo indicates that banks have tightened somewhat the credit standards applied to the

approval of loans or credit lines, while at the same time there was a reported decline in demand

for loans by enterprises (box 2).

Box 2. Kosovo’s bank lending survey

Starting as of 2011 aiming to complement the existing information sources in accessing the credit activity in

the economy, the Central Bank of Kosovo (CBK) has begun to conduct the bank lending survey (BLS).

The survey is conducted on quarterly basis and is based on the methodology developed by the European

Central Bank (ECB). The survey is intended to reflect on the changes in credit standards, terms and

conditions applied for new loans, and in the demand for loans. Findings from the survey reflect the

-30%

-20%

-10%

0%

10%

20%

30%


Agriculture Industry, electricity, construction

Trade Other services

Figure 34. Growth trend of loans by economic sectors, in percent

Source: CBK (2013)

-1

-0.6

-0.2

0.2

0.6

1

June 2013 Sept 2012 Dec 2012 Mar 2013 June 2013

Credit standards applied to SMEs

Credit standards applied to large enterprises

Standardet kreditore për kreditë për blerje të shtëpive

Standardet kreditore për kreditë konsumuese dhe kredi tjera

Figure 35. Credit standards applied to enterprises and households

-1

-0.5

0

0.5


Costs interrelated to position of the foreign bankLiquidity position of your bankCompetition from other banksExpectations linked to general economic activityExpectations from an industry or from a specific interpriseRisk on the required collateral

Figure 36. Factors which had an impact on standards to enterprises

Source: CBK (2013) Source: CBK (2013)


| 37

individual banks’ responses, weighted according to the market share of each bank in the Kosovo’s credit

market.5

According to the BLS results, in the second quarter of 2013 compared with the previous quarter and the

second quarter of 2012, overall banks have tightened ‘somewhat’ the credit standards applied to the

approval of loans or credit lines to enterprises. The credit tightening for enterprises was mainly attributed

to tighter lending policies for large enterprises, while the credit standards applied for loans to small and

medium enterprises (SMEs) have eased ‘somewhat’. The second quarter of 2013 represents the second

consecutive quarter in which banks have reported tighter lending standards for enterprises overall and

especially for large enterprises (figure 35), although the first quarter survey showed even tighter lending

standards for this sector.

The main factors explaining the tighter bank lending policies to enterprises in the second quarter of 2013,

as in the second quarter of 2012, were the banks’ expectations regarding the general economic activity and

the industry or firm-specific outlook. On the other hand, factors such as bank’s liquidity position and

competition from other banks have contributed somewhat to easing of credit standards (figure 36). The

commercial banks tightening of the lending policies for enterprises overall were mainly applied through a

lower loan amount, higher collateral requirements and lower maximum term to maturity (figure 37).

The credit standards applied to households eased somewhat during the second quarter of 2013. By purpose

of use, similar to the first quarter of 2013, credit standards applied to consumer loans and other lending

eased somewhat in the second quarter of 2013. On the other hand, unlike in the results of the first quarter

questionnaire in which banks declared that credit standards applied for loans for house purchase eased

somewhat, results of the second quarter of 2013 questionnaire indicate tighter credit standards for loans for

house purchase. The lending policies for households were affected negatively by factors such as expectations

5 For a more detailed explanation on the methodology of the Bank Lending Survey, please refer to the CBK Financial Stability Report, number 2, December 2011.

-1

-0.5

0

0.5


Competition from other banksExpectations with general economic activityPerspectives of house marketsPaying abitlity of the consumersRisk on required collateral

Figure 38. Factors which had an impact on standards applied to households

-1.0

-0.5

0.0

0.5

1.0


Interrest rates on medium loansInterest rates on loans with high riskThe amount of loan or credit lineRiquirement on collateralMaturity

Figure 37. Terms and conditions applied to loans to enterprises


-1.0

-0.5

0.0

0.5

1.0

Qer 2012 Shta 2012 Dhjet 2012 Mar-13 Qer 2013

Interest rates on medium loansInterest rates on loans with high riskCollateral requirementMaturityOther obligations besides interest rates

Figure 39. Terms and conditions applied to loans to households

-1.0

-0.5

0.0

0.5

1.0


Total Loans to SMEs Loans to large enterprises

Figure 40. Loan demand from enterprises



38 |

regarding general economic activity, while competition from other banks and a good performance of the

portfolio of consumer loans contributed positively to the banks’ lending policies for households (figure 38).

Banks eased credit standards applied to households mainly through narrower margin on average loans,

higher maximum term to maturity, and lower non-interest rate charges. However, the commercial banks

tightening of the lending policies for households in general were mainly implemented through wider

margins on riskier loans and higher collateral requirement (figure 39).

The second quarter questionnaire results indicate that overall, the demand for loans to enterprises

increased somewhat, unlike in the two previous quarters when banks reported a decline in demand.

Demand for loans was higher for SME’s, while the demand for loans from large enterprises declined. The

second quarter of 2013 represents the third consecutive quarter where banks reported lower demand for

loans from large enterprises (figure 40). As in the previous quarters, the decline in demand for loans by

enterprises continued to be mainly driven by the negative impact of fixed investment on the financing needs

of firms, debt restructuring and competition in terms of loans from other banks. Factors that contributed

positively to the demand for loans by enterprises were inventories and working capital.

Regarding the demand for loans to households, banks indicated an increase in demand for both loans for

house purchase and consumer loans and other lending in the second quarter of 2013. While during the

second quarter of 2013 banks reported an increase of demand for loans for house purchase, in the three

previous quarters the demand for these loans by households was reduced. The higher demand for loans for

house purchase during this period is mainly attributed to housing market prospects and seasonality

features, while higher spending on durable consumer goods continued to contribute positively to the demand

for consumer loans (figure 41).

Regarding banks’ expectations for the next three months, credit standards are expected to tighten

somewhat for loans to enterprises. The credit standards are expected to tighten more for loans to large

enterprises, while SMEs and long-term loans are also expected to face tighter credit standards in the third

quarter of the year. Regarding households, banks’ expect credit standards to ease somewhat, especially for

consumer loans and other credit. In the third quarter of 2013, banks expect an overall increase in demand

for loans by enterprises. The demand for loans is expected to increase from SMEs and short-term loans,

while demand from large enterprises and for long-term loans is expected to decline in the next quarter.

Banks expect an increase in demand for both, loans for house purchase and consumer loans and other

lending during this period (figure 42).

Although the economy was characterized with more favorable macroeconomic developments

during 2013 compared with the previous year, banks have attributed their tighter lending

policies during this period to their expectations regarding general economic activity. The

slowdown in the lending activity during 2013 might have also been influenced by the foreign

banks strategies, which dominate the structure of the Kosovo’s banking sector. Parent banks of

the foreign commercial banks operating in Kosovo were under pressure to increase their

capitalization rate during this period, which in turn was reflected in a decline of the commercial

banks credit exposures.

-1.0

-0.5

0.0

0.5

1.0


Loans for house purchase Consumer loans and other loans

Figure 41. Loan demand from households

-1.0

-0.5

0.0

0.5

1.0


Expectations on developments in credit standards for enterprises

Expectations on developments of credit demand from enterprises

Expectations on developments in credit standards for households

Expectations on developments of credit demand from households

Figure 42. Expectations on crediting developments in the following quarter



| 39

The structure of loans remained unchanged from the previous year, with loans to enterprises

that dominate the structure of the total banking sector loans with a share of 67.7 percent in June

2013, while loans to households

represent 30.8 percent of total loans

(figure 43).

The structure of loans to enterprises by

economic activity remains the same to

the previous periods. Most of the loans

continued to be represented by loans to

the trade sector, which in June 2013 had

a share of 53.2 percent of the total loans

to enterprises (53.1 percent in June

2012). Loans to industry, a sector which

includes mining, manufacturing, energy

and construction accounted for 23.8

percent of total loans in June 2013 (24.8

percent in June 2012). Agriculture continues to maintain the lowest share to total loans,

although their share increased to 3.9

percent in June 2013 from 3.6 percent in

June 2012 (figure 44).

While lending to almost all sectors of the

economy marked a slowdown of growth,

loans to agriculture and other services

(other trade services, hotel and

restaurant services and other services)

were characterized by an acceleration of

the growth rate. In June 2013, loans to

the agriculture sector reached a value of

euro 48.2 million, representing an

annual growth of 11.9 percent (7.5

percent in the previous year) (figure 44). Increased lending to the agricultural sector, especially

in the last two years may be partly a result of the increased Kosovo’s government support for this

sector through subsidies, which is evaluated to have affected the growth of agriculture activity

and the demand of loans from this sector. Also, the increase of the government support for

agriculture sector may have contributed to reducing the banks perceived risk for crediting this

sector. In June 2013, loans for other services accelerated the growth trend to 7.2 percent from 4.2

percent as it was in the same period of the previous year. Within loans to industry sector, loans

for manufacturing and construction were characterized by a decline of 5.1 and 1.2 percent,

respectively, in June 2013 (an increase of 2.4 and 4.7 percent, respectively, in June 2012). During

this period, trade loans were characterized by a slow pace of annual growth rate of 3.7 percent

compared with 7.7 percent in the same period of the previous year. The slower growth rate of

lending to trade enterprises is mainly attributed to overall credit tightening by banks, although

the slowdown of the activity of trade enterprises during this period may have also had a negative

impact. The slowdown of import growth and the results of the Business Climate Survey in

Kosovo conducted by the Kosovo’s Chamber of Commerce can be taken as indications of a weaker

activity in the commercial sector during this period.

The structure of loans by maturity continues to be dominated by loans with long-term (‘over two

years’), which in June 2013 comprised 68.0 percent of total loans (69.5 percent in June 2012).

Similarly, loans with maturity ‘up to one year’ had a considerable share of 24.2 percent in June

21.0% 23.4% 23.2% 24.2%

7.2%7.9% 7.3% 7.8%

71.8% 68.7% 69.5% 68.0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


over 2 years Over 1 year up to 2 years Up to 1 year

Figure 43. Structure of loans by maturity, in percent

Source: CBK (2013)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%


Up to 1 years Over 1 year up to 2 years Over 2 years

Figure 44. Growth trend of loans by maturity, in percent

Source: CBK (2013)


40 |

2013 (23.2 percent in June 2012). Loans with maturity ‘over one year up to two years’ increased

their share to total loans to 7.8 percent in June 2013 from 7.3 percent as it was in June 2012

(figure 43). The shift of loans with long term of maturity to loans with shorter term of maturity,

in 2013, is recorded also as an annual growth which characterized loans by maturity. The

reluctance of banks to expand their lending activity until June 2013 was reflected especially in

loans with longer maturities. In June 2013, loans with maturity ‘over two years’ recorded an

annual growth of 0.5 percent, compared with the growth of 10.3 percent in the same period of the

previous year. Loans with maturity ‘up to one year’ marked an increase of 7.2 percent (8.1

percent in June 2012). With an acceleration of the growth rate during this period were

characterized loans with maturities ‘over one year up to two years’, which marked an annual

increase of 10.9 percent compared with the growth of 0.5 percent in June 2012 (figure 44). These

developments are consistent with the results of the bank lending survey, in which banks

indicated that credit standards have tightened somewhat for loans with longer maturities and

eased somewhat for short-term loans in the last four quarters.

6.1.3 Liabilities

The structure of liabilities of the Kosovo’s banking sector continued to be dominated by domestic

deposits, which represent the main source of financing for commercial banks in Kosovo. High

reliance on domestic deposits as a financing source, against the reliance on external funds with

higher financing costs, has made banks benefit from a more stable source of funding and avoid

exposure to external economy in difficult economic times that developed countries are facing

with.

In June 2013, deposits comprised 79.0 percent of total liabilities of the banking sector compared

with 79.5 percent in June 2012, reflecting the slowdown of deposit growth during this period

(table 6). An additional important source of financing for commercial banks in Kosovo are own

resources, which in June 2013 had a share of 9.8 percent to total liabilities. In June 2013, the

banks’ own resources were 6.7 percent higher compared with the same period of the previous

year, which is mainly attributed to the increase of the shareholders capital but also to the profit

attained from banks. The balances from other banks as an external source of financing for

commercial banks in Kosovo marked the value of euro 20.2 million, representing a decrease

compared with the value of euro 21.3 million in June 2012.

Table 6. Structure of liabilities of the banking sector

Source: CBK (2013)

Meanwhile, subordinated debt reached a value of euro 36.3 million in June 2013, an increase of

17.1 percent compared with the previous year. The increase of subordinated debt during this

period can be mainly attributed to the need for an increase of capital in some of the commercial

banks in order to meet regulatory requirements in compliance with the regulation in force of the

In millions of euro Share (%) In millions of euro Share (%) In millions of euro Share (%) In millions of euro Share (%)

Balance from other banks 39.7 1.8 74.3 3.0 21.3 0.8 20.2 0.7

Deposits 1,751.5 78.9 1,957.8 78.3 2,108.5 79.5 2,201.3 79.0

Other borrow ings 25.3 1.1 12.3 0.5 26.8 1.0 14.8 0.5

Other liabilites 153.5 6.9 183.2 7.3 208.9 7.9 241.3 8.7

Subordinated debt 24.4 1.1 33.5 1.3 31.0 1.2 36.3 1.3

Ow n resources 224.3 10.1 239.9 9.6 255.8 9.6 272.9 9.8

Total liabilities 2,218.8 100.0 2,501.0 100.0 2,652.3 100.0 2,787.0 100.0

Description June 2012June 2011June 2010 June 2013


| 41

CBK.6 Commercial banks reduced their use of other borrowings during this period, which mainly

are credit lines from international institutions. These borrowings by banks in June 2013 had a

value of euro 14.8 million, which represents a decrease compared with the value of euro 26.8

million in the same period of 2012.

Total liabilities of the banking sector to the external sector amounted to euro 151.1 million in

June 2013 (euro 146.1 million in June 2012) and mainly consists of non-resident deposits in

commercial banks operating in Kosovo (51.2 percent of total liabilities of the banking system to

the external sector) and loans (45.6 percent of total liabilities to foreign sector).

6.1.4 Deposits

Total deposits in the banking sector

reached a value of euro 2.2 billion in

June 2013. Deposits were characterized

with a slower annual growth of 4.4

percent in June 2013, compared with

7.7 percent in the same period of the

previous year (figure 45). The

slowdown of deposit growth during this

period was mainly due to the decline of

private and public enterprises deposits,

as well as the slowdown of the growth

rate of household deposits.

Household deposits in the banking

sector amounted to euro 1.6 billion in

June 2013, an annual increase of 8.3 percent (12.2 percent in June 2012, 19.0 percent in June

2011). The slower growth trend of household deposits during this period was not reflected in the

share of these deposits to total deposits of the banking sector. In June 2013, household deposits

had a share of 74.8 percent, representing an increase compared with the share of 72.1 percent in

June 2012 (figure 46).

In June 2013, deposits of enterprises had

a value of euro 449.4 million, a decline of

7.5 percent. Regarding the structure of

enterprises, private enterprises deposits

were characterized with an annual

decline of 7.4 percent, while public

enterprises deposits marked a decline of

8.2 percent. In June 2013, private and

public enterprises deposits were

characterized with a decline of their

share to total deposits, to 17.5 percent

and 2.9 percent, respectively, from the

share of 19.7 and 3.3 percent in June

2012. The decline of deposits of

enterprises during this period can be attributed, to some extent, to the use of own resources as a

working capital by enterprises, instead of being financed from abroad, due to the more difficult

6 Under the new regulations on capital adequacy of banks, which is in effect since the end of 2012, CBK tightened requirements for the calculation of regulatory capital

from commercial banks.

15.8

11.8

7.7

4.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

0

500

1000

1500

2000

2500


In m

illi

on

s o

f e

uro

Deposits Annual growth (right axis)

Figure 45. Growth trend of deposits, in percent

Source: CBK (2013)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Other Government Private enterprises Public enterprises Households

Figure 46. Structure of deposits by sectors, in percent

Source: CBK (2013)


42 |

access of the enterprises to the bank finances. Unlike the previous year, also the deposits of other

financial corporations were characterized with an annual decline of 32.9 percent (12.3 percent

growth in June 2012), which also led to the reduction of their share to the total deposits of the

banking sector at 3.5 percent (5.5 percent in June 2012). The decline of deposits of other financial

corporations in this period may be primarily the result of negative performance of these

corporations in the recent periods and the withdrawal of a part of deposits of Kosovo Pension

Saving Fund from the banking sector.

However, the structure of domination of the total deposits by household deposits, which marked

an increase during this period, somewhat has neutralized to the negative effect of the deposits

decline of enterprises and other financial corporations. The growth of household deposits during

this period can partly be attributed to the increase of funding resources of the households during

this period (e.g. remittances, compensation of employees from abroad, etc.), and the slight

increase of the interest rates on deposits by commercial banks. Regarding non-resident deposits,

reaching the value of euro 76.3 million in June 2013, these deposits recorded an annual growth of

0.6 percent, which represents an improvement compared to 23.9 percent annual decline recorded

in June 2012.

The structure of deposits by maturity continued to be dominated by time deposits which

represented about 49.4 percent of total deposits in June 2013, followed by transferable deposits

which had a share of 33.9 percent and saving deposits which represented about 16.8 percent of

total deposits. Deposits with shorter maturities dominate the structure of time deposits. In June

2013, deposits with maturity of ‘up to one year’ comprised 65.9 percent of total time deposits,

followed by deposits with maturity of ‘over two years’ which comprised 18.7 percent and deposits

with maturity ‘over one year up to two years’ which comprised 15.4 percent of total time deposits

(figure 47). The dominance of the structure of total deposits of the banking sector by the deposits

with shorter maturities represents a

limitation on the activity of the banks,

when we consider that long-term

maturity loans have higher share to

total loans. The use of short-term

sources of financing to meet the

demands for long-term funds from

customers increases the exposure of the

banking sector to liquidity risk. In June

2013, deposits with maturity ‘up to one

year’ and deposits with a maturity of

‘over two years’ increased their share to

total time deposits against the decrease

of the share of deposits with maturity

‘over one year to two years’, which could mainly be due to the renewal of a part of the household

deposits with this maturity to deposits with a maturity over six months to one year maturity.

6.1.5 Interest rates

Loan interest rates were characterized with a downward trend, while deposit interest rates were

characterized with a slight increase. The average loan interest rate in the first half of 2013

decreased to 12.8 percent compared with 13.7 percent in the same period of 2012. On the other

hand, the average deposit interest rates increased to 3.5 percent from 3.4 percent as it was in

June 2012. Consequently, the interest rate spread on loans and deposits decreased to 9.3pp in

June 2013, from 10.3pp in June 2012 (figure 48).

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Over 2 years Over 1 year up to 2 years Up to 1 year

Figure 47. Structure of deposits by maturity, in percent

Source: CBK (2013)


| 43

The average deposit interest rates for

enterprises stood at 2.2 percent in June

2013, which shows a decrease compared

to the same period of the previous year

when it stood at 2.8 percent. Likewise,

the average interest rate on household

deposits was also characterized with a

decline to 2.8 percent in June 2013 (3.1

percent in June 2012). Regarding

maturity, higher interest rates were

recorded on deposits with maturity ‘1 up

to 2 years’ for amounts larger than euro

250 thousand, with an average of 5

percent in the first half of 2013. While

the average interest rate on deposits of private enterprises marked a decline for almost all

categories of deposits, deposits with maturity ‘over two years’ for the amounts up to euro 250

thousand and deposits ‘up to one month’ for deposits over euro 250 thousand were characterized

with an increase of the average of interest rate. Deposits with maturity ‘over two years’ (under

euro 250 thousand) and deposits with maturity ‘up to one month’ (over euro 250 thousand) had

an average interest rate of 4.9 and 2.6 percent, respectively (4.8 and 1.9 percent in June 2012).

Likewise, the average interest rates on household deposits marked a decrease in almost all

categories by maturity. Within household deposits, the lowest average interest rate was recorded

by deposits with a maturity ‘up to one month’ (2.1 percent), while the highest interest rate was

recorded by deposits ‘over two years’ (5.0 percent).

Loans for investment purposes were characterized by lower interest rates compared to other

business loans. The lower interest rate on loans to enterprises was for loans with maturity ‘over

five years’ (10.3 percent), while higher average interest rate was for loans with maturity ‘up to 1

year’ (13.5 percent). Within other business loans, loans with maturity ‘up to one year‘ recorded

the highest average rate of 15.6 percent, and loans with maturity ‘over five years’ had lower

average rates of 11.1 percent. It is worth mentioning that the average interest rate on loans was

characterized by a decline in the first half of 2013 compared to the same period of the previous

year for investment loans as well as for the other business loans (figure 49). With a decline of the

average interest rate in the first half of

2013 were characterized also the

overdrafts (10.5 percent in June 2013

compared with 11.2 percent in June

2012).

The agricultural sector continues to be

characterized by higher interest rates.

In the first half of 2013, loans to the

agricultural sector had an average

interest rate of 18.4 percent (20.3

percent in the first half of 2012). Loans

to the services sector, which at the same

time dominate the structure of total

loans, were the second category with the

highest average interest rates of 12.8 percent (13.6 percent in June 2012). Almost the same

interest rate in this period had also the industrial sector with 12.5 percent (12.7 percent in June).

0%

2%

4%

6%

8%

10%

12%

14%

16%


Loan interest rate Deposit interest rate

Loan to deposit ratio

Figure 48. Six-month average interest rates, in percent

Source: CBK (2013)

5%

10%

15%

20%

25%

Qershor 2008 Qershor 2009 Qershor 2010 Qershor 2011 Qershor 2012 Qershor 2013

Investing up to 1 year Investing Over 1 yearOther up to 1 year Other over 1 yearOverdrafts

Figure 49. Six-month average interest rates on loans to enterprises, in percent

Source: CBK (2013)


44 |

In June 2013, the average interest rate on consumer and mortgage loans was 11.6 and 10.3

percent, respectively (12.6 respectively 10.7 percent in June 2012).

Concerning household loans, the average interest rate for consumer loans in June 2013 was 12.3

percent, marking a decrease compared with the average of 13.5 percent in June 2012. As regards

the real estate loans, the average interest rate in the first half of 2013 was higher (11.3 percent

in June 2013), compared with the average marked in the previous year (10.6 percent).

Concerning maturity, real estate loans with longer maturities continued to be characterized by

lower interest rates. In June 2013, loans with maturity ‘over ten years’ recorded the lowest

average interest rate of 9.8 percent (10.4 percent in June 2012), while loans with maturity ‘up to

five years’ were characterized with a higher average rate of 13.0 percent (9.9 percent in June

2012). Compared to the same period of the previous year, it is recorded an increase in the

average interest rate for loans with a maturity of ‘up to five years’, while average interest rates

for loans with a maturity of ‘over ten years’ marked a decline.

6.2. Performance of the banking sector

The performance of the banking sector

marked an improvement. Net profit of

the sector in June 2013 increased 48.1

percent compared to the same period of

the previous year, amounting euro 15.2

million (figure 50). Even though the

income of the sector marked an annual

decline of 1.2 percent, expenditures

marked a more significant decline of 4.7

percent thus resulting in the profit

growth of the banking sector (figure 51).

The income structure of the banking

sector remains similar to the previous

year (figure 52). Interest income, which

includes interest income on loans,

securities and placements with other

banks, continues to be the dominant

category of the income with a share of

80.8 percent to total income. In June

2013, interest income decreased to euro

99.1 million from euro 101.1 million in

June 2012, an annual decline of 2

percent. The main contributors to the

decline were investments in securities,

followed by income from loans and

placements in other banks.

Interest income on securities for the

period of January to June 2013 marked a decline of 50 percent compared with the first half of

2012, despite of 24 percent growth in the six-month average volume of securities (investments in

domestic securities have marked an almost fourfold increase, whereas investments on external

securities have dropped by 4.7 percent). The lower return on investments in securities reflects

the decline in return rates on both investment categories.

1.2%

11.2%8.2%

-1.2%-6.5%

16.0%

14.9%

-4.7%

-10%

-5%

0%

5%

10%

15%

20%

Jun Sep Dec Mar June Sep Dhjet Mar Jun Sep Dec Jun Sep

2010 2011 2012 2013

Income Expenditures

Figure 51. Annual growth rate of income and expenditures

Source: CBK (2013)

17.1

14.9

10.2

15.2

0

2

4

6

8

10

12

14

16

18

0

20

40

60

80

100

120

140

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Income Expenditures Net profit (right axis)

Figure 50. Balance of income and expenditures, in millions of euro

Source: CBK (2013)


| 45

Republic of Kosovo Treasury-bill yields have marked a significant decline. The simple average

annual rate of return in the period January to June 2013 for treasury bills issued by the

Government declined to 0.95 percent

compared to the 3.5 percent in the same

period of the previous year, which was

also the first year of issuance of these

instruments. The return on investments

in foreign government securities, which

continue to dominate the investment

portfolio with a share of 60 percent (86

percent in June 2012), decreased

primarily as a result of lower rates of

return that have characterized European

and global markets in 2013 due to the

ease monetary policy of the ECB and the

U.S. Federal Reserve and the more

optimistic expectations for real sector developments.

The main category of the interest income

- interest income on loans - declined as

well. In June 2013, interest income on

loans decreased to euro 96.3 million, an

annual decline of 0.7 percent. This

decline coincides with the slowdown of

credit activity which in June 2013

recorded an annual growth of only 2.8

percent compared to 9.3 percent in June

2012. Another factor that impacted the

loan interest income decline is the fall of

the average effective interest rate on

loans, which in June 2013 recorded an

annual drop of 0.87 pp. Income from

bank placements in other banks decreased by 37 percent, mainly due to lower rates of return and

the reduction in the average volume of placements.

Conversely, the non-interest income

marked an increase. In June 2013, the

value of non-interest income amounted

to euro 23.6 million, an annual growth of

2.2 percent. This income category is

dominated by fees and commissions

which in June 2013 marked an annual

increase of 1.8 percent. Despite of the

slowdown in the growth trend (figure

53), the share of this income category to

total bank income continued to increase.

The growth of fees and commission

income is likely to have been a result of

increased prices for certain banking services, as well as of the expansion in the use of the

banking services. The increased income from fees and commissions could reflect a banks’

potential strategy choice of ‘replacement’ of the decline of interest income from the narrower

79.3% 78.3% 78.0% 78.5%

16.8% 16.9% 17.3% 17.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Loans Bank placements Securities

Fees and commissions Other operating income

Figure 52. Structure of income by category, inpercent

Burimi: BQK (2013)

5.9%

9.9% 7.8% -0.7%

211.4%

21.5%

60.8%

-57.1%

12.3%

11.6%11.2% 1.8%

-100%

-50%

0%

50%

100%

150%

200%

250%

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun

2010 2011 2012 2013

Loans Securities Fees and commisions Pacements

Figure 53. Annual growth rate of income by category

Source: CBK (2013)

15.7%

-3.6%

11.1%4.8%

-23.8%

80.8%

31.8%

-19.0%-11.6%

8.9% 8.3%-1.4%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Interest expenditures

Non-interest expenditures

General and administrative expenditures

Figure 54. Expenditures growth by category, in percent

Source: CBK (2013)


46 |

interest margins and lower rate of return on investments. A good performance of non-interest

income may enable the banks to increase competition by further narrowing the interest margins.

Expenditures of the banking sector in June 2013 declined to euro 106.4 million from 111.6 in

June 2012. While interest expenses

recorded a slowdown in annual growth

to 4.8 percent from 11 percent in the

previous year, two other expense

categories recorded an annual decline

thus resulting in the overall decline of

total expenses (figure 54). As regards

the interest expenses, their annual

growth is mainly attributed to the

increased interest expenses on deposits,

which were a result of the slight

increase in the deposit interest rate and

deposit volume.

Meanwhile, non-interest expenses

marked a significant decline, thus contributing mostly to the decline of the total banking sector

expenditures. Provisions for possible loan

losses, which account for the biggest

share of this expenditure category,

declined of 24 percent (figure 55). The

lower amount of provision expenses

during this period reflects the fact that

the rate of loan portfolio deterioration in

the first half of 2013 was lower than that

in the first half of 2012 (figure 56).

Therefore, despite the lower provision

expenses during this period, the total

value of loan loss provisions remains at a

satisfactory level where the coverage rate

of non-performing loans with provisions

in June 2013 stood at 113.15 percent.

General and administrative expenses,

which dominate the structure of the

banking sector expenditures (figure 57),

marked a decline of 1.4 percent. A

contribution to the decline of these

expenses was given by expenses

categorized as ‘other non-interest

expenses’, while personnel expenses,

which in June 2013 accounted for 43

percent of total general and

administrative expenses, marked an

increase. In June 2013, personnel

expenses marked an increase of 1.6

percent compared with the same period

of the previous year, despite of the fact that the number of employees in the banking sector in the

first half of 2013 was lower for 91 employees.

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Mar Qer Shta Dhjet Mar Qer Shta Dhjet Mar Qer Shta Dhjet Mar Qer

2010 2011 2012 2013

Deposit interest rate

Provisions

General and administrative expenditures

Figure 55. Annual growth rate of expenditures by category, in percent

Source: CBK (2013)

0%

5%

10%

15%

20%

0

5,000

10,000

15,000

20,000

25,000

30,000

Jun 2010 Jun 2011 Jun 2012 Jun 2013

In m

illio

ns o

f e

uro

Provisions for the appropriate six-month period (in thousands of euro)

The growth rate of the value of NPL for the appropriate six-monthperiod

Figure 56. Expenditures for provisions and NPL growth rate

Source: CBK (2013)

34% 28% 27% 30%

16% 25% 28% 24%

50% 47% 45% 46%

0%

20%

40%

60%

80%

100%

Jun 2009 Jun 2010 Jun 2011 Jun 2012

General and administrative expendituresNon-interest expendituresInterest expenditures

Figure 57. Structure of expenditures by category, in percent

Source: CBK (2013)


| 47

Profitability indicators7 of the banking

sector improved. Return on Average

Assets (ROAA) for 2013, based on the

annualized profit earned until June

2013, reached 1.1 percent from 0.7

percent in 2012 (figure 58). Return on

Average Equity (ROAE) improved as

well, reaching to 10.9 percent in 2013

from 7.1 percent in 2012.

The more significant decline in

expenditures compared to the decline in

income resulted on the improvement of

the overall efficiency indicator expressed

through the cost-to-income ratio of the

sector (figure 59). In June 2013, cost-to-

income ratio dropped by 3.2 pp, from

89.9 percent in June 2012 to 86.7

percent in June 2013. However, the

operating expenses to total income ratio

remains at an approximate level to the

previous year (figure 60), which suggests

that the increase of the bank efficiency

in this period does not result from the

increased efficiency in the management

of operating expenses, but rather as a

result of the downsize in loan loss

provision expenses. Therefore,

considering the growing trend of non-

performing loans and the need for

additional provisioning that may arise as a consequence, the improvement of the cost-to-income

ratio and of profit may not be sustainable if the banks do not improve the operational and asset

management efficiency, especially when

taking into account the trend of income

slowdown and slowdown of credit

activity.

The net interest margin, which

measures the efficiency of the bank

investment in terms of their capacity to

generate income, has decreased (figure

61). Net interest income decreased

despite of the increase in the six-month

average interest generating assets, thus

resulting in the decline of net interest

margin to 2.9 percent from 3.2 percent

in June 2012. The ratio of total income

to total assets declined to 4.4 percent from 4.7 percent in 2013, which suggests a decline of the

efficiency of the sector in generating income from its available assets.

7 Profitability indicators for 2013 are estimated by annualizing the profit which banking sector realized until June 2013.

14.8% 14.9%

7.1%

10.9%

1.5%1.4%

0.7%

1.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2010 2011 2012 2013*

ROAE ROAA (right axis)

Figure 58. Profitability indicators

*

Source: CBK (2013)

81.2%

84.7%

89.9%

86.7%

76%

78%

80%

82%

84%

86%

88%

90%

92%

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Figure 59. Expenditures to income ratio, in percent

Source: CBK (2013)

1.9% 1.9% 1.9% 1.7%

40.9% 40.0% 40.0% 39.9%

75.2%

69.2% 70.4%72.9%

17.7% 17.4% 16.6% 17.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Qershor 2010 Qershor 2011 Qershor 2012 Qershor 2013

Operational expenditures/assets averageOperational expenditures/total incomeOperational expenditures/interest net incomePersonnel expenditures/total income

Figure 60. Efficiency indicators

Source: CBK (2013)


48 |

In June 2013, the number of employees

in the banking sector dropped to 3,638

employees from 3.713 in June 2012. The

downsizing of the number of employees

and the increase of the value of assets

contributed to the overall increase of the

average value of assets managed by an

employee. The number of active loans

per employee increased, despite the

slight decline in the number of

outstanding loans. The ratio of profit per

employee increased as well, becoming 61

percent higher than in the previous year

(table 7). Overall, the reduction of the

number of employees in the banking

sector has resulted in improved productivity indicators, where the capacity of employees to

manage larger volumes of assets has increased.

Table 7. Selected indicators of the banking sector

Source: CBK (2013)

6.3. Banking System Risks

6.3.1 Liquidity risk

The liquidity rate in the banking sector

continued to remain at a high level

during 2013. Albeit at a slower pace,

deposits continued to increase and

remain the main source of financing of

the banking activity. Key liquidity

indicators increased, standing at a fairly

higher level than the minimum required

by the applicable regulation. Liquidity

gap has narrowed slightly for almost all

maturity categories, suggesting a decline

of exposure to liquidity risk as a result of

the maturity mismatch between assets

and liabilities.

Low exposure to liquidity risk of the banking sector is mainly attributed to the traditional

banking model, where the structure of funding sources is dominated by deposits collected in the

country which are characterized with lower cost and higher sustainability than other financing

sources such as external financing and wholesale funding. Banking sector deposits account for 80

2.7%

2.8%

2.8%

2.9%

2.9%

3.0%

3.0%

3.1%

3.1%

3.2%

3.2%

0

10

20

30

40

50

60

70

80

Jun 2010 Jun 2011 Jun 2012 Jun 2013

In m

illio

ns o

f e

uro

Net interest income Net interest margin

Figure 61. Net interest margin

Source: CBK (2013)

Description Jun 2010 Jun 2011 Jun 2012 Jun 2013

Assets/no. of employees 623.0 684.5 714.3 766.0

Profit/no. of employees 4.8 4.1 2.8 4.5

Number of loans/no. of employees 75.8 92.3 113.4 115.3

68%

70%

72%

74%

76%

78%

80%

82%

84%

86%

0

500

1000

1500

2000

2500

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun

2009 2010 2011 2012 2013

Loans Deposits Loan to deposit ratio (right axis)

Figure 62. Loans and deposits of the banking sector, in millions of euro

Source: CBK (2013)


| 49

percent of the total sector liabilities, most of which (74 percent in June 2013) are household

deposits characterized by low degree of concentration. The degree of concentration of total

deposits is generally low, where the share of the deposits of twenty largest depositors of each

bank to the total deposits of the system is 15 percent. Moreover, half of the total deposits are

time deposits with mainly over 6 months maturity (i.e. 6 months to 1 year), which is likely to

reflect the high confidence of depositors in the system and the sustainability of deposits, which

are increasing constantly. The share of short-term borrowings in the liabilities structure of the

system is low, which leads to low exposure of the system to the access of short-term funding

resources and the frequent price movements with which foreign markets for short-term funding

are characterized. Liabilities to parent banks account for a very low share of total liabilities,

which makes the sector safe from a potential contraction of borrowing from parent banks due to

current deleveraging pressures of European banks through debt and over-sees credit reduction,

including for their subsidiaries and their branches.

Loan-to-deposit ratio, as an important liquidity indicator of the sector, stood at 83 percent in

June 2013, which suggests a satisfactory level of liquidity. However, the developments of deposits

and lending activity in the banking sector are characterized with a seasonality which is reflected

also in the trend of the loans to deposits ratio (figure 62). This indicator reaches its peak in the

middle of the year and has a downward tendency in the second part of the year, which is mainly

related to the fact that new loans record high level in the second quarter, whereas deposit growth

is faster in the second half of the year.

The Kosovo’s banking sector is considered

to have favorable liquidity position also

for the fact that liquid assets to total

assets ratio of the sector, as well as to the

short-term liabilities stand at a high

level. In June 2013, core liquid assets

accounted for 27.9 percent of total assets

(28.3 percent in June 2012), while broad

liquid assets to total assets stood at 29.3

percent compared with 28.9 percent in

the previous year (figure 63). Besides the

annual growth of total assets, banks

ensured to have sufficient liquid assets,

mainly through increased rate of high-

liquidity assets such as cash and balance with the CBK. Current accounts and placements with

other banks, which are included in the core liquid assets, have marked a decline , but higher

growth of cash and reserves has lead to the general growth of core liquid assets and hence to the

maintenance of their ratio to total assets at similar level. Banks have also increased their

investments in securities, where the primary increase is observed to have taken place in the

securities of the Kosovo’s Government. The increase of the share of cash and of the Kosovo’s

Government securities within the assets structure is considered as a positive development for the

liquidity and stability of the banking sector. However, the growth of these asset categories may

reflect the reluctance of banks to increase lending to the local economy and investing in foreign

markets.

In December 2012, the Central Bank of the Republic of Kosovo approved new regulations for the

management of liquidity risk, according to which banks should maintain the liquid assets to

short-term liabilities at a minimum level of 25 percent. Banking system significantly exceeds the

regulatory requirement, where in June 2013 the ratio of liquid assets to current liabilities was

38.5 percent. Therefore, judging based on this indicator, it can be suggested that Kosovo’s

32.1%

28.1%

28.9%

29.3%

28%

28%

29%

29%

30%

30%

31%

31%

32%

32%

33%

0

500

1000

1500

2000

2500

3000


Liquid assets "Broad"

Total assets

Liquid assets "Broad"/ Total assets

Source: CBK (2013)

Figure 63. Broad liquid assets ratio to total assets


50 |

banking sector is able to adequately meet its short-term liabilities and to successfully deal with

potential liquidity risks.

Liquidity reserves of the banking

system also continue to remain at a

much higher level than the regulatory

requirements (figure 64).8 In June 2013,

total reserves amounted to euro 304.2

million, which is 64 percent more than

the required reserve of euro 186.0

million. In terms of exposure to liquidity

risk, maintaining a high level of reserves

can be considered positive because it

reduces the exposure of the sector to

possible developments with adverse

liquidity implications, especially when considering that the Kosovo’s economy is euroized and the

Central Bank of the Republic of Kosovo has limited mechanisms for injecting the liquidity in the

market. However, holding reserves over the required level represents an opportunity cost for

banks and may have implications on the cost of banking services, thus a good management of

liquid assets which minimizes the opportunity cost and at the same does not endanger the

liquidity position is of significant importance.

The business model of the banking sector is mainly based on the maturity transformation, where

short-term funding sources are used for meeting long-term demand for funds from clients. Such

an activity entails structural liquidity risk, and liquidity gap analysis (the difference between

assets and liabilities of the same maturity intervals) method is important in assessing this risk.

Large gaps or discrepancies between assets and liabilities of the same maturity represent a

higher risk, and the management of liquidity is expected to rely on the principle of minimizing

the liquidity gap. Figure 65 presents the liquidity gap in the Kosovo’s banking sector, where the

negative gap means that assets for a certain maturity exceed liabilities and vice versa. The figure

shows that in 2013 the gap has narrowed for almost all maturity intervals as compared to the

previous year. The maturity of ‘1-7 days’

is characterized with a more significant

mismatch, where the value of liabilities

exceeds the value of assets for euro 449.1

million. The gap for the maturity of ‘8-30

days’ increased but in the opposite

direction, shifting towards a positive gap

partly due to banks’ investments in

securities in the country. In general, the

cumulative gap for assets and liabilities

with a maturity of up to 90 days is

negative and reflects the fact that loans,

as the dominant category of bank’s

assets, have mainly a maturity longer

than three months, while deposits as the dominant category within liabilities have short

maturity term. The cumulative difference for this period (up to 90 days) is narrowed to euro -

466.5 million compared to euro -533.3 million in June 2012, and further narrowing the gap

requires mainly an effort to extend the maturity of deposits which at the same time would also

8 Reserves for 2013 are presented as of June 2013, while in other years the situation is presented the end’s year statement.

0

50

100

150

200

250

300

350

400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Required reserves Balance with CBK

Cash Total reserves

Source: CBK (2013)

Figure 64. Banking system reserves, in millions of euro

-500.0

-300.0

-100.0

100.0

300.0

500.0

1-7 days 8 - 30 days 31 - 90 days 91 - 180days

181 - 365days

Over 1 year

June 2011 June 2012 June 2013

Source: CBK (2013)

Figure 65. Liquidity gap, in millions of euro


| 51

narrow the positive gap at longer intervals of maturities and would reduce the exposure to

structural liquidity that characterizes the sector. This would also ease the lending activity with

longer maturity terms.

Based on the above mentioned liquidity indicators, the liquidity position of the banking sector

can be considered quite favorable. The sustainability that characterized the deposits thus far and

their consistent growth suggest high confidence to the sector despite the global financial crisis. In

the following periods, the further advancement of the regulations regarding the insurance of the

depositors9 and the expected developments in terms of establishment and functionalism of the

secondary market of the Kosovo’s Government securities is expected to have a positive effect in

reducing the exposure to the potential risks and further strengthen the liquidity position.

Moreover, the expectations for the second half of 2013 are that credit will grow at the same pace,

suggesting that there will not be any pressure on liquidity.

6.3.2 Credit risk

Credit risk remains the dominant risk in

the context of the risks to which the

banking system of Kosovo is exposed.

The exposure to this risk during the first

half of 2013 has increased. Non-

performing Loans (NPL) to total loans

ratio in June 2013 amounted to 7.8

percent compared with 6.5 in the

previous year (figure 66). The increase of

the share of NPL to total loans during

2012 and 2013 can be attributed mainly

to the ‘base effect’ caused by tightening

of lending by commercial banks, because

the value of NPL did not mark a

significant acceleration of the growth

trend (figure 67). However, the increase

in NPL level may also be a reflection of

developments in the loan-repayment

capacity of borrowers taking into account

that the economic growth rates in the

recent years, despite being positive, were

lower compared with the global financial

pre-crisis period.

Almost all sectors recorded a decline in

the quality of loan portfolio, which

resulted in the increase of the NPL

value. However, the largest contribution to the growth of NPL was marked by the enterprises

sector, which at the same time is characterized by a higher NPL ratio compared to the household

sector (figure 68). In June 2013, the sector with the poorest loan quality was the manufacturing

sector, where 15.7 percent of total loans issued to this sector were non-performing loans. The

energy sector is ranked second for its poor loans quality, where the NPL ratio stood at

9 The gradual increase in the value of insured deposits, according to the Deposit Insurance Fund of Kosovo, until 2018 aims to rise at euro 5,000 from euro 2,000 in 2012

and 2013.

4.5% 4.6%

5.9%6.2%

5.9% 6.0% 5.7% 6.0%6.5%

7.0%7.5% 7.6% 7.8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun

2011 2012 2013

Figure 66. NPL to total loans ratio, in percent

Source: CBK (2013)

9.7%

15.7%

9.3%

2.8%

27.3%

51.5%

20.7%23.3%

0%

10%

20%

30%

40%

50%

60%


Growth rate of total loans

Growth rate of NPL

Figure 67. Annual growth of total loans and NPL

Source: CBK (2013)


52 |

11.5 percent. Services and tourism were

characterized by NPL ratio of 10.3

percent, while the households sector had

the lowest NPL ratio of 2.5 percent.

The increase in credit risk exposure is

also observed in the analysis of loan

classification10 structure, which is

characterized by migration of loans from

categories with good quality to the

categories with poorer quality (figure

69). In June 2013, the share of ‘standard’

loans in the total loan portfolio

decreased, standing at 86.8 percent of

total banking sector loans as compared to 88.5 percent in the previous year. The share of loans

‘watch’ and ‘substandard’ loans to total

loans of the banking sector recorded a

slight increase of 0.2 pp compared to the

previous year, reaching 2.2 percent and

3.2 percent, respectively. The category of

loans classified as ‘doubtful’ have

increased by 0.4 pp, while the most

significant increase was marked by the

category of loans qualified as ‘loss’ which

increased their share to total loans for

0.9 pp.

Consequently, viewed in terms of loan

risk categories11, the increase of exposure

to the credit risk during this period is

mainly due to the increase in non-performing loans category, which marked a more significant

annual growth of 23.3 percent

compared to the two other risk

categories such as classified loans

which increased by 18.6 percent and

past-due loans by 17.8 percent. Within

the non-performing loans, loans

classified as ‘loss’ dominate the

structure with a share of 67.4 percent

(67.0 percent in June 2012). The

remainder of 32.6 percent comprises

loans classified as ‘doubtful’ (figure

70).

The coverage of NPL by provisions has

marked a slight decline as a result of

increased NPL share to total loans on one hand, and the lower provision expenses of banks.

However, the current provisions continues to cover more than 100 percent of the value of NPL,

10

Based on the CBK regulations for credit risk management, credit banking sector is classified into five main categories: standard, watch, substandard, doubtful and loss. 11

According to CBK regulations for credit risk management, loans are grouped into three categories of credit risk exposure: Past-dues, which include watch, substandard,

doubtful and loss loans; Classified loans which include substandard, doubtful and loss loans; and non-performing loans, which include doubtful and loss loans.

3.5%2.1%

15.7%

11.5%10.3%

2.5%

10.3%

0.0%

9.5%

2.5%4.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

June 2013

Figure 68. NPL to total loans ratio, by sectors

Source: CBK (2013)

38.5% 40.5%33.0% 32.6%

61.5% 59.5%67.0% 67.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Doubtful Loss

Figure 70. Strucutre of non-performing loans, in percent

Source: CBK (2013)

89.8% 89.3% 88.5%86.8%

3.1%2.5%

2.0%

2.2%

2.6%2.3%

3.0%3.2%

1.7%2.4%

2.1%2.5%

2.8% 3.5% 4.3% 5.2%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Standard Watch Substandard Doubtful Loss

Figure 69. Structure of loans by classification

Source: CBK (2013)


| 53

and as such, do not present a threat to financial stability. In June 2013, the coverage rate of NPL

by provisions for loan losses was 113.2 percent, compared to 117.3 percent in the previous year

(figure 71).

The improvement of profitability in 2013

is an indication of the ability of banks to

continue to provision for the cover of

possible increase of NPLs in the second-

half of 2013. Moreover, given the

expectations for positive developments

in the real sector in the second half of

2013 and in 2014, as well as the

additional care that banks reported to

have applied in the approval of loan

applications in the previous two years,

the exposure to credit risk, which

compared to the countries in the region

is at the lowest level, might be expected

to decrease further.

The concentration of credit risk continued to increase. In June 2013, the degree of concentration

of credit risk, which represents the

largest exposures of all banks in relation

to the Tier 1 capital, has reached 91

percent compared with 72 percent in

June 2012 (figure 72).12 The value of the

large13 exposures in June 2013

amounted to euro 218.88 million,

representing an annual growth of 17.6

percent. This increase is partly

influenced by changes in the regulation

of the CBK on Capital Adequacy, as a

result of which the classification method

of Tier 1 capital has changed to a more

conservative stance. Consequently, the

reduction of the value of the Tier 1 capital has had an impact on the decline of the threshold

when one exposure is classified as ‘a large exposure’. However, the annual growth rate of large

exposures has marked a decline compared with the previous three years where the average

growth rate of large exposures was 31.1 percent. It should be noted that besides the growth of the

value of exposures, the number of exposures has also increased, which implies that the

concentration of the credit risk has spread across a larger number of borrowers. In June 2013,

the number of large exposures reached 59 (54 June 2012), resulting in an average value of a large

exposure of euro 3.6 million (euro 3.4 million in June 2012). The increase of the credit risk

concentration is considered as an increase in credit risk exposure as due to the increased

sensitivity of the sector to the quality of certain exposures which have large weight in the total

loan portfolio. Therefore, banks should be prudent in terms of the degree of concentration of

credit risk in order not to significantly increase the sensitivity to certain exposures, whose

potential failure could have a significant effect on their stability and in the sector in general.

12

The CBK regulation in force to large exposures limits the total value exposures to 300 percent of the Tier 1 capital. 13

Based on the CBK regulations on large exposures, high exposure is considered any direct and indirect credit exposure to a single borrower or group of related borrowers that exceed 10% of the Tier 1 capital.

135.0%

117.2% 117.3%

113.2%

100.0%

105.0%

110.0%

115.0%

120.0%

125.0%

130.0%

135.0%

140.0%

0

20

40

60

80

100

120

140

160

Jun 2010 Jun 2011 Jun 2012 Jun 2013

NPL (in millions of euro) Provisions/NPL (right axis)

Figure 71. NPL and provisions

Source: CBK (2013)

39.9%

55.6%

72.0%

91.0%

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

300


In m

illi

on

s o

f e

uro

Overall large exposures

Total Tier 1 capital

Large exposures to total Tier 1 capital (right axis)

Figure 72. Concentration of credit risk

Source: CBK (2013)


54 |

Amendments in the regulation of the CBK for Large Exposures14 enable a more cautious

approach as regards to the management of credit concentration, limiting banks total exposure to

a single borrower or a group of interrelated borrowers to a maximum of 15 percent of the Tier 1

capital, compared with the previous level of 20 percent.

6.3.3 Solvency risk

6.3.3.1 Capital adequacy ratio

Kosovo’s banking sector is characterized

by a high level of capitalization which

has consistently exceeded the minimum

regulatory15 requirements. Capital

Adequacy Ratio (CAR), which is amongst

the most important indicators of the

sustainability of the banking sector, in

June 2013 declined to 16.5 percent

compared to 17.2 percent in the previous

year (figure 73). However, CAR stood

above the minimum regulatory level of

12 percent, which suggests a satisfactory

level of stability. In June 2013, the ratio

between Tier 1 capital and risk-weighted

assets (RWA) marked a decline as well, falling to 13.4 percent from 14.4 percent as it was in the

previous year, but still significantly exceeding the regulatory minimum of 8 percent. The small

difference between the two above capitalization ratios is a good indication of the quality of the

capital, which mainly is comprised of Tier 1 capital, and is an additional indication for the

stability of the banking sector. The difference of these two capitalization indicators is primarily a

result of the changes in the overall level of regulatory capital, as RWAs stood almost at the same

level as in the previous year (figure 74). In June 2013, regulatory capital marked a decline of 4.1

percent decreasing at the value of euro 291.4 million, while RWAs marked an annual decline of

0.2 percent, thus decreasing at euro 1,761.7 million.

Changes in the level of regulatory

capital are largely explained by changes

in the regulation on capital adequacy of

the banks which became effective as of

December 2012.16 Based on this

regulation, the method of Tier 1 capital

calculation has changed, subtracting not

only the intangible assets and goodwill,

but three other positions. The first

additional position to be subtracted in

Tier 1 capital calculation is the

“investments on other banks’ equity or

lending institutions”; the second position

14

The CBK Regulation for Large Exposures has recently been amended in April 2013 and entered into force on 10 May 2013. 15

Based on the CBK regulation on capital adequacy, banks are obliged to have a rate of at least 12 percent of total regulatory capital to RWA ratio and a rate of at least 8 percent of Tier 1 capital to RWA ratio. 16

The Board of the Central Bank of the Republic of Kosovo, in its meeting held on 29 November 2012, approved the new regulation on Banks Capital Adequacy, which entered into force on 3 December 2012. This regulation was modified in May 2013, where among others banks were given a deadline until 1July 2013 to start the implementation of reserve capital for operational risk.

18.7%17.2% 17.2%

16.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%


CAR Tier 1 capital/RWA Capital/assets

Figure 73. Banking system capitalisation

Source: CBK (2013)

12.8% 9.4%7.1%

-4.1%

4.8%

19.2%

7.0%

-0.2%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1000

1200

1400

1600

1800


Regulatory capital

RWA

Annual growth rate of regulatory capital (right axis)

Annual growth rate of RWA (right axis)

Figure 74. Regulatory capital and RWA

Source: CBK (2013)


| 55

is the “Deferred tax asset” while the third position is “Lending to bank-related persons”. The

subtraction of these three positions from the Tier 1 capital is performed in order to accurately

assess the level of the core capital, which represents the main pillar for absorbing the potential

losses of the sector. As a result of these

subtractions, the overall regulatory

capital is decreased to euro 31.1 million.

The new regulation also includes

changes to the methodology of

calculation of RWAs, according to which

risk weights of certain assets have

changed but without any major effect on

the value of RWAs for this period.

However, a significant change in the

value of RWAs will be observed in the

second half of 2013, when banks will

have to start complying with the rule on

operational risk for which capital

reserves need to be applied. This means

that the position of ‘operational risk’ will be added to RWAs, which may also result in the decline

of capitalization ratios. However, this does not present a risk to the stability of the sector, as the

current level of regulatory capital is well above the minimum required level and therefore

provides satisfactory capitalization ratios even in the case of inclusion of operational risk.17

In June 2013, the total regulatory capital of the banking sector was euro 291.4 million, which

exceeds the required regulatory capital for euro 80 million (figure 75). The high capitalization

level is also confirmed by the stress-test results which suggest that the sector is able to

withstand very high levels of shocks in the loan quality portfolio in which cases the needs for

recapitalization would remain at a very low level.

6.3.3.2 Regulatory capital

Regulatory capital of the Kosovo’s

banking sector is mainly comprised of

the Tier 1 capital, which in June 2013

amounted to euro 236.1 million and

accounted for 81 percent of total

regulatory capital (figure 76). The

remainder consists of Tier 2 capital,

which in June 2013 amounted to euro

55.3 million. Figure 74 shows that in the

recent years, the growth rate of the

regulatory capital of the banking sector

has marked a declining trend. This is

due to the downward trend of Tier 1

capital growth, which in June 2013

recorded an annual decline of 6.9

percent, as Tier 2 capital had an upward trend, where in June 2013 recorded an annual growth of

10.1 percent. Consequently, the share of the Tier 1 capital to the total regulatory capital was

17

In June 2013, the CAR of the entire sector after the inclusion of operational risk in RWA would be 15%, taking into account the current level of capital. While analyzing

the banks level, CAR for two banks would easily fall under the minimum required level of 12%, which suggests the need for additional capital at the banks for the following

periods.

15.0% 16.4% 16.5% 19.0%

85.0% 83.6% 83% 81.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun 2009 Jun 2011 Jun 2012 Jun 2013

Tier 2 capital Tier 1 capital

Figure 76. Capital structure of banking system

Source: CBK (2013)

166.1197.9 211.7 211.4

93.3

85.892.2

80.0

0

50

100

150

200

250

300

350


Required regulatory capital Additional capital

Figure 75. Additional capital and required regulatory capital, in millions of euro

Source: CBK (2013)


56 |

reduced during the last four years. In the previous years, the decline of the growth rate of the

regulatory capital was primarily a result of the slowdown of the profit growth, which

simultaneously represents the main source of capital increase. Whereas in 2013, the decline in

the level of the total regulatory capital was primarily the result of the dividend payment which

lead to the decline in retained earnings, as well as of the regulatory changes which resulted in

the subtraction of lending to bank-related persons from Tier 1 capital. Unlike the previous years,

during the first half of 2013 the profit marked an increase giving an additional contribution to

the capital growth.

In the recent years, banks have started to apply alternative methods in increasing the regulatory

capital, with a particular emphasis on subordinated debt which is classified as Tier 2 capital. The

use of more sophisticated financial instruments to raise additional capital, such as hybrid

instruments, is not practiced in the Kosovo’s banking sector. In one hand this suggests a low

degree of financial sector development, while on the other hand, the lack of use of these hybrid

instruments can be considered positive in terms of solvency risk exposure because these financial

instruments have a higher level of risk with possible implications for the stability of the banking

system.

The improvement of the sector

performance in 2013 suggests that

banks will be able to not only use the

alternative sources of funding the

capital, but also the profits in order to

support capital growth in the

subsequent periods, aiming at covering

the needs for the increased credit risk,

the added operational risk and the

further increase of the business activity.

Capital structure of Tier 1 capital has

changed compared to the previous

years, but it should be mentioned that

the change has not occurred as a result

of the change in the capital management by banks, but mainly due to the change of capital

adequacy regulation which applies a more conservative approach to calculating Tier 1 capital as

elaborated above. The shareholders capital remains the main category of Tier 1 capital with a

share of 92.5 percent (figure 77). The second largest category is retained earnings, which along

with the profit of the current year and reserve funds represented 22.7 percent of the total Tier 1

capital. Intangible assets and the goodwill had a share of 2 percent, while new categories

included in the calculation of Tier 1 capital accounted for 13.2 percent.

The structure of the Tier 2 capital is dominated by subordinated debt, which has shown an

increasing trend in the recent years, thus contributing to the total growth of the Tier 2 capital.

The share of the subordinated debt to Tier 2 capital reached 66 percent in June 2013, while the

remainder of 33 percent included general provisions for loans.18

18

The value of provisions that banks have dedicated for loan losses with standard and watch classification is calculated as part of the Tier 2 capital, limited up to 1.25% of risk weighted assets.

0

100

200

300

400

Jun 2010 Jun 2011 Jun 2012 Jun 2013

Investments on equities, postponed tax and borrowings between interelated persons

Intengible assets and Goodwill

Profit of the current year, retained profit, reserve funds

Capital (share capital, surplus, preferential assets)

Source: CBK (2013)

Figura 77. Structure of Tier 1 capital, in millions of euro


| 57

6.3.3.3 Risk weighted assets

Risk weighted assets remained at a similar level to the previous year. In June 2013, the total

value of risk-weighted assets dropped to euro 1.76 billion, representing an annual decline of 0.2

percent.

RWAs structure has changed during

this period as a result of the

amendments of the regulation on the

capital adequacy. Unlike in the previous

years where the highest risk weight was

100 percent, in 2013 a new risk weight

of 150 percent was added (figure 78).

This category includes direct claims

with a maturity of ‘one year or less’,

which require prior approval from CBK

and are rated as having a high default

probability on repayment (below B- by

Fitch assessment). In June 2013, these

assets accounted for 1.8 percent of total

risk weighted assets. The remainder of the RWA structure has not changed significantly, where

it is worth mentioning that the assets with 100 percent risk-weight continue to have the highest

share in total RWAs, remaining at the same level of 78.7 percent. This category consists of loans 19

and off-balance items which together amounted to euro 1.38 billion in June 2013. The share of

the assets with 75 percent risk weights to total RWA’s declined to 10.3 percent from 15.7 percent

in the same period of the previous year. This category consists of guaranteed loans by first

mortgage on real estate and which are past-due for less than 30 days, as well as loans to builders

to finance real estate construction where the property to be financed has been pre-sold or pre-

leased pursuant to a legally enforceable contract with the sales proceeds or rentals, which

together amounted to euro 287.7 million.

6.3.4. Market risk

The Kosovo’s banking sector has low exposure to market risk which implies the risk of the

market value change of the financial instruments due to changes in the market factors such as

interest rate and exchange rate movements. Net open positions in foreign currency to Tier 1

capital stand at very low level, which means that the sensitivity of the sector to potential changes

in exchange rates is low. Indirect exposure from changes in exchange rates, as a result of lending

in foreign currency when the borrower receives income in a currency other than the loan

repayment currency, is also very low due to the fact that loans are primarily in euro. Regarding

the exposure to changes in interest rates, the banking sector is relatively protected due to the

fact that loans and deposits, as the main items on the balance sheet of the sector, have mainly

fixed interest rates and are not affected by movements in interest rates in a short run. However,

changes in interest rates can have an impact in terms of refinancing and reinvestment risk of

funds depending on the composition of the maturity of assets and deposits and on the direction of

interest rate movements, but this risk is low considering also the relatively low share of the

difference between assets and liabilities sensitive to interest rate to the total assets of the sector,

and due to the fact that interest rate movements are very slow and hence cannot represent high

risk in the short-term.

19

For detailed classification of RWA please refer to the regulation on Capital Adequacy Of Banks.

0.4% 1.0% 0.8% 0.4%

24.2% 15.8% 15.7% 16.3%

69.0% 77.6% 78.7% 78.7%

1.8%

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013

Weight 20% Weight 50 % Weight 75% Weight 100 % Weight 150%

Figure 78. Structure of RWA by risk weight

Source: CBK (2013)


58 |

6.3.4.1 Exchange rate risk

In June 2013, the Kosovo’s banking sector had assets in foreign currency with an equivalent

value of euro of 134.6 million, compared with a value of euro 122.7 million in June 2012. The

value of foreign currency liabilities was euro 133.7 million, compared with euro 128.8 million in

the previous year. The difference of between assets and liabilities in foreign currency was euro

847 thousand in June 2013, which presents a contraction compared to June 2012 when foreign

currency liabilities exceeded assets for euro 6 million.

The higher increase of the value of FX

assets compared to FX liabilities led to a

positive difference between FX assets

and FX liabilities (FX assets exceeding

FX liabilities) in June 2013 Whereas the

narrowing of the gap between assets and

liabilities in foreign currency led to a

decline of the aggregate net open

position in foreign currency, which

dropped to 0.4 percent of Tier 1 capital

in June 2013 as compared to -2.4

percent in June 2012 (figure 79). Figure

79 shows that in 2013 the net open

positions to Tier 1 capital marked a

decline for almost all currencies, but the largest change occurred in the net open position in the

U.S. dollar which declined to -0.1 percent from -3.0 percent as it was in June 2012. In June 2013,

the Swiss franc marked a higher net open position to Tier 1 capital of 1 percent, but which

remains at a much lower level than the maximum of 15 percent allowed by the CBK.20

The share of assets and liabilities in

foreign currency to total banking sector

assets in June 2013 was 5.19 and 5.16

percent respectively, which is at an

approximate level of the previous year of

4.94 and 5.18 percent. The share of

loans issued in foreign currency to total

loan portfolio stood at a similar level to

the previous year, where in June 2013

only 0.38 percent of the loan portfolio

was denominated in foreign currency

(figure 80).

The very low share of loans in foreign

currency implies that the sector has low level of exposure to indirect credit risk due to

unfavorable foreign currency fluctuations that may affect the borrowers’ loan repayment

capacity. Indirect credit risk from currency movements appears when borrowers are issued loans

in foreign currency but receive income in euro, as they are exposed to the risk of potential

depreciation of euro against foreign currency in which they receive the loan, thus possibly

incurring a decline in their loan repayment capacity. The share of liabilities in foreign currency

to total liabilities stood at almost the same level in the past three years, at 5.2 percent. The

majority of foreign currency liabilities consist of deposits, which in June 2013 accounted for 97

20

According to CBK regulations on risk activity of foreign currencies, no bank should have net open position in foreign currency, in any of the foreign currencies which

exceeds the Tier 1 capital for 15 percent; while the aggregate net position in foreign currency is limited to 30 percent.

-3.5%

-2.5%

-1.5%

-0.5%

0.5%

1.5%

Jun 2012 Jun 2013

USD GBP CHF Other Opened net aggregated position/Tier 1 capital

Figure 79. Opened positions in foreign currency against the Tier 1 capital

Source: CBK (2013)

0.20% 0.15% 0.43%0.38%

4.8%5.2% 5.2% 5.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Jun 2010 Jun 2011 Jun 2012 Jun 2013

The share of the loans in foreign currency in total credit portfolio

The share of liabilities in foreign currency in total liabilities

Figure 80. Loans and liabilties in foreign currency

Source: CBK (2013)


| 59

percent of total liabilities in foreign currency. The remainder includes mainly short-term debt

with a share of 2.2 percent to total liabilities in foreign currency. Relatively low share of

liabilities in foreign currency, with a particular emphasis on short-term debt, is an indication

that the sector is not dependent on foreign currency financing sources and consequently has low

exposure to short-term movements in exchange rates.

6.3.4.2 Interest rate risk

The banking sector has very low

exposure to short-term changes in

interest rate, because most of the assets

and liabilities sensitive to interest rates

have fixed interest rate. In June 2013,

93.9 percent of loans had fixed interest

rate, while the remainder of 6.1 percent

had a variable rate that is related to

changes in the basic indices such as

Euribor and Libor. On the other hand,

all deposits in the banking sector

continue to have fixed interest rate

(figure 81).

Despite of the fact that loans and

deposits have fixed interest rate and are protected from short-term fluctuations in interest rates,

banks carry reinvestment and refinancing risk depending on the maturity mismatch of interest

rate sensitive assets and liabilities and the direction of the movement of the interest rate.

Kosovo’s banking sector exposure to this risk is low due to the relatively low weight of the

difference between interest rate sensitive assets and liabilities in total assets, which in June

2013 declined to 15.6 percent from 26.6 percent in June 2012. In the Kosovo’s banking sector, due

to the significant negative gap =between the assets and liabilities of maturity up to one year ,

interest rates changes are more pronounced in the expenditures than in the income side. In this

context, the possible increase in interest rates (on deposits and loans) presents a threat to the

profitability of the banks as the interest expenditures will increase faster due to the renewal of

deposit contracts at higher rates, while the interest income on loans will change more slowly

because of longer loan maturity.

Box 3. Identification of banks with systemic importance in Kosovo

According to the basic principles of the model for identifying banks with systemic importance compiled by

the Basel Committee on Banking Supervision in June 201221 and based to the prior Central Bank of the

Republic of Kosovo model on the Identification of Banks with Systemic Importance in Kosovo (Financial

Stability Report no. 3, 2012), a further development of the model for the identification of banks with

systemic importance in Kosovo has been drafted and updated with bank sector data as of June 2013.

The main purpose of the model is to identify the banks with systemic importance in the country by

assessing their degree of systemic importance. Generally, a bank is considered to be of systemic importance

if its possible failure would be manifested with significant negative consequences for the functioning and

stability of the whole sector and the economy in general. Therefore, the systematic monitoring of the degree

of systemic importance is considered to be of particular importance because it enables the supervisory

authorities to compile policies and take the appropriate measures to ensure the loss absorbing capacity of

the banks is in compliance to their degree of systemic importance.

21

Basel Committee on Banking Supervision (June 2012), A Framework for Dealing with Domestic Systemically Important Banks.

93.6% 93.9%100.0% 100.0%

6.4% 6.1%

50%

60%

70%

80%

90%

100%

Jun 2012 Jun 2013 Jun 2012 Jun 2013

Loans sensitivity to interest rates Deposits sensitivity to interest rates

Fixed interest rate Changeable interest rate

Figure 81. Loans and deposits sensitivity to interest rates, by the type of interest rate

Source: CBK (2013)


60 |

This article presents an assessment of the extent of systemic importance for all the banks and their

branches operating in the Kosovo market, based on balance sheet data of these respective banks. To assess

the systemic importance of banks, the model is based on four basic criteria: size, substitutability,

interconnectedness and complexity. The first two criteria suggested by the basic model (size and

substitutability) are considered as fundamental criteria for the determination of systemic importance in the

case of Kosovo, thus their weight in the model is dominant with 40 percent each. While the other two

criteria (interconnectedness and complexity) are weighted with 10 percent each based on the fact that the

Kosovo’s banking sector has low degree of interconnectedness of institutions in terms of cross lending, and

the sector is focused on traditional banking activities with a low degree of complexity as funding is based

primarily on deposits while loans are the main investment asset.

For each of these criteria, respective indicators have been identified through which the systemic importance

of each bank is assessed.22 The indicators used are shown in table 11, and each of the indicators within a

particular criterion is given equal weight.

Table 8. The indicators for assessment of the systemic importance of the banks in Kosovo

Source: CBK (2013)

The selection of the indicators is done according to the subject matter theory and to the above mentioned

base model. The general assumption in relation to the size criteria, considered as the main criteria for

measuring systemic importance of an institution, is that the larger is the share of the bank to the total

sector the more significant is its systemic importance as the affected parties from possible shocks in this

bank are more numerous and the costs for the entire sector and the economy are larger. The size of the

institutions is intended to be measured both in terms of the overall share of the assets to total sector assets,

as well as in specific aspects of the balance sheet such as the share of deposits to total sector deposits, the

number of depositors, the share of the cash and reserves, etc. in order to reflect the importance of the

respective bank in the specific aspects/ segments of the banking activity. For instance, the number of

depositors a bank has is an indication on the number of number of depositors who might be affected in case

of problems or potential bankruptcy of a particular bank.

Substitutability criteria aims to measure the extent of substitutability of products and services offered from

an institution by other institutions in the market, in case of the failure of the respective institution. Key

assumption for the substitutability criteria is that the larger the participation of a bank in a particular

22

It is worth mentioning that the model is intended to identify institutions with systemic importance based on the degree or effect on the domestic market from their

possible bankruptcy, and not to measure institutions bankruptcy risk.

Criteria Indicators

The share of cash and balance w ith the CBK

The share of sector assets

The share in the market of the sector deposits

Ow n capital of the bank to total sector capital ratio

The share of the sector securities

The number of bank depozitors to total depositors

The share of the liquid sector assets

The share of agricultural loans of the sector

The share of consumer loans of households

The share of loans to industry, manufacturing, enrgy and construction

The share of trade loans

The number of transactions to total transactions through payment system

The share of Kosovo's Government securities

The share of total market loans

The share of deposits from other f incancial corporstions

The share of loans for other f inancial corporations

Complexity

(w eight 10%)Off-balance items to total assets of the appropriate bank ratio

Size

(w eight 40%)

Replacement

(w eight 40%)

Interconnection

(w eight 10%)


| 61

market segment or in a certain type of service the higher its technical capacity and knowledge for effective

functioning in the relevant segment (e.g. assessing credit risk for the agricultural sector), which instead

makes it more difficult the replacement of its role in that respective segment. Therefore, the systemic

importance of a bank increases when the difficulties in replacing its services and products are greater.

Interconnection criterion is intended to measure the degree of interconnectivity of the banking institutions

among themselves and with other financial institutions in the country in order to identify the risk spill-over

effect of the crises of to the other financial institutions and to the real sector. This criterion is of particular

importance in measuring systemic risk in the countries with developed financial sectors where

interrelations between institutions are numerous and complex. In Kosovo, the inter-bank market is almost

non-existent and interconnections between financial institutions are limited to deposits and loans that other

financial institutions as insurance companies, microfinance institutions and other financial auxiliaries have

at commercial banks in the country.

Regarding the complexity criteria, it should be noted that its aim is to measure the degree of complexity of

the business model and operations of a bank under the assumption that the more complex the activity of a

bank is, the higher the interrelations and e third parties agreements, which increase the costs and time of

addressing the problems in case of bankruptcy. In the case of Kosovo, a proxy for measuring the complexity

of a bank has been suggested to be the share of the off-balance sheet items in the total portfolio of the assets

of that bank.

To identify the systemic importance of a bank, the value of each indicator has been compared with the

average value of the corresponding indicator for the entire sector. In cases where the value of the indicator

of an institution has exceeded the average value of the sector, then that institution was considered to have

systemic importance for that specific indicator. When the indicator was above the average of the sector (thus

it is of systemic importance), it was given the value of 1, while on the contrary its value was set to0.

Afterwards, these values were multiplied by the respective indicator weight, and when a bank resulted to

have systemic importance in half or more than half of the indicators of a single criterion, then this bank was

considered to be systemically important for that criteria. At the end, banks which had a sum of the weighted

average of each of the criteria equal to or higher than 55%23 percent were considered to be of a overall

systemic importance. The higher the overall sum of the weighted average scores of all the criteria, the

higher the systemic importance of that institution.

General results of the model suggest that four banks operating in Kosovo are considered of a systemic

importance, scoring in the range of 55 percent to 83.5 percent. Two of these banks have resulted to be of

systemic importance in all criteria. One of the banks resulted with a systemic importance in three out of the

four considered criteria, scoring low in one of the main criteria such as substitutability, while the other

bank resulted with a systemic importance in only the two major criteria, that of the size and

substitutability.

Results also suggest that smaller banks, which did not result with an overall systemic importance,

nevertheless turned as systematically important only in some indicators and criteria. More specifically, a

smaller bank resulted to be systemically important on two criteria such as the interconnectedness and

complexity, but because of lower market share, could not result in overall systemic importance. Also, it is

worth mentioning that three banks, although not systemically important for the whole criteria of

substitutability, have resulted to be of a systemic importance in some indicators of this criterion such as the

number of transactions to total transactions committed through the payments system, the share of

securities of the Kosovo’s Government, the share in the overall sector loans and in sector loan segments like

consumer loans to households and loans to industry and manufacturing. Such a result where banks are of

systemic importance in some specific indicators and criteria, but not of overall systemic importance,

suggests that the effect of their potential failures, however, can be of high significance for certain economic

sectors and aspects of the financial and the real sector.

23

The criteria thresholds beyond which a bank was considered systemically important to that relevant criteria were: the size criterion, where the weighted average of the

indicator was equal or higher than 20% (half of 40%, the size criteria weight); for substitutability where the average weighted indicator was equal to 20% (half the weight of

the total criterion weight of 40%); for interrelation criteria, when weighted average of the indicator was equal to 5% (half of the weight of the criterion of 10%), and the

criterion complexity when the weighted average of the indicator was equal to 10%, as it was estimated by a single indicator.


62 |

6.4. Stress-test Analysis

Besides analyzing the current state of the banking sector’s exposure to credit risk, solvency risk,

liquidity risk and market risk, stress-test analysis represents an additional tool through which

the sustainability of the sector to potential shocks in the credit portfolio as well as in its liquid

assets is evaluated. Results elaborated below are based on the banking sector’s data for June

2013. In this analysis, Kosovo’s banking sector resilience against credit risk, combined with

interest rate and exchange rate risk (market risk) was tested, along with the capacity of the

sector to preserve its liquidity under hypothetical assumptions of deposits withdrawals.

Credit risk

Methodology

The analysis is based on a hypothetic scenario that there will be economic crisis in the European

Union, and its effects will be reflected in the Kosovo’s economy by reducing remittances and

exports, thus discouraging the overall demand in the country. As a result, it is supposed that

economic growth will be adversely affected, thus expanding the output gap and negatively

affecting the quality of loan portfolio. This scenario takes into account the average rate of

economic growth in Kosovo of around 3.3 percent in the last five years, and is assumed an

economic decline of 2.7 percent for 2013, which would make the output gap to be 6.0 percent. For

the purpose of assessing the impact of the output gap in the quality of loan portfolio, namely in

the nonperforming loans, the elasticity coefficients from an unpublished analysis of the IMF for

some Central and Southeastern European countries24 has been used. Consequently, considering

an elasticity of NPL to output gap of 0.8, the share of NPL to total loans of the banking sector

would increase by 4.8 pp. Credit risk is combined with interest rate risk and exchange rate risk,

where is the assumption of a decline of interest rates and a depreciation of euro against other

currencies are made given the developments in some euro area countries. Consequently, in

addition to the increase of the share of NPL to total loans, in this scenario, assumptions on the

depreciation of euro against the U.S. dollar, Swiss franc and other currencies to 20 percent25, as

well as a decline of interest rates by 2.0 pp were made. The increase of NPL share to total loans

leads to increased provisions; depreciation of euro affects the revaluation of loss/profit from net

open positions; and the decline in interest rates affects the loss/profit of net interest income

taking into account the maturity gap of assets and liabilities. Apart from the above made

assumptions, the expected profit has also been considered as a source for absorbing losses

accruing from these shocks. In this context, it is assumed that the profit for the second half of

2013 will be 60 percent of the profit made in the first half of the year (because it is assumed that

there will not be an increase in loans) while other components of the income statement are

assumed to be similar to the first half of the year.

The assumed increase of NPLs is expressed through the migration of loans from performing

categories (standard, watch, substandard) towards nonperforming categories (doubtful and loss).

NPL growth is proportionally distributed within the category of doubtful loans and loss loans,

taking into account the initial share of these categories to the total NPL. NPL growth is reflected

in the level of provisions based on the CBK regulation for loan provisioning by loan classification.

The assumption of NPL increase applies also to off-balance sheet items including unused

commitments, guarantees, available credit notes, and commercial credit notes.

Despite the fact that the depreciation of euro against foreign currencies is considered in this

scenario with the aim of assessing the risk of the exchange rate, it is important to note that the

24

IMF unpublished note “CESE Bank Loss Projection and Stress Testing Exercise”, July 2009.

25 Assumption based on historical data on the fluctuation of exchange rate euro/U.S. dollar.


| 63

impact of this risk on the balance sheet of the banking sector continues to be very small. The

majority of the loan portfolio is in euro, where the foreign currency lending is at a minimum

level, thus leading to a minor foreign exchange rate risk.

The scenario of interest rate risk implies a decline of interest rates by 2 pp (for both assets and

liabilities)). Interest rates decline may affect net interest margin (NIM), taking into account the

maturity mismatch of loans and deposits sensitive to interest rate. The Kosovo’s banking sector

has low exposure towards this risk as well, as the majority of loans and deposits in the banking

sector have fixed interest rates, and hence the banking sector is much less sensitive to interest

rate movements in the short term.

Along with the above mentioned scenario, the failure of the largest borrowers in each of the

banks as well as the maximum level of NPLs that each bank can withstand before the needs for

recapitalization arise, were considered as additional scenarios on credit risk analysis

The stability of the banking sector in this analysis is assessed in terms of the impact of NPL

growth, the depreciation of euro and the decline of interest rates in the regulatory capital, risk

weighted assets, and consequently, on the Capital Adequacy Ratio of the sector.

Results

Kosovo’s banking sector current situation in terms of capitalization of the banks is quite

favorable, with the capital adequacy ratio standing at 15 percent.26 Also, the banking sector

continues to remain stable in terms of the level of nonperforming loans to total loans (7.8

percent), and the coverage with provisions of potential losses from these loans, which cover NPL

with 113.2 percent. Therefore, the banking sector shows a high level of resilience to the credit

risk even under the terms of the possible hypothetical scenarios as described above.

Assuming that the share of NPL to total loan portfolio of the sector will grow by 4.8 pp, euro will

depreciate against other currencies by 20 percent, and interest rate decline by 2.0 pp, CAR of the

sector would still remain above 12 percent, while on the level of individual banks CAR of only two

banks would decline below the 12 percent minimum level required by the Central Bank.

However, in order to increase the CAR level of these two banks at the regulatory minimum of 12

percent, a capital injection equivalent to just 0.19 percent of the value of the projected GDP for

2013 would be needed.

Under this scenario, the ratio of NPL to total loans of the banking sector would reach 12.6

percent, while on the individual level of the banks this ratio would vary within the range of 4.8

percent to 16 percent. The assumptions for the above mentioned shocks such as the increased

NPL share, the depreciation of euro against other currencies, the decline of interest rates would

all lead to a total loss of euro 53.4 million for the banking sector. However, not all of this amount

should be considered as a potential loss as it should be taken into account that a large part of this

loss would be absorbed by the expected profit for the considered period.

The assumption of the failure of the three largest borrowers in each of the banks would have a

significant impact on the CAR of some individual banks, while the CAR of the banking sector

would continue to remain above the regulatory level. The CAR of the three banks would drop

below 12 percent, while another bank would mark a CAR of 12.0 percent. In order for the CAR of

the three banks to reach the minimum regulatory of 12 percent, a capital injection of euro 25

million would be needed, which is equivalent to 0.47 percent of the value of the projected GDP for

26

For the purpose of the stress tests, are included also the changes made in the banking regulations which are effective as of July 2013. More specifically, the addition of

capital for operational risk is included in risk-weighted assets in the calculation of the level of capitalization of banks before the application of shocks from hypothetical

scenarios.


64 |

2013. Under the assumption of failure of five largest borrowers for each bank, the CAR of four

banks would drop below 12 percent and the value of capital injection needed would be euro 38

million, or 0.7 percent of the value of GDP.

Liquidity risk

Methodology

Liquidity risk analysis is based on the scenario of withdrawal of a more significant amount of

deposits from the banking sector thus measuring the capacity to withstand such withdrawals.

The main assumption made is the withdrawal of deposits for five consecutive days, assuming also

that banks do not have access to external financing. Liquidity risk scenario is based on a very

conservative scenario: withdrawal of deposits at a rate of 8 percent of total deposits on a daily

basis over a five day period. The scenario is also built on the assumption that during this period

the possibility of converting liquid assets into cash would be 80 percent of liquid assets, while the

possibility of converting non-liquid assets into cash would be just 1 percent of these assets within

a day. It is also assumed that banks have full access to their reserves.

Along with the above mentioned scenario, additional scenarios in the assessment of liquid risk

have been tested, which consider the withdrawal of the largest depositors in each bank, as well

as the maximum level of deposit withdrawals that each bank can withstand before it runs into

liquidity problems.

The stability of the banking sector in this analysis is tested in terms of assessing the adequacy of

banks’ liquid assets to cope with such shocks.

Results

In previous sections of this report where the liquidity position of the banking sector was

analyzed, it was emphasized that the banking sector is considered to be highly liquid, as

confirmed by the high liquidity ratios. Core liquid assets and broad liquid assets comprise 27.9

percent and 29.3 percent respectively, of the total banking sector assets. Therefore, even if the

aforementioned shock scenarios would emerge in practice, the banking sector would show high

resilience against liquidity risk.

In general, the stress-test results of the scenario of deposit withdrawal during a five-day period

suggest that the banking sector appears to have a satisfactory level of stability. Under the

hypothetical assumption of deposit withdrawals during five consecutive days, at the rate of 8

percent per day, the initial liquidity problems in banks would begin to appear only after the

fourth day, in one of the banks only (table 8). The amount of additional liquid assets needed for

the affected bank would be euro 8.35 million (0.16 percent of GDP), while the loan to deposit ratio

would reach 115.2 percent (assuming that the level of loans will not continue to grow during this

period).

After the fifth day, the problems with liquid assets would arise in two other banks also, bringing

the number of total banks affected to three. In this case, additional liquid assets needed to

overcome the liquidity problems would reach euro 37.97 million (0.72 percent of GDP). At this

stage, which represents the withdrawal of 34.1 percent of total sector deposits, the loan to deposit

ratio would reach 125.2 percent.


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Table 9. The summary of stress-test result: liquidity risk

Note:1/ The number of banks which would need additional liquid assets.

Source: CBK (2013)

The assumption of withdrawal of largest depositors in each bank leads to results which suggest

that the banking sector has no significant concentration of funding sources (deposits as key

components of liabilities), thus the immediate withdrawal of deposits by individuals or companies

with the largest deposits in each of the banks does not represent a risk for the sector. An

exception in this context is with only one of the banks, which in the case of deposit withdrawals

from all largest depositors would run into liquidity problems and hence the needed liquid assets

for overcoming such problems would amount to euro 17.5 million (0.33 percent of GDP).

The endurable levels of deposit withdrawals for each of the banks before liquidity problems

would appear seem to be quite high as well. The banking sector is able to withstand a withdrawal

of deposits up to around 29 percent before running into liquidity problems. In this case, the loan

to deposit ratio would reach 115.7 percent, under the assumption that the value of the loans

remains unchanged.

6.5. Financial infrastructure in Kosovo

The recent financial crisis had an impact on the international initiatives to focus a large part of

their activities in strengthening the financial infrastructure for promoting and maintaining

financial stability. While payment systems represent the main pillar of the financial

infrastructure of a country, these systems must have a stable legal basis, which guarantees

secure execution of the payment transactions, as well as necessary tools to control both financial

and operational risks that may prevent the progress of the system. Also, the possibility of

accessibility on credit information in real time and credit history through credit registry

contributed in efficient management of the risk and overall financial stability of a country.

Financial infrastructure in Kosovo continued to improve during 2013, thus ensuring efficient

functioning of financial institutions as well as an improvement in the security and efficiency of

the financial transactions. Kosovo’s payment system and the credit registry during this period

improved in terms of the legal framework and contributed in the increase of the efficiency of the

banking services.

6.5.1 Payment system and the banking infrastructure

Kosovo’s payment system was based on UNMIK Regulation on Payment Transactions until May

of this year. To strengthen the supervisory competence, monitoring and controlling the payment

system and financial market infrastructure, in May 2013, entered into force the law on the

Payment System, which is in compliance with European standards and international practices.

Legal support will further strengthen the safety and efficiency of the National Payments System.

The legislation regarding the functioning of the payment system in Kosovo provides CBK with a

legal right to supervise the payment system in order to ensure the efficiency and reliability of the

system in accordance with the legal provisions, maintaining public confidence in the system and

in the payment instruments while promoting free competition in the market of the payment

Përshkrimi Numri i bankave 1/Mjetet likuide shtesë të nevojshme

(mijëra euro)Raporti kredi depozita (në përqindje)

Pas ditës së parë 0 0 89.7

Pas ditës së dytë 0 0 97.5

Pas ditës së tretë 0 0 105.9

Pas ditës së katërt 1 8349 115.2

Pas ditës së pestë 3 37972 125.2


66 |

services. Within the CBK, the Department of the Payment System, supervises the only interbank

payment system in Kosovo, Electronic Interbank Clearing System (EICS). This system has

provided a technical infrastructure and a secure, fast and efficient mechanism for interbank

payments circulation in the country. Also, within the payment system, the CBK supervises and

regulates the payment services system, the clearance and the settlement of payment transactions

and securities, technical and legal infrastructure, direct participants in the payment system,

licensed entities which issue and manage the payment instruments, as well as other payment

instruments used within the payment system.

The supervision of the payment system aims to ensure that the payment instruments and the

payment systems as a whole to be fully operational in matters of security and efficiency..

Through continuous monitoring within the supervision of the payment system could be identified

potential risks and consequences that can cause the transmission of these risks throughout the

system from one participant to another or even from a payment instrument to another one, which

would cause transmission of potential systemic risks. Facing the recent financial crisis, banks

had to take steps to establish some universal standards to supervise the payment systems,

especially systemically important systems and clearance securities systems.

Adjusting the regulations in accordance with the law in force and the supervision of the

participating institutions and instruments, which constitute payment system in Kosovo, is

followed by the expansion of the payment system infrastructure and further improvement of the

quality of reporting and statistics. Within the expansion of the infrastructure, it is worth

mentioning the inclusion of system for trading, depositing and clearance of securities (Central

Securities Depository. In the payment system is implemented the financial and operational part

of the system, i.e. it is made the clearing of all securities transactions. Also, the payment system

is associated with the trading system of securities to support activities that contribute in the

intraday liquidity in the payment system of the CBK.

Regarding the developments in the payments system, it is worth mentioning the realization of

payroll processing for civil public administration, the payments for four social schemes of the

Ministry of Labor and Social Welfare (MLSW) through the single payment system in Kosovo’s

Electronic Interbank Clearing System, thus eliminating less efficient methods for transfers that

were used so far.

Box 4. SWIFT membership

Originally created in Brussels, Belgium in 1973, the Society for Worldwide Interbank Financial

Telecommunication (SWIFT) is primarily based on facilitating the international financial transactions by

establishing a broad network where financial institutions could accept and send information related to

financial transactions in a secure environment. After the engagement of all relevant institutions, SWIFT set

a special code to be used in order to identify the financial institutions of the Republic of Kosovo.

In the absence of the SWIFT code, all financial institutions in the country that have conducted international

transactions must have had a correspondent bank abroad, which increased the cost of transactions. As of 9

December 2013, commercial banks will officially be connected to SWIFT and will use the SWIFT code of the

Central Bank of the Republic of Kosovo.

Therefore, the implementation of the SWIFT code by financial institutions in the country, aside from the

impact on the financial system identification of the Kosovo’s financial system in the international financial

system, will also increase the efficiency of international transfers by reducing the cost of international

payment transactions and shorten the time of execution of these transaction types by the CBK as well as for

the commercial banks.

The most advanced payment system, Real Time Gross Settlement (RTGS), which will process

mainly large amount payments and urgent payments between banks and governmental

institutions in the country, remains in the initial stages of implementation. The review of the


| 67

national payment system strategy (as part of the payment processing system), includes

processing of small amount payments, Automatic Clearing House (ACH) in addition to RTGS.

ACH payments system, mainly includes small payments realized in the group in different

clearing sessions.

Under the new system, the operation of the two payment systems, particularly payment

settlement on larger amount and urgent payments will be done simultaneously with the

settlement of the small amount payments. This would be accomplished based on international

standards ISO and SWIFT, which represent a single standardization approach to be used by all

financial standards initiatives. These standards are used in the unified Single European

Payment System (SEPA) as well as in the TARGET system that provides payments between

payment systems in the European Union (Trans-European Automated Real-time Gross

Settlement Express Transfer), systems in which Kosovo is expected to become a member after

being integrated in EU in the future. The process of merging of two payment systems into a

single system would have processed and paid all fees and priority regardless of the volume and

would have resulted in a better risk management and maintenance of both systems under one

contract and eased monitoring of all payment instruments.

Participants are expected to have only one connection in the new system, sending all payments at

EICS as they have done so far, and EICS will pass priority payments to RTGS for immediate

clearance. Important factors along with standards, in terms of the format of messages and

processing rules in the payment system, are also the telecommunication services and network

services, from which participants can choose to realize the payments. According to the review of

the current payment system, participants in the system will be offered one local operator

(through optical fibers) and another international operator (through SWIFT), with a choice

between two alternatives. Therefore the CBK as the owner of the system (RTGS and ACH) will

provide participants in the system with two possibilities for communication. The new system is

expected to increase the efficiency of the payment system and reduce the cost of maintaining two

sets of standards for the two systems. At the same time, the possibility of access to a local

network and an international network is expected to minimize operational risk (that would

encourage the growth of credit or liquidity risk) in case of failure of the functioning of one of the

networks, as well as choosing the cheaper available option. New payment system as a whole

(RTGS and ACH), is expected to become operational in a short period of time (1-2 years).

6.5.1.2 Banking infrastructure and payment instruments

Until June 2013, the banking infrastructure experienced a decrease in the number of branches

and sub-branches of commercial banks, as well as with a decrease of the number of employees in

this sector. The number of branches and sub-branches of the banking sector in June 2013 was

305, indicating a decrease by 7 units compared with the same period of the previous year. In the

same period, the number of employees in the banking sector was 3,638 employees, or 75

employees less compared with June 2012. The slowdown of the banking infrastructure during

this period partly reflects the actions taken by commercial banks to reduce the costs while

sector’s revenues fell.

On the other hand, the number and the value of transactions processed by EICS continued to

grow. Until June 2013, in the EICS system were conducted a total of 2.6 million transactions,

with a total amount of euro 2.8 billion. Compared with the first half of 2012, the total number of

transactions increased by 9.5 percent, while the total value of the cleared transactions increased

by 14.7 percent. Similar to the previous years, the number and total value of transactions cleared

in 2013 appears to be concentrated in the second quarter of the year. On average, every day in

the EICS are processed and cleared around 21.876 transactions with an intraday average

circulation of about euro 23.7 million.


68 |

Regarding the structure of the number and volume of the total transactions processed through

EICS, the majority of total completed transaction is processed through commercial banks as

direct participants in this system. Out of the total transactions processed through EICS from

June 2012 until June 2013, commercial banks had a share of 89.2 percent in the number of the

total transactions (93.4 percent in the same period of 2012), and 76.3 percent of the total value of

the executed transactions (77.1 percent until June 2012). The decrease of the share of the

commercial banks in the total number and volume of transactions executed through the only

interbank system in the country was mainly a result of the inclusion of the CSD system in this

period, as well as the processing of the salaries of the civil public administration. Regarding the

degree of the concentration in the payment system in the country, excluding the CBK as a

participant in the system, about 47.2 percent of the total number of transactions is managed by

three banks participating in the system, while about 50.9 percent of the total value of

transactions is managed by the three largest banks in the domestic banking system.

Within the instruments, the highest share of the total number of transactions, still continue to

have regular mass payments (64.2 percent of the total number of payments), payments executed

by or for governmental institutions such as salary payments. These payments are followed by

regular payments (17.9 percent) and kos-giro payments (payments ordered in paper form that

enables the payment such as for registration, taxes and other public utilities through bank)

which accounted for 12.3 percent of total transactions.

Regarding the changes that affected the total payments processed through EICS from the

previous year, the fastest growth in number was recorded by the massive priority payments

(from 3.823 in June 2012 to 237.971 in June 2013), as a result of the commencement of payroll

processing through EICS of the public administration since April 2013.

Table 10. Participation of payment instruments in total IECS transactions

Source: CBK (2013)

Also in terms of the value of transactions executed through EICS, given that the system is still in

development, massive prioritized payments had the fastest annual growth rate (from euro 2.3

million in June 2012 to euro 90.5 million in June 2013).

In June 2013, the highest share in the total value of transactions had regular payments (52.7

percent of the total value of transactions), even though the value of massive prioritized payment

and the total value of securities cleared in EICS system increased their share compared to the

previous year. In June 2013, massive prioritized payments increased their share in the total

value of payments by 1.5 percent (0.04 percent in June 2012), while securities reached a share of

6.8 percent in June 2013 (Table 10).


Normal 18.4 17.9 60.8 52.7

Prioritized 0.5 0.5 13.6 15.8

Massive normal 68.6 64.2 9.0 8.2

Prioritized massive 0.1 4.9 0.0 1.5

Kos-Giro 12.2 12.3 16.4 15.0

Securities 0.0 0.0 0.0 6.8

Direct Debit 0.2 0.2 0.1 0.1

DescriptionTotal number of transactions Total value of transactions


| 69

The total number of valid bank accounts reached 1.84 million accounts in June 2013, implying

that on average almost every resident in Kosovo possesses a bank account. If we compare the

number of accounts in the country in June 2013 with the same period of 2012, we notice a

decrease in total accounts issued by 14.9 percent.27 The structure of bank accounts continues to be

dominated by resident accounts with a share of 98.4 percent in June 2013. Within the residential

accounts, individual bank accounts constitute about 93.0 percent of the total resident accounts,

while the remainder of 7.0 percent belongs to business accounts. Similarly, the structure of the

nonresident accounts is dominated by individual accounts (96.2 percent in June 2013), while

business accounts have a share of only 3.8 percent.

E-banking accounts, through which users can access online banking services through the

internet continued to grow. In June 2013, the total number of e-banking accounts reached

113.171 indicating an annual growth of 12.6 percent compared to June 2012. Regarding the total

volume of e-banking transactions, as the number of transactions executed through e-banking

accounts also their value increased considerably. The total number of transactions executed

through e-banking account amounted to 443.053 in June 2013 (243.184 in June 2012), while the

total value of transactions through e-banking in the same period amounted to 1.1 billion (509.0

million in June 2012). The continuous growth of e-banking users primarily reflects the efforts of

financial institutions in the country to rise the awareness of their clients for the advantages of e-

banking services compared to the traditional way of payments in cash. As banks attempt to

increase efficiency by encouraging customers to participate more in online transactions through

e-banking services, in 2013 was recorded an increase in fees by banks for services in cash (intra

and interbank) and a decrease in fees for electronic payment services.

The total number of cards (debit and credit cards) that provide services for cash withdrawals and

payments for various services amounted to 715,827 in June 2013, marking an increase of 3.7

percent compared to the same period of 2012. On the basis of the payment functioning, the total

number of debit cards amounted to 602.899, while the number of credit cards was 99.339. Despite

the lower rate of use, the number of credit cards had faster growth compared to the growth in the

number of debit cards. While the annual growth of the number of debit cards was 2.2 percent in

June 2013 compared to the same period of the previous year, the number of credit cards marked

a growth of 13.2 percent. The highest share in debit and credit cards in June 2013 was marked

by Visa cards (75.5 and 86.3 percent, respectively), followed by MasterCard cards (24.3 to 13.7

percent, respectively).

Banking infrastructure continued to have a growth trend in terms of Automated Teller Machine

(ATM) network and Point-of-Sale (POS) equipment which enable customers to make payments at

points of sale. The number of ATMs and POSs devices installed by commercial banks marked an

annual growth of 4.4 and 17.2 percent, respectively, in June 2013. The total number of ATMs

installed reached 493, while the number of POSs amounted to 9.039 (table 11). In June 2013, the

number of withdrawals through ATMs amounted to 4.4 million, with a total value of euro 411.4

million (euro 378.2 million in June 2012). Moreover, in June 2013 about 1.8 million payments

were processed through POSs terminals, with a value of euro 86.6 million (euro 77.2 million in

June 2012). When considering cash withdrawal from ATM at a total value of card transactions

which in June 2013 stood at around 81.0 percent, while about 17.0 percent were payments of

customers with POSs equipment, we may say that the use of cash in the country’s economy

remains at a high level.

27

The total number of bank accounts includes: the number of current accounts, savings and other bank accounts, the number of e-banking, the number of accounts that

use standing order and the number of accounts that use Direct Debit-DD.


70 |

Kosovo continues to move fast but is still below the regional average in terms of the development

and expansion of the banking infrastructure. However, Kosovo has followed the trend of rapid

alignment with regional countries in terms of installed POS devices and e-Banking accounts.

Table 11. Banking system network

Source: CBK (2013)

In 2012, Kosovo had a total of 8.592 POS devices installed marking a higher number than

Albania which continues to have the lowest number of POS devices in the region (5.307).

Regarding the number of e-banking customer accounts, the data show that Montenegro has the

lowest number of e-banking accounts (34.811), followed by Albania (54.926) and Kosovo (97.089).

6.5.2. The new version of credit registry in Kosovo

Credit Registry of Kosovo (CRK) as a public registry is fully operational since early 2006 and is

managed by the Central Bank of the Republic of Kosovo. Members of the CRK system are all the

lending institutions that are licensed and supervised by the CBK. With financial and technical

support from the World Bank, CRK facilitated the work of lending institutions to assess the

borrowing potential of the applicants, has increased the efficiency of the lending process and

eased the crediting procedures. While CRK enables the collection and dissemination of credit

information (positive and negative) between lending institutions, credit reporting and periodic

update of the status of loans from these institutions is mandatory. Accurate information on

borrowers and the possession of the credit history reduces the potential risks of losses or poor

performance of the borrowers, hence reducing the costs for certain sectors which as a

consequence of incomplete information are charged with higher interest rates on loans.

As a result of the continuous advancement of CRK, the coverage rate of CRK has increased

steadily since 2009. The coverage index is expressed as a percentage of the adult population of

the country and reports all individuals and businesses that are part of CRK. In June 2013, CRK

had a coverage of 22.1 percent, representing an increase of 3.2 pp compared to 2009.28

As part of the ongoing work of the CBK to improve the quality of the supervision and monitoring

that aims to reduce potential risks resulting from an incorrect assessment of the borrowers, has

been made the CRK system advancement. The project on CRK system advancement started in

July 2010 as a joint project of CBK and BEEP-USAID, starting with the implementation of

advanced system since September 2012. This CRK system advancement further improved the

availability and predictability of credit information and encouraged an increase of the businesses

and individuals participation in the credit information system. The system advancement is based

on the general principles on credit reports, according to the recommendations published by the

International Finance Corporation. Within The project on CRK system advancement there has

been a review, development, and approval of new legal framework for credit registry called the

Credit Registry Regulation, Operational Instruction. The new legal framework is characterized

by clearly defining the rights of the data subjects, the expansion of the information collected

28

The data published in the report of the World Bank and International Financial Corporation: Doing Business 2013.

Decription June 2010 June 2011 June 2012 June 2013

Number of ATM 380 441 472 493

Number of POS 5,493 6,654 7,713 9,039

Number of E-banking accounts 49,188 58,675 100,519 113,171


| 71

within the CRK system, improvement the data protection and enhancement of users and data

reporters on CRK system. There has also been an enhancement of the CRK system software, to

further improve the quality of services needed by the lending institutions, borrowers and the

CBK.

Based on the new legal framework, which provides a strong framework for the proper functioning

of the credit registry, in the CRK system, several new functions were realized as specified by the

new regulations. It is worth mentioning that the regulation on establishing the rights of the

subject data includes the right to require detailed credit reports of individuals and businesses not

only by CBK (Credit Registry) but also by any member of the lending institution of CRK system.

Also, in order to facilitate the supply of credit reports, a website which is available to citizens and

businesses “www.raportikreditor.org” has been launched in December 2012. On this website, any

subject can be registered free of charge and be provided with their credit report. This procedure

of providing credit reports represents one of the most advanced developments based on the best

practices that relate to the rights over personal data and protection from unauthorized access.

Moreover, the clear procedures on credit information dispute and the right to privacy of the

personal information are specified. Also, it is reemphasized the importance of the use of credit

reports by crediting institutions (mandatory use) to minimize the impact on credit risk that may

arise from improper assessment of borrowers. The Advanced system has also expanded the

potential users of credit information. The above mentioned regulation has expanded the range of

users of credit information by enabling the insurance companies to have access to the credit

registry, and offering the possibility for additional expansion in the future.

The technical enhancement of the CRK system is mainly made to develop additional new

functions according to CRK within the creation of a larger number of reports for the need of the

lending institutions and also for the needs of the CBK. Furthermore, technical enhancement of

the system has enabled new additional fields for reporting by financial institutions to be inserted,

that affect the creation of more meaningful reports which at the same time are easier to be

analyzed. The new version of CRK contains many monitoring reports on the access and research

and reporting activities to the users of any lending institutions or by the CBK itself. These

reports indicate an increase of the security related to the access and unauthorized activities by

users as well as have an impact on the increase of the effectiveness and update during the

working process of the CRK system participants. Another technical innovation in the terms of

technical system enhancement is also the possibility of the research of the so called Batch File,

which automatically explores a larger number of loan applicants simultaneously, thus avoiding

manual individual search which would require more time and would be less efficient.

CRK system is expected to consistently advance, along with the development trends of the credit

reporting industry. Being a full member of the Association of Consumer Credit Information

Suppliers (ACCIS) on Credit Information since March 2010, Credit Registry of Kosovo has the

opportunity to be directly informed and closely track the development trends associated with the

credit reporting industry on the regional and global level. Given that this association’s intention

is to bring together and represent the interests of its members-, 39 agencies of the credit

reporting industry from 27 European countries, CRK constantly benefits in the professional and

development aspects as well as in the implementation of better practices. Regarding research

and analytical work, CRK has worked closely with the European Fund for Southeast Europe in

2011 and 2012 studies for borrowers over-indebtedness in Kosovo, these studies have emphasized

the importance of the CRK system in protecting the lending institutions and also the importance

of protecting the borrowers from over-indebtedness.

Thus, the Credit Registry is an important information system with an impact on decision-making

process in order to minimize credit risk for lending institutions, the aforementioned system is a


72 |

monitoring tool for the CBK, also a controlling and protecting instrument from the financial over-

indebtedness for borrowers, and at the country’s level it is an important instrument in

maintaining the financial stability.


| 73

7. Other Financial Institutions

7.1. Insurance Companies

Insurance sector has continued to

expand its activity during the first half

of 2013. Assets of insurance companies

marked an annual growth of 8.3 percent,

reaching the value of euro 130.1 million.

However, the share of this sector to the

total assets of the country’s financial

system remains relatively low at 3.4

percent (3.2 percent in June 2012). The

number of insurance companies

operating in Kosovo remains the same

as in the previous year with a total of 13

companies, 10 of which provide non-life

insurance, while 3 other offer life

insurance. During 2013 there have been changes in terms of ownership structure, where one non-

life insurance company changed from foreign ownership to domestic ownership. Consequently,

the number of insurance companies that are domestically owned has increased to 4, while 9

companies remain under foreign ownership. The percentage of insurance companies’ assets with

foreign ownership has declined to 66

percent from 71 percent as it was in

June 2012.

The market concentration of insurance

companies in the financial sector has

increased compared to the previous year.

Herfiendahl-Hirschman Index in June

2013 increased to 913.6 points from

897.5 points in June 2012. Conversely to

the market structure of other financial

institutions such as banks, insurance

companies have a relatively low market

concentration.

The structure of assets of insurance

companies remains similar to the previous year (figure 82). Deposits continue to dominate the

structure of total assets with a share of 59.1 percent in June 2013. The value of deposits recorded

an annual growth of 1.9 percent. Two other categories of assets, nonfinancial assets and other

assets, also marked a slight increase of 5.2 and 1.7 percent respectively, while the current assets

recorded a decline of 24.7 percent, declining their share to total assets at 6.6 percent from 8.7

percent as it was in June 2012.

On the liabilities side, the technical reserves and the shareholder capital continue to be the

categories with the largest share (figure 83). On one hand, technical reserves reached a value of

euro 71.2 million compared with euro 58.3 million in the previous year, thus increasing their

share to total liabilities of the sector to 54.7 percent from 48.5 percent in June 2012. On the other

hand, shareholder capital declined to euro 44.5 million from euro 48.8 as it was in June 2012,

thus declining the share to 34.2 percent. Consequently, the decline of capitalization level of the

sector, which is mainly influenced by the decrease of the profit, as well as the increase of the

8.7%

58.0%13.4%

19.8%

June 2012

Flow assets

Deposits

Non-financial assets

Other assets

6.6%

59.1%

14.1%

20.2%

June 2013

Flow assets

Deposits

Non-financial assets

Other assets

Figure 82. Structure of isnurance companies assets

Source: CBK (2013)

3.4%

40.6%

48.5%

7.5%

June 2012

Loans

Own capital

Technical reserves

Other liabilities

5.4%

34.2%

54.7%

5.7%

June 2013

Loans

Own capital

Technical reserves

Other liabilities

Figure 83. Structure of insurance companies liabilities

Source: CBK (2013)


74 |

share of technical reserves, has led to a decline in the capital to technical reserves ratio. In June

2013, this indicator, which shows the

ability of insurance companies to cover

potential losses, dropped to 62.5 percent

compared with 83.7 percent in June

2012 (83 percent is the average of the

previous three years).

The activity of insurance companies has

increased. In June 2013 the total

number of policies sold by insurance

companies amounted to 459.5 thousand

compared to 306.3 thousand policies in

the same period of the previous year.

Life insurance policies have marked a

significant increase, where their number

reached 23.8 thousand compared to 3 thousand in June 2012. The number of non-life policies

reached 435.7 thousand, where 183.7 thousand of them are border policies (99.0 thousand in

June 2012), 172.0 thousand non-voluntary policies of the third party (137.3 thousand in June

2012) and 80.0 thousand other belong to volunteer policies (66.9 thousand in June 2012).

Besides the increase of the number of

policies sold, total gross written

premiums increased too. The value of

gross written premiums in June 2013

amounted to euro 40.5 million, an

annual growth of 14.3 percent (figure

84). The structure of gross written

premiums consist primarily of ‘non-

life’ insurance premiums, which in

June 2013 comprised 97.7 percent of

the total value of gross written

premiums. The remainder of 2.3

percent includes ‘life’ insurance

premiums, which despite relatively

small share in total premiums, are continuously increasing (comprised 1.7 percent of the total

value of written premiums in June 2012). Non-voluntary insurance represents the majority of

‘non-life’ insurance premiums. The largest share of non-voluntary insurance, Third Party

Liability (TPL), consists of 62.6 percent of total ‘non-life’ insurance policies. Within the non-

voluntary policies are also included the border policies, which in June 2013 accounted for 9.7

percent of total non-life insurance policies. The rest of ‘non-life’ written premiums are voluntary

policies (Casco insurance, health insurance, property insurance, etc.), with 27.7 percent.

Claims paid by insurance companies for this period increased significantly by 44 percent (annual

growth). The gross value of total claims paid in June 2013 amounted to euro 21.2 million

compared with euro 14.7 million in the previous year. From the total amount of claims paid, only

0.4 percent consists of ‘ife’ insurance claims, while the remainder of 99.6 percent of the claims

includes ‘non-life’ insurance. The largest share of ‘non-life’ insurance claims paid include claims

paid for voluntary insurance (49.8 percent), and ‘non-voluntary’ (38.5 percent of claims paid)

Third party insurance is the dominant category of the claims of non-voluntary insurance with a

share of 37.4 percent of total non-life insurance, whereas, the claims paid for border insurance

30.333.6

35.4

40.5

14.413.6 14.7

21.2

47.6%40.4% 41.5%

52.3%

0%

10%

20%

30%

40%

50%

60%

0

5

10

15

20

25

30

35

40

45


Written primiums Claims paid Claims/Primums (right axis)

Figure 84. Written primiums and paid claims , in millions of euro

Source: CBK (2013)

62.6%

9.7%

27.7%

TPL TPL policies Voluntary policies

Figure 85. Structure of gross written primiums of non-life insurance

Source: CBK (2013)


| 75

comprise of 1.2 percent to total non-life insurance. The remainder of 11.7 percent of paid claims

includes the claims paid at the Kosovo Insurance Bureau (figure 86).

A higher growth rate of claims paid

during the first half of 2013 affected

the ratio of claims paid to written

premiums to increase to 52.3 percent

from 41.5 percent in June 2012. The

amount of claims paid and the annual

increase of general administrative

expenditures (standing at 25 percent)

caused the sector to record a loss

despite the growth of the activity. The

loss of the sector until June 2013

amounted to euro 1.4 million, while in

the same period of the previous year

the sector had a net profit of euro 0.7

million. The loss of the sector had an impact on the performance indicators such as Return on

Average Assets (ROAA) and Return on Average Equity.. ROAA in June 2013 was -0.57 compared

with 0.62 percent in June 2012, while ROEE was -3.09 percent compared to 1.5 percent in June

2012.

7.2. Pension funds

Among other sectors which

continuously are marking the highest

growth rates within Kosovo’s financial

system is also the pension sector. Assets

of the pension system in June 2013

reached a value of euro 808.8 million,

marking an annual growth rate of 22.7

percent. From this value, 99.3 percent is

managed by the Kosovo’s Pension

Savings Fund (KPSF), while the

remainder is managed by the Slovenian-

Kosovo Pension Fund (SKPF). The

increase of the value of pension fund

assets is attributed to the growth of the

contributors’ number but also to the better performance of KPST assets in international markets.

The performance of the KPSF assets was characterized by an increase in share price which

reached euro 1.14 (an increase of 8 percent compared to June 2012). The good performance of the

markets of developed countries is considered as the main factor that contributed to this growth,

which is also reflected through the price comparison of the KPSF unit with the Dow Jones Index

(DJI). As shown in figure 87, the positive return was recorded in the period from January to April

2013, while the months of May and June were characterized by a decline. Nevertheless, the 12-

month period return up to June 2013 reached over euro 50 million.

KPSF assets are concentrated mainly in shares (about 40 percent of total assets). Consequently,

as a result of the good performance of stock markets, the return on this instrument was the main

contributor of the asset growth of KPSF. Another instrument with relatively high share is the

investments in government bonds and bonds adjusted to inflation. In this context, it is worth

38.5%

49.8%

11.7%

Obligatory policies Voluntary policies Other

Figure 86. Structure of paid claims of non-life insurance

Source: CBK (2013)

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

0

2000

4000

6000

8000

10000

12000

14000

16000

Mar Jun SepDecMar Jun SepDecMar Jun SepDecMar Jun SepDecMar Jun SepDecMar Jun

2008 2009 2010 2011 2012 2013

DJI KPST share price (right axis)

Source: KPST (2013), DJI (2012)

Figure 87. KPST share price and the DJI index


76 |

mentioning that since the commencement of securities issuance by the Government of Kosovo,

KPSF has invested around euro 20 million, until June 2013.

During June 2012 to June 2013, also the amount of the contributions paid to the contributors

marked an increase. Until June 2013 the amount of the funds paid to the contributors reached

euro 9.9 million marking an increase of euro 3.1 million compared to the same period of the

previous year. This increase can partially be addressed to the value of contributions as a result of

the positive return on investment and to some extent, to the growth of the retiree’s base.

Currently, in KPSF are opened over 431 thousand contributors’ accounts which present a growth

of 8 percent comparing to the previous year.

7.3. Microfinance institutions and financial auxiliaries

Microfinance Institutions (MFI) in Kosovo continue to exercise their activity in financing small

businesses and households. In June 2013, the number of MFIs operating in Kosovo was 18

compared with 19 as it was in the

previous year. MFI share to the Kosovo’s

financial sector decreased, mainly as a

result of the slowdown of lending

activity of these institutions, where in

June 2013 MFI represented 2.1 percent

of total assets, compared with 3.7

percent in June 2012.

Concentration rate in the microfinance

sector continued its downward trend

(figure 88). Herfindahl-Hirschman Index

for microfinance assets institutions has

declined to 1,129 points from 1,207

points in June 2012, implying that the

degree of assets concentration in this sector has recorded a decline. Assets of the three largest

MFIs, in June 2013, decreased their share to total assets in the sector to 45.1 percent from 47

percent as it was in the previous year (figure 89). The decline of the share of the three largest

MFIs was primarily a result of the decrease of the assets value of these institutions. A downward

trend was also recorded in the value of the total assets of MFIs. In June 2013, the value of assets

of the sector decreased to euro 113

million, marking an annual decline of

6.1 percent. The decline is mainly

attributed to the reduction of loans,

which represents the main category

within the total assets of MFIs. In June

2013, loans and leasing suffered an

annual decline of 6.5 percent, dropping

to euro 95.9 million from euro 102.6

million in June 2012 (figure 90). More

specifically, business loans marked a

decline of 30 percent, thus affecting the

value of total loans decrease. On the

other hand, loans to households, which

dominate the structure of MFI loans,

marked an annual increase of 3.7 percent. Total number of active loans of MFIs, at the end of

June 2013, was 39.178 loans, representing an annual decline of 4.5 percent. However, the

1,000

1,200

1,400

1,600

1,800

2,000

2,200


Figure 88. HHI for the assets of microfinanceinstitutions

Source: CBK (2013)

64.0%54.8%

47.0% 45.1%

36.0%45.2%

53.0% 54.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Three largest MFIs Other MFI

Figure 89. Structure of MFI assets by size of the institutions, in percent

Source: CBK (2013)


| 77

significant decline of the value of total loans issued by MFIs made the average value of loans

decrease to euro 2,449 thousand (euro 2,502 thousand in June 2012) despite the decline in the

number of loans.

The share of MFI loans to total loans of

the financial sector continued to decline

as a result of the value decrease of MFI

loans in one hand, and the value of the

total loans of the banking sector on the

other hand. In June 2013, MFI loans

accounted for 5 percent of the financial

sector loans, compared with 5.5 percent

in the same period of the previous year.

Interest rates on loans to MFIs remain

at the similar level to the previous year.

The six-month average effective interest

rate was 23.3 percent in June 2013,

compared with an average of 23.6 percent that was recorded in the first half of 2012. In the first

half of 2013, income from MFI activities recorded a value of euro 9.8 million, representing an

annual decline of 3.5 percent. The decrease was mainly due to the decline of the credit activity

which was reflected in the decline of 10.8 percent of interest income. Also expenses marked a

decline which in June 2013 their total value decreased to euro 10.4 million from 12.8 million in

June 2012, presenting an annual decline of 19 percent. The general decline in expenditures is

mainly attributed to the reduction of non-interest expenditures, specifically provision expenses

for loan losses which decreased to 1.3 million from 2.9 million in the previous year. MFI sector

concluded the first half of 2013 with a loss of euro 0.6 million as a result of the higher expenses

compared to the income collected. However, the more significant annual decline of expenses than

income decline in this period contributed to the sector’s losses to be lower than in June 2012

when losses were euro 2.9 million.

119.3 115.8

102.6

95.9

0

20

40

60

80

100

120

140


Figure 90. Loans issued by MFIs, in millions of euro

Source: CBK (2013)


78 |


| 79

9. Statistical Appendix


80 |


| 81

Table 1. Financial Soundness Indicators

Capital adequacy Regulatory capital to risk-w eighted assets18.7 17.2 17.2 16.5

Regulatory Tier I capital to risk-w eighted assets15.9 14.4 14.4 13.4

Nonperforming loans net of provisions to capital3.6 5.7 5.2 7.3

Asset quality Nonperforming loans to total gross loans4.5 5.9 6.5 7.8

Sectorial breakdown of loans to total

loansOther f inancial corporations

0.3 0.4 1.0 1.0

Public nonfinancial corporations0.45 0.02 0.1 0.02

Other nonfinancial corporations70.1 69.9 68.5 67.0

Households29.2 29.7 30.3 30.8

NPISH0.00 0.03 0.05 0.04

Nonresident0.00 0.00 0.00 1.13

Total 100.0 100.0 100.0 100.0

Profitability Return on assets (ROA)*1.7 1.4 1.0 1.2

Return on equity (ROE)*18.0 14.2 9.7 12.3

Interest margin to gross income75.0 75.9 75.4 74.0

Noninterest expenses to gross income74.1 79.9 86.6 82.0

Liquidity Liquid assets (core) to total assets29.2 24.3 22.6 21.9

Liquid assets (broad) to total assets32.1 29.8 28.9 29.3

Liquid assets (core) to short-term liabilities36.9 31.1 28.3 27.9

Liquid assets (broad) to short-term liabilities40.5 38.1 36.2 37.3

Sensitivity to market risk Net open position in foreign exchange to capital

Encouraged set

Capital to assets10.7 10.2 10.3 10.5

Large exposures to capital62.8 82.7 80.9 79.0

Personnel expenses to noninterest expenses39.9 39.8 38.4 39.2

Spread betw een reference lending and deposit rates10.3 10.6 9.9 8.5

Customer deposits to total (noninterbank) loans119.0 114.2 112.2 116.3

Foreign-currency-denominated liabilities to total liabilities4.8 5.2 4.6 4.6

* Net income before tax are considered.

** ROA and ROE for June 2012 are anualized.

Guide: Financial Soundness Indicators, Compilation Guide, IMF (2006)

Banking system Core set June 2010 June 2012

-2.4

June 2013

0.3

June 2011

11.3 1.3


82 |

Table 2. Balance Sheets of Commercial Banks, as of June 2013, in millions of euro

(In millions of euro)

Cash and balances w ith CBK 98.71 Balance from other banks 0.32

Balance w ith commercial banks 45.95 Deposits 628.48

Securities 113.87 Other borrow ings -

Loans 507.36 Other liabilities 67.23

Fixed assets 19.18 Subordinated debt 24.55

Other assets 11.29 Ow n resources 75.78

Source: CBK (2013)




Securities 43.8 Other borrow ings 1.4




Source: CBK (2013)








Source: CBK (2013)

Assets Liabilities

TOTAL ASSETS 126.9 TOTAL LIABILITIES

TOTAL ASSETS 796.4 TOTAL LIABILITIES 796.4

126.9

Assets Liabilities

Assets Liabilities


Procredit Bank

Raiffeisen Bank

Banka për Biznes


| 83








Source: CBK (2013)








Source: CBK (2013)


Cash and balances w ith CBK41.7

Balance from other banks0.3

Balance w ith commercial banks64.5

Deposits334.1

Securities43.8

Other borrow ings7

Loans255.0

Other liabilities34.2

Fixed assets11.4

Subordinated debt-

Other assets

2.9Ow n resources

43.8

Source: CBK (2013)



TOTAL ASSETS 190.6 TOTAL LIABILITIES

Assets Liabilities

Liabilities

Assets Liabilities

190.6

Banka Ekonomike

Banka Kombëtare Tregtare

NLB Prishtina

Assets


84 |



Balance from other banks17.0


Deposits271.3

Securities0.9

Other borrow ings-

Loans262.0


Fixed assets5.1

Subordinated debt11

Other assets

3.2Ow n resources

25.0

Source: CBK (2013)



Balance from other banks-


Deposits40.3

Securities0.0

Other borrow ings3

Loans4.1


Fixed assets0.0

Subordinated debt-

Other assets

0.7Ow n resources

5.1

Source: CBK (2013)

TEB Bank



Assets Liabilities

Komercijalna Banka

Assets Liabilities


| 85

Table 3.1. FC survey – net foreign assets and domestic claims

(Cumulative data, end of period, in millions of euro)

Source: CBK (2013)

Deposi

ts

Other non

f inancial

corporat i

ons

Househ

olds

2005 December 827.3 890.9 __ 422.6 242.4 __ 145.3 63.6 348.9 -225.7 __ 225.7 225.7 574.6 565.6 439.6 126.0

2006 December 1,173.6 1,245.7 __ 660.0 341.3 __ 170.8 72.1 231.7 -475.0 __ 475.0 475.0 706.6 694.3 548.2 146.1

2007 December 1,622.4 1,704.6 __ 955.0 408.9 __ 175.4 82.3 124.5 -853.3 __ 853.3 853.3 977.8 965.9 765.1 200.6

2008 December 1,593.1 1,726.7 __ 795.1 661.6 __ 128.2 133.6 419.6 -871.8 __ 871.8 871.8 1,291.5 1,276.8 995.7 281.0

2009 December 1,700.5 2,036.2 60.3 910.1 724.5 64.3 144.3 335.7 571.5 -846.3 __ 846.3 846.3 1,417.8 1,396.1 1,052.3 343.5

June 1,732.6 2,098.1 67.0 961.2 568.5 71.4 252.3 365.5 601.1 -940.7 __ 940.7 940.7 1,541.8 1,518.9 1,100.0 412.3

September 1,956.3 2,345.2 63.0 1,196.7 566.1 67.3 244.7 389.0 561.0 -993.2 __ 993.3 993.3 1,554.2 1,531.5 1,102.2 422.8

2010 December 1,957.5 2,387.7 64.0 1,257.8 525.2 68.5 269.3 430.2 766.8 -824.8 __ 824.8 824.8 1,591.6 1,568.3 1,127.7 434.2

M arch 2,027.1 2,456.6 61.8 1,250.7 586.5 66.2 294.0 429.5 734.3 -913.5 __ 913.5 913.5 1,569.9 1,542.6 1,181.2 438.8

June 1,988.0 2,421.3 60.9 1,171.3 640.0 65.4 293.9 433.3 840.1 -905.2 __ 905.2 905.2 1,745.3 1,716.2 1,233.3 482.1

September 2,108.2 2,511.5 63.3 1,297.5 539.1 68.0 332.7 403.3 862.2 -905.5 __ 905.5 905.5 1,767.7 1,740.8 1,235.1 504.2

2011 December 2,080.3 2,454.3 65.1 1,369.2 230.0 70.1 533.1 374.0 989.0 -798.4 __ 798.4 798.4 1,787.4 1,761.7 1,244.1 514.6

M arch 2,087.9 2,449.5 63.8 1,179.7 346.9 68.8 580.9 361.6 1,000.8 -788.9 29.9 818.8 818.8 1,789.7 1,762.0 1,238.7 521.1

2012 June 2,081.2 2,445.1 66.4 1,257.2 239.1 71.9 598.7 363.9 1,057.1 -801.1 29.9 831.0 831.0 1,858.3 1,832.9 1,281.9 548.6

September 2,301.6 2,716.8 65.0 1,129.0 598.8 70.7 622.1 415.1 985.7 -848.8 73.6 922.3 922.3 1,834.5 1,809.6 1,260.9 546.3

2012 December 2,337.1 2,773.4 63.3 1,260.7 486.0 68.8 666.5 436.3 1,079.9 -764.7 73.8 838.5 838.5 1,844.6 1,819.4 1,271.3 546.3

M arch 2,376.5 2,821.3 63.3 1,189.5 515.7 69.0 734.5 444.8 1,112.0 -751.8 73.9 825.7 825.7 1,863.8 1,838.7 1,287.5 549.8

2013 June 2,352.5 2,793.0 61.9 1,008.6 646.2 67.8 777.9 440.4 1,110.8 -798.6 110.9 909.5 909.5 1,909.4 1,882.0 1,314.8 566.1

D escrip t ionM oneta

ry gold

and

SDR

holding

s

Deposi

ts

Claims on

non

residents Securit i

es

other

than

shares

N et f o reign asset s D omest ic claims

of which: Less:

liabilit ie

s to

nonresi

dents

Net claims on central government Claims

on other

sectors

of which:

IM F

Quota

Shares

and

other

equit ies

Less: Liabilit ies

to central

government

Loans of which:Claims

on

central

govern

ment


86 |

Table 3.2 FC survey – Liabilities


Source: CBK (2013)

2005 December 830.6 315.0 67.6 76.8 155.5 515.6 181.3 33.7 298.9 3.0 174.5 152.4 22.1 165.8 2.2

2006 December 886.4 300.5 34.8 96.4 156.2 586.0 193.3 27.6 359.5 3.4 251.4 223.9 27.5 209.3 54.7

2007 December 1,110.9 386.1 49.6 133.5 187.5 724.8 188.4 43.8 489.3 … 316.1 286.2 29.9 273.8 46.0

2008 December 1,351.9 390.9 15.4 176.0 186.2 961.0 250.1 51.4 656.7 … 288.6 256.3 32.3 311.1 61.1

2009 December 1,444.3 483.2 50.1 184.0 237.7 961.0 73.9 82.9 801.9 … 422.3 380.8 41.5 326.1 79.3

June 1,454.8 477.8 44.8 153.8 270.2 977.0 31.3 76.7 868.1 … 456.2 412.5 43.8 351.4 71.3

September 1,573.1 520.4 55.9 170.3 281.4 1,052.8 38.6 76.8 936.4 … 500.8 454.7 46.1 346.3 97.0

2010 December 1,744.2 621.2 83.8 218.6 303.5 1,123.1 42.8 83.4 995.9 … 540.5 493.7 46.8 361.0 78.6

M arch 1,737.8 596.2 107.5 178.2 295.9 1,141.6 34.7 80.0 1,025.9 … 572.6 524.2 48.3 364.9 86.2

June 1,757.4 591.4 72.0 185.9 315.2 1,166.0 48.0 75.0 1,039.9 … 602.7 551.5 51.1 373.1 94.7

September 1,900.9 662.1 99.1 205.0 336.9 1,238.8 51.7 81.0 1,102.9 … 598.5 545.9 52.6 377.3 93.7

2011 December 1,940.2 665.1 75.5 208.1 360.9 1,275.1 60.8 79.7 1,129.6 … 647.8 593.3 54.5 395.1 86.2

M arch 1,905.7 626.7 32.2 212.4 363.2 1,279.0 46.2 73.1 1,154.6 … 698.6 642.9 55.7 405.1 79.5

2012 June 1,931.6 651.7 24.7 223.2 379.6 1,279.9 59.5 75.8 1,141.1 … 717.3 659.1 58.3 389.0 100.3

September 2,018.4 681.1 30.0 245.0 384.1 1,337.3 63.3 74.1 1,195.7 … 767.8 708.1 59.7 397.2 103.9

2012 December 2,094.0 717.5 31.2 257.5 407.2 1,376.5 61.8 78.2 1,232.9 … 806.9 745.1 59.4 401.0 118.8

M arch 2,095.8 710.2 37.0 234.4 415.8 1,385.5 50.9 74.2 1,255.5 … 866.8 800.3 66.2 403.6 120.4

2013 June 2,068.8 718.8 35.9 231.8 425.2 1,350.1 48.8 75.4 1,221.3 … 880.0 808.8 41.2 398.0 122.3

D escrip t ion

Deposits Insurance technical reserves

Public

non

f inancial

corporat i

ons

Other non

f inancial

corporat i

ons

Househol

ds

Other

deposits

of which:

Net

equity of

househol

ds in

pension

funds

Pre

payment

of

premiums

and

reserves

Public

nonf inanc

ial

corporat i

ons

Other

nonf inanc

ial

corporat i

ons

Househol

ds

Loans Shares

and other

equity

Other

items

(net)Transfera

ble

deposits

of which:


| 87

Table 4.1. ODC balance sheet – assets


Source: CBK (2013)

2001 December 519.8 265.1 212.8 212.8 . 7.5 25.9 __ __ 25.9 __ __ 4.5 3.9

2002 December 473.7 81.3 292.7 292.7 . … 86.5 __ __ 80.8 5.7 __ 9.5 3.7

2003 December 589.2 106.2 106.2 106.2 . 119.6 232.8 __ 0.2 193.5 39.0 __ 12.3 12.2

2004 December 816.5 116.5 186.0 169.2 16.8 112.3 373.7 __ … 289.9 83.7 __ 15.9 12.2

2005 December 984.4 131.7 221.9 201.0 21.0 82.9 513.9 __ … 387.9 126.0 __ 16.9 17.0

2006 December 1,161.2 141.1 243.3 218.8 24.5 99.4 636.6 __ … 490.5 146.1 __ 23.0 17.9

2007 December 1,435.0 189.0 208.1 173.4 34.7 78.9 892.1 __ 0.2 691.3 200.6 __ 27.2 39.7

2008 December 1,808.2 218.2 283.9 236.3 47.6 40.5 1,183.4 0.6 0.1 901.7 281.0 __ 39.0 43.1

2009 December 2,204.1 322.7 405.6 326.7 78.8 97.0 1,289.0 2.3 0.3 942.9 343.5 __ 43.1 46.7

2010 December 2,455.1 307.0 439.1 367.3 71.8 173.4 1,458.7 9.9 6.3 1,004.1 434.2 2.5 44.0 32.9

October 2,613.0 291.0 358.6 274.0 84.6 198.2 1,678.8 14.9 1.5 1,118.1 504.4 6.4 45.9 40.6

November 2,629.4 297.3 357.6 271.0 86.6 196.1 1,686.2 15.8 1.5 1,120.5 508.3 6.4 46.1 46.1

2011 December 2,649.7 331.5 329.5 251.8 77.7 202.0 1,698.1 17.3 1.5 1,127.0 510.9 7.3 47.4 41.3

January 2,648.3 329.6 358.6 276.9 81.6 189.7 1,683.1 16.6 1.4 1,119.2 506.3 7.1 48.0 39.4

February 2,660.6 340.5 337.5 260.3 77.2 200.3 1,692.2 16.1 1.3 1,130.7 504.6 6.6 48.0 42.0

M arch 2,634.3 308.5 291.4 212.8 78.6 222.9 1,717.1 16.1 1.4 1,146.1 513.7 6.8 48.7 45.6

April 2,619.2 297.2 279.6 200.9 78.7 206.3 1,740.8 16.7 1.4 1,162.2 522.4 6.9 48.5 46.7

M ay 2638.8 299.1 278.2 205.6 72.6 209.9 1755.3 17.3 1.5 1165.8 532.0 7.1 48.7 47.6

June 2,652.3 298.4 265.3 203.3 62.0 215.6 1,776.3 18.3 1.5 1,178.8 538.4 7.6 49.9 46.9

July 2,714.2 333.3 331.3 273.9 57.4 187.1 1,767.1 20.3 1.4 1,165.9 541.1 7.7 56.0 39.4

August 2,770.4 365.1 353.0 296.8 56.2 203.6 1,753.8 19.6 1.4 1,153.1 541.1 7.7 56.0 38.9

September 2,765.3 349.5 307.6 244.3 63.4 255.4 1,758.7 18.6 1.4 1,157.7 542.2 7.6 56.5 37.6

October 2,746.4 354.9 283.4 214.1 69.4 260.0 1,748.4 18.2 1.4 1,153.6 544.9 7.5 56.7 43.1

November 2,804.5 384.2 294.6 238.3 56.2 268.9 1,758.8 18.7 1.4 1,166.2 541.9 7.5 56.1 41.8

2012 December 2,829.3 425.7 287.9 228.0 59.9 256.6 1,763.4 19.8 1.4 1,169.8 542.6 6.9 57.7 38.1

January 2,812.6 390.7 311.9 237.6 74.3 262.5 1,754.9 19.1 0.8 1,165.1 542.1 6.4 57.2 35.4

February 2,837.8 399.6 297.4 220.8 76.6 282.7 1,765.6 19.1 0.4 1,176.9 540.9 7.0 56.6 35.9

M arch 2,835.7 414.3 270.1 193.1 77.0 275.5 1,782.7 19.9 0.3 1,188.0 545.8 6.7 56.0 37.2

April 2,799.3 394.5 279.3 190.3 89.0 229.5 1,801.6 18.7 0.3 1,203.7 551.0 6.9 56.2 38.2

M ay 2,825.3 379.8 292.9 205.3 87.6 246.7 1,810.0 18.6 0.3 1,209.1 554.0 7.0 57.4 38.5

2013 June 2,787.0 355.4 261.4 175.4 86.0 246.3 1,825.7 19.1 0.3 1,216.1 561.9 6.9 57.6 40.5

Cash and

balances

with CBKD escrip t ion

Total assets

Balances with commercial banks Fixed

assets

Other

assets

Other

f inancial

corpora

t ions

In non

euro

currencie

s

In euro

currency

House

holds

Other non

f inancial

corporat i

ons

Public

non

f inanci

al

corpo

rat ion

s

Gross

loans and

lease

f inancing

Gross

loans in

non euro

currency

of which in euro:Securit ies


88 |

Table 4.2. ODC balance sheet – assets


Source: CBK (2013)

of which:

2001 December 519.8 . 492.3 365.4 126.8 _ 5.0 … 2.0 … 20.4 18.4

2002 December 473.7 . 427.2 295.9 131.3 _ 5.4 … 6.6 1.3 33.2 30.8

2003 December 589.2 1.8 514.0 290.5 223.5 _ 8.9 … 17.5 2.0 45.0 44.1

2004 December 816.5 14.3 694.5 281.0 413.5 _ 1.4 … 27.9 9.3 69.1 57.7

2005 December 984.4 23.0 836.7 296.6 540.1 _ 6.4 … 37.3 7.0 74.0 62.4

2006 December 1,161.2 30.3 924.3 308.9 615.4 _ 4.2 … 92.1 7.0 103.3 78.4

2007 December 1,435.0 25.8 1,143.1 380.7 762.4 _ 2.7 … 103.7 7.0 152.7 114.9

2008 December 1,808.2 34.9 1,444.1 429.8 1,014.2 _ … … 129.8 7.0 192.5 145.9

2009 December 2,204.1 58.5 1,744.9 517.8 1,229.5 _ … … 171.7 24.4 204.6 159.4

2010 December 2,455.0 94.0 1,936.9 671.0 923.2 342.7 … 0.1 160.0 33.5 230.5 170.4

October 2,613.0 43.1 2,073.6 694.1 1,037.7 341.8 32.2 0.1 184.7 31.0 248.1 176.6

November 2,629.4 45.9 2,075.6 695.1 1,035.1 345.5 32.6 0.2 193.4 31.0 250.5 176.6

2011 December 2,649.7 40.0 2,104.0 699.0 1,056.8 348.2 30.4 0.2 191.3 31.0 252.8 176.6

January 2,648.3 33.7 2,113.5 678.4 1,084.1 351.1 30.4 0.2 183.1 31.0 256.3 176.6

February 2,660.6 28.3 2,123.4 681.2 1,084.7 357.5 30.7 0.2 189.7 31.0 257.3 176.6

M arch 2,634.3 26.3 2,087.5 657.4 1,074.3 355.8 31.3 2.0 191.5 31.0 264.0 179.6

April 2,619.2 27.7 2,078.3 644.5 1,082.8 350.9 31.6 2.0 192.0 31.0 255.9 181.1

M ay 2638.8 26.6 2097.0 667.8 1081.4 347.8 29.6 2.0 194.1 31.0 257.7 181.1

June 2652.3 21.3 2108.5 687.4 1079.2 341.9 26.8 2.1 205.8 31.0 255.8 181.1

July 2,714.2 15.6 2,171.1 721.1 1103.2 346.9 26.9 1.8 208.5 31.0 258.1 181.1

August 2,770.4 14.5 2,222.8 745.8 1,125.1 351.9 27.0 1.7 211.7 31.0 260.7 181.1

September 2,765.3 15.1 2,206.5 723.4 1,134.1 349.0 31.0 1.6 215.9 31.0 263.0 181.1

October 2,746.4 13.1 2,194.9 697.6 1,147.9 349.4 26.5 2.0 213.1 31.0 264.7 200.1

November 2,804.5 12.5 2,255.1 738.8 1,165.1 351.2 22.8 1.8 214.4 31.0 265.8 200.1

2012 December 2,829.3 6.0 2,279.1 751.9 1,172.1 355.0 18.9 1.7 221.4 31.0 270.8 200.1

January 2,812.6 4.3 2,265.1 738.9 1,170.9 355.4 19.1 1.6 218.6 31.0 272.6 200.1

February 2,837.8 7.2 2,278.3 744.1 1,178.2 356.0 20.0 1.8 227.4 31.0 271.7 200.1

M arch 2,835.7 4.0 2,269.4 756.0 1,155.6 357.8 19.4 1.6 233.0 31.0 276.9 200.1

April 2,799.3 3.0 2,231.4 756.8 1,095.4 379.2 19.9 1.2 229.2 31.0 283.2 205.1

M ay 2,825.3 10.6 2,247.0 776.6 1,096.2 374.3 17.5 1.7 229.9 31.0 287.2 212.3

2013 June 2,787.0 20.2 2,201.3 745.3 1,086.8 369.2 14.8 1.7 239.4 36.3 272.9 218.3

Total liabilit ies

D escrip t ion

Balances

from

other

banks

Deposits Write -

downs,

provisions

Other

liabilit ies

Subordin

ated debt

Own

resources

Other

borrowin

gs (incl.

non neg.

CD)

Saving

deposits

Transfera

ble

deposits

Share

capital

Other

deposits:


| 89

Table 5.1. ODC deposits – euro deposits


Source: CBK (2013)

Nonresid

ents

2001 December 492.3 __ _ _ __ __ __ . __ 165.2 __ 165.2 313.1 313.1 __ 13.9

2002 December 427.2 __ _ _ __ __ __ . __ 183.6 __ 183.6 226.1 226.1 __ 17.5

2003 December 515.8 __ 1.8 1.8 __ __ . __ 226.1 __ 226.1 267.9 267.9 __ 20.0

2004 December 674.9 1.3 25.6 3.7 3.5 15.5 . 2.9 275.3 173.5 101.8 360.3 350.7 9.6 12.3

2005 December 815.3 2.9 35.4 8.1 5.8 18.8 . 2.8 319.0 211.3 107.7 440.7 428.7 12.0 17.3

2006 December 890.4 7.0 28.1 0.1 2.4 24.7 0.4 0.5 337.8 217.4 120.5 499.2 486.1 13.1 18.2

2007 December 1,092.0 4.1 39.1 3.1 5.6 28.3 0.4 1.7 386.2 215.5 170.7 647.0 631.9 15.2 15.6

2008 December 1,366.9 1.4 62.9 5.0 6.5 31.5 19.4 0.4 479.7 263.8 215.9 785.0 774.5 10.5 37.9

2009 December 1,640.1 165.0 78.2 6.1 5.9 43.1 22.6 0.4 371.5 121.6 249.9 962.2 948.8 13.4 63.2

2010 December 1,831.1 11.7 105.0 7.3 7.9 47.6 41.6 0.6 414.9 122.3 292.6 1,220.1 1,206.1 14.0 79.4

October 1,959.8 1.7 121.1 15.2 6.3 56.2 42.7 0.7 423.4 142.0 281.4 1,340.2 1,316.8 23.4 73.3

November 1,956.6 1.9 121.1 11.9 9.8 56.0 42.9 0.6 420.9 152.9 268.0 1,346.6 1,326.5 20.1 66.1

2011 December 1,982.4 2.7 117.5 9.9 6.8 57.2 43.1 0.5 406.6 128.5 278.1 1,395.6 1,373.4 22.2 60.0

January 1,996.2 2.1 121.2 12.3 6.1 59.2 43.0 0.5 373.1 115.3 257.9 1,405.7 1,382.9 22.8 94.0

February 2,007.8 2.4 125.4 11.7 7.6 62.5 42.9 0.6 371.7 113.3 258.4 1,424.0 1,400.1 23.9 84.3

M arch 1,971.4 2.1 124.8 12.6 7.2 61.3 43.1 0.6 347.0 68.5 278.5 1,421.3 1,400.6 20.7 76.3

April 1,965.3 1.1 125.4 13.8 5.9 61.5 43.6 0.6 342.8 74.0 268.8 1,425.6 1,404.1 21.4 70.4

M ay 1,983.1 1.0 122.0 11.1 5.0 61.8 43.5 0.5 362.8 73.8 288.9 1,433.9 1,409.0 24.9 63.5

June 2,001.0 1.0 127.8 12.7 4.8 66.0 43.8 0.6 359.2 70.6 288.6 1,441.8 1,416.9 24.8 71.3

July 2,064.3 0.7 128.0 12.7 6.8 64.3 43.6 0.6 372.5 77.1 295.4 1,472.3 1,445.6 26.7 90.8

August 2,114.5 0.8 128.9 11.4 7.5 65.6 44.0 0.4 395.3 72.3 322.9 1,504.4 1,480.9 23.4 85.2

September 2,101.1 0.8 133.7 13.4 8.2 67.3 44.3 0.5 384.9 79.3 305.6 1,503.7 1,479.6 24.1 78.1

October 2,089.6 0.8 124.8 11.0 8.0 64.5 40.8 0.5 383.9 83.2 300.7 1,506.6 1,482.5 24.1 73.5

November 2,150.0 1.1 125.4 10.4 7.3 63.8 43.3 0.5 398.8 80.9 317.8 1,536.9 1,513.8 23.1 87.9

2012 December 2,162.8 0.7 120.0 3.8 6.2 64.3 45.3 0.4 401.7 75.6 326.1 1,558.6 1,535.4 23.2 81.7

January 2,142.0 0.8 120.4 3.0 6.9 64.0 46.0 0.4 375.4 76.0 299.5 1,569.9 1,544.8 25.1 75.6

February 2,154.9 1.0 115.5 4.5 6.8 63.9 39.9 0.4 386.3 71.8 314.6 1,579.5 1,553.8 25.7 72.5

M arch 2,143.4 1.0 98.0 1.5 6.6 65.1 24.3 0.5 369.8 69.1 300.7 1,583.6 1,558.1 25.5 91.0

April 2,106.5 0.9 77.9 1.6 6.1 64.2 5.5 0.4 367.5 60.7 306.8 1,575.6 1,549.3 26.4 84.5

M ay 2,122.0 1.9 78.6 2.2 6.5 64.0 5.4 0.5 372.8 65.6 307.2 1,591.7 1,563.9 27.7 77.0

2013 June 2,076.0 1.3 78.6 1.5 7.1 64.1 5.7 0.3 363.4 64.8 298.6 1,562.1 1,535.2 26.9 70.6

Other domest ic sectors

Total deposits in euro

Other

deposito

ry

corporat i

ons

Other

f inancial

intermedi

aries

Insurance

companie

s

Pension

funds

Househol

ds

NPISHD escrip t ion

Financial

auxilliarie

s

Public

nonf inanc

ial

corporat i

ons

Other

nonf inanc

ial

corporat i

ons

Governm

ent

Finanncial corporat ions Non f inancial corporat ions


90 |

Table 5.2. ODC deposits – euro deposits


Source: CBK (2013)

Transfer

able

deposits

Saving

account

Other

deposits

2005 December 29.4 … __ … … … 2.8 __ 2.8 26.0 25.7 10.8 __ 14.9 0.3 0.5

2006 December 34.3 … __ … … … 3.7 0.3 3.5 29.8 29.6 12.4 __ 17.2 0.2 0.5

2007 December 53.3 0.5 __ … 0.1 0.4 8.1 1.5 6.6 44.3 44.2 16.2 __ 28.0 0.1 0.4

2008 December 81.9 0.9 __ … … 0.9 11.6 0.1 11.5 68.4 68.2 22.9 __ 45.2 0.3 1.0

2009 December 112.1 2.1 __ 1.2 … 0.9 18.3 1.3 17.0 91.1 90.9 29.7 __ 61.1 0.2 0.7

2010 December 113.8 3.1 __ 2.9 __ __ 13.7 4.3 9.4 93.8 93.3 33.1 25.9 34.3 0.5 3.1

October 130.8 2.3 __ 2.1 __ __ 8.8 0.1 8.7 113.5 113.0 44.0 30.6 38.4 0.5 6.2

November 132.9 2.4 __ 2.4 __ __ 9.5 0.1 9.4 114.7 114.2 44.8 31.3 38.1 0.5 6.3

2011 December 131.5 0.3 __ 0.3 __ __ 9.8 0.1 9.7 117.5 117.0 46.5 31.7 38.9 0.4 3.8

January 129.7 0.6 __ 0.4 __ __ 10.2 0.1 10.1 114.9 114.6 45.6 31.1 37.9 0.3 4.0

February 127.7 1.0 __ 0.7 __ __ 6.4 0.1 6.3 116.4 116.1 47.9 31.1 37.1 0.3 3.9

M arch 128.9 0.7 __ 0.7 __ __ 7.0 __ 7.0 117.5 117.2 48.4 31.9 37.0 0.3 3.6

April 127.2 1.1 __ 0.7 __ __ 6.2 __ 6.2 115.9 115.7 46.9 31.7 37.1 0.1 4.0

M ay 125.5 0.9 __ 0.8 __ __ 7.5 __ 7.5 112.7 112.5 44.3 30.3 37.9 0.2 4.4

June 120.8 1.1 __ 1.0 0.1 __ 11.3 __ 11.3 104.1 103.8 43.6 27.3 32.9 0.4 4.2

July 120.4 1.3 __ 1.2 __ __ 11.8 __ 11.8 102.5 102.0 42.7 26.2 33.1 0.5 4.8

August 120.8 1.7 __ 1.5 0.1 __ 12.8 __ 12.8 101.9 101.6 43.7 25.2 32.7 0.3 4.4

September 120.3 1.6 __ 1.4 0.1 __ 13.5 __ 13.5 100.6 100.3 43.2 25.3 31.8 0.3 4.5

October 117.4 1.7 __ 1.5 0.1 __ 9.4 __ 9.4 101.9 101.6 43.8 26.0 31.9 0.3 4.4

November 116.5 1.8 __ 1.4 0.2 __ 7.5 __ 7.5 102.8 102.5 44.5 26.2 31.7 0.3 4.4

2012 December 120.9 1.6 __ 1.2 0.2 __ 9.6 __ 9.6 104.9 104.7 45.7 27.0 32.0 0.2 4.8

January 125.7 0.4 __ __ 0.2 __ 13.1 __ 13.1 107.4 107.1 47.9 27.5 31.7 0.3 4.7

February 127.5 0.3 __ __ 0.2 __ 10.4 __ 10.4 111.9 111.4 50.6 28.8 32.0 0.4 4.9

M arch 127.1 0.4 __ __ 0.4 __ 7.8 __ 7.8 113.9 113.2 52.8 28.5 31.9 0.8 4.9

April 126.2 0.2 __ __ __ __ 9.4 __ 9.4 111.5 110.7 52.5 28.1 30.0 0.8 5.1

M ay 126.9 0.2 __ __ 0.1 __ 9.6 __ 9.6 111.9 110.8 53.3 28.3 29.2 1.1 5.2

2013 June 126.3 0.2 __ __ 0.2 __ 8.6 __ 8.6 112.3 111.3 54.5 28.1 28.8 1.0 5.3

Nonfinan

cial

corporat

ions D escrip t ion

Non-euro deposits

Other domest ic sectors Non

residents

Other

deposito

ry

corporat

ions

Other

f inancial

intermedi

aries

Insurance

compani

es

Public

nonf inan

cial

corporat

ions

Other

nonf inan

cial

corporat

ions

NPISHCBK Households

Finanncial

corporat i

ons

of which:


| 91

Table 6.1. Deposits at ODC – nonfinancial corporations, euro deposits


Source: CBK (2013)

Up to 1

month

Over 1

month

and up

to 3

months

Over 3

months

and up

to 6

months

Over2

years

Up to

1

month

Over 1

month

and up

to 3

months

Over 6

month

s and

up to 1

year

Over 1

year

and up

to 2

years

Over2

years

2001 December 165.2 __ __ … __ __ __ __ __ 165.2 133.9 … 31.3 __ __ __ __ __

2002 December 183.6 __ __ … __ __ __ __ __ 183.6 159.7 … 23.9 __ __ __ __ __

2003 December 226.1 __ __ … __ __ __ __ __ 226.1 139.0 … 87.1 __ __ __ __ __

2004 December 275.3 173.5 24.2 … 149.3 34.0 0.0 __ … 101.8 78.2 … 23.6 9.0 6.0 0.2 2.1 __

2005 December 319.0 211.3 29.9 … 181.3 23.9 12.8 __ … 107.7 74.4 … 33.4 6.3 8.3 5.1 0.7 __

2006 December 337.8 217.4 24.0 … 193.3 19.9 19.4 __ … 120.5 93.6 … 26.9 6.2 6.8 1.7 3.0 __

2007 December 386.2 215.5 27.1 … 188.4 105.6 21.4 __ … 170.7 128.4 … 42.3 18.0 10.4 3.7 2.0 __

2008 December 479.7 263.8 13.7 … 250.1 21.8 47.2 __ … 215.9 170.2 … 45.8 18.7 4.7 2.0 7.0 __

2009 December 371.5 121.6 47.6 … 73.9 0.7 10.7 52.3 … 249.9 178.0 … 71.9 31.2 11.1 … 5.3 10.9

2010 December 414.9 122.3 79.5 … 42.8 2.7 21.7 3.1 12.6 292.6 212.6 16.9 63.1 19.0 5.3 17.1 8.8 9.7

October 423.4 142.0 88.0 0.0 54.0 4.3 27.8 3.1 12.2 281.4 203.0 15.3 63.1 14.2 10.4 10.9 6.8 8.2

November 420.9 152.9 89.4 0.0 63.5 0.3 27.7 16.2 12.2 268.0 198.1 13.0 56.8 12.3 5.3 12.5 6.4 7.4

2011 December 406.6 128.5 67.8 0.0 60.8 0.1 29.7 17.2 11.6 278.1 201.1 14.0 62.9 12.3 5.1 18.5 7.3 8.0

January 373.1 115.3 57.4 0.0 57.8 0.2 27.7 16.2 11.6 257.9 190.4 8.0 59.4 10.9 11.9 19.8 6.1 7.8

February 371.7 113.3 57.6 0.0 55.7 0.1 26.6 15.2 11.6 258.4 189.2 9.4 59.8 11.5 10.9 21.1 7.2 6.3

M arch 347.0 68.5 22.3 0.0 46.2 0.1 17.2 15.2 11.6 278.5 207.7 9.73 61.1 19.1 5.1 20.7 7.4 6.3

April 342.8 74.0 12.5 0.0 61.5 4.1 27.4 15.2 11.6 268.8 201.4 9.23 58.2 11 4.1 21.1 7.2 6.3

M ay 362.8 73.8 12.9 0.0 60.9 6.4 34.7 5.6 11.6 288.9 216.8 9.2 62.9 10.5 5.1 23.2 7.1 8.4

June 359.2 70.6 11.0 0.1 59.5 0.3 40.9 3.6 11.6 288.6 216.1 8.49 64 12 3.0 23.2 7.0 7.8

July 372.5 77.1 16.2 0.1 60.8 4.5 27.3 14.3 11.6 295.4 223.5 9.5 62.4 9.11 12.0 21.6 6.9 7.8

August 395.3 72.3 10.5 0.0 61.8 0.9 46.2 0.1 11.6 322.9 249.3 11.2 62.5 10.6 11.2 21.0 7.5 7.3

September 384.9 79.3 16.0 0.0 63.3 0.8 46.9 0.1 12.0 305.6 232.8 11.2 61.6 19 2.8 22.0 7.1 7.1

October 383.9 83.2 16.0 0.0 67.2 6.1 45.6 0.1 12.0 300.7 227.2 11.1 62.4 11.1 3.8 22.6 7.4 7.2

November 398.8 80.9 14.3 0.0 66.6 1.0 49.9 0.1 12.0 317.8 246.3 8.23 63.3 10.9 3.7 22.9 8.0 7.1

2012 December 401.7 75.6 13.8 0.0 61.8 0.9 46.0 0.1 12.0 326.1 249.6 9.19 67.3 9.96 6.0 27.4 6.5 7.8

January 375.4 76.0 30.0 2.0 44.0 4.2 24.9 0.1 12.0 299.5 227.2 6.33 66 11 12.1 27.1 6.3 7.8

February 386.3 71.8 16.7 2.0 53.0 2.0 36.2 0.1 12.0 314.6 237.7 13.8 63 11.1 11.0 27.4 5.6 6.9

M arch 369.8 69.1 18.3 1.9 48.9 0.0 32.0 2.1 12.1 300.7 228.1 14.8 57.8 12.3 3.7 28.4 5.1 6.2

April 367.5 60.7 14.4 2.0 44.3 4.4 23.9 2.0 12.1 306.8 231.0 14.6 61.1 5.24 2.7 27.6 6.2 7.0

M ay 372.8 65.6 14.7 2.5 48.4 0.1 32.2 2.0 12.1 307.2 231.8 13.6 61.8 4.24 4.2 28.9 6.2 7.6

2013 June 363.4 64.8 16.0 2.0 46.8 0.1 31.8 0.0 12.1 298.6 224.4 13.6 60.7 4.88 4.0 27.9 6.1 7.6

D escrip t ion

Non f inancial corporat ions

Public nonf inancial corporat ions Other nonf inancial corporat ions

Transfer

able

deposits

Saving

account

Other

deposits

of which: Transf

erable

deposi

ts

Saving

accou

nt

Other

depos

its

of which:


92 |

Table 6.2. Deposits at ODC – households and NPISH, euro deposits


Source: CBK (2013)

Up to 1

month

Over 3

months

and up to

6 months

Over

3months

and up

to1 year

Over 1

year and

up to 2

years

Over 2

years

2001 December 313.1 313.1 219.2 … 93.9 __ __ 93.9 __ __ __ __ … __

2002 December 226.1 226.1 121.7 … 104.4 __ __ 104.4 __ __ __ __ … __

2003 December 267.9 267.9 134.4 … 133.5 __ __ 133.5 __ __ __ __ … __

2004 December 360.3 350.7 136.9 … 213.8 63.8 __ 91.8 14.2 1.9 9.6 8.9 … 0.7

2005 December 440.7 428.7 144.7 … 284.0 87.2 __ 109.3 26.5 19.3 12.0 10.4 … 1.6

2006 December 499.2 486.1 143.8 … 342.3 122.2 __ 127.9 26.5 37.1 13.1 7.6 … 5.5

2007 December 647.0 631.9 170.6 … 461.3 156.2 __ 141.6 74.6 50.3 15.2 11.9 … 3.3

2008 December 785.0 774.5 163.3 … 611.2 189.6 __ 234.6 64.8 61.6 10.5 7.7 … 2.8

2009 December 962.2 948.8 208.0 … 740.8 242.4 315.9 … 63.2 80.5 13.4 11.1 … 2.3

2010 December 1,220.1 1,206.1 270.4 274.5 661.2 30.0 76.1 347.8 61.1 108.3 14.0 13.0 0.5 0.5

October 1,340.2 1,316.8 286.8 270.8 759.2 21.8 62.3 250.8 250.6 147.0 23.4 20.7 0.3 2.4

November 1,346.6 1,326.5 286.0 273.3 767.3 31.7 63.8 253.2 253.8 147.3 20.1 17.6 0.3 2.1

2011 December 1,395.6 1,373.4 314.4 276.2 782.8 24.8 67.0 257.3 261.5 147.6 22.2 18.3 0.5 3.3

January 1,405.7 1,382.9 306.5 280.0 796.4 25.3 70.1 260.0 269.5 149.1 22.8 18.9 0.6 3.3

February 1,424.0 1,400.1 315.0 283.5 801.7 31.6 64.5 255.1 274.5 151.1 23.9 21.3 0.5 2.1

M arch 1,421.3 1,400.6 314.8 280.9 804.9 23.5 68.4 254.9 273.3 151.6 20.7 16.9 0.5 3.3

April 1,425.6 1,404.1 321.9 279.0 803.3 31.2 69.7 254.0 272.8 151.2 21.4 18.5 0.4 2.5

M ay 1,433.9 1,409.0 325.0 278.3 805.8 24.4 73.8 253.1 272.3 152.6 24.9 20.7 0.3 3.9

June 1,441.8 1,416.9 336.0 275.8 805.2 30.4 66.7 258.9 271.0 155.5 24.8 21.4 0.2 3.1

July 1,472.3 1,445.6 348.3 278.3 819.0 27.1 66.1 268.3 269.5 159.4 26.7 22.7 0.2 3.9

August 1,504.4 1,480.9 349.0 283.2 848.8 29.9 64.1 296.0 264.9 167.1 23.4 19.1 0.1 4.2

September 1,503.7 1,479.6 340.9 280.7 857.9 31.7 64.7 309.2 262.1 168.7 24.1 20.0 0.1 4.0

October 1,506.6 1,482.5 334.2 281.2 867.1 23.0 64.9 317.6 262.3 171.8 24.1 19.0 0.1 5.1

November 1,536.9 1,513.8 357.0 280.7 876.1 30.6 66.0 326.8 260.7 173.6 23.1 19.7 0.0 3.4

2012 December 1,558.6 1,535.4 361.5 283.2 890.8 25.2 58.4 337.8 260.5 177.6 23.2 19.7 0.0 3.4

January 1,569.9 1,544.8 352.1 283.5 909.1 25.6 54.4 345.8 265.0 180.5 25.1 20.2 0.1 4.9

February 1,579.5 1,553.8 362.2 281.8 909.8 29.4 54.0 494.6 130.4 163.4 25.7 20.7 0.1 4.9

M arch 1,583.6 1,558.1 363.0 283.0 912.1 23.1 67.2 490.6 133.1 163.1 25.5 20.6 0.2 4.8

April 1,575.6 1,549.3 370.5 321.7 857.1 8.4 48.1 479.5 135.1 162.2 26.4 21.4 0.2 4.7

M ay 1,591.7 1,563.9 390.6 318.3 855.0 5.4 43.8 478.5 139.0 162.0 27.7 23.1 0.2 4.5

2013 June 1,562.1 1,535.2 370.8 314.3 850.2 10.3 37.5 474.1 140.3 162.7 26.9 22.3 0.1 4.4

D escrip t ion

Households

Transfera

ble

deposits

Saving

account

Other

deposits

of which: Transfera

ble

deposits

Saving

account

Other

deposits

NPISH

Other domest ic sectors


| 93

Table 6.3. ODC loans – by maturity, in euro


Source: CBK (2013)

of which: of which:

Up to 1

year

Over 1

year and

up to 2

years

Over 2

years

Up to 1

year

Over 1

year and

up to 2

years

Over 2

years

2001 December 25.9 __ __ __ 25.9 __ 25.9 24.6 1.3 __ __ __ __ __ __ __ __

2002 December 86.5 __ __ __ 80.8 __ 80.8 67.3 13.5 __ 5.7 5.7 1.4 4.3 __ __ __

2003 December 232.8 __ __ __ 193.7 0.2 193.5 124.7 68.7 0.2 39.0 39.0 11.4 16.0 11.6 __ __

2004 December 373.7 __ __ __ 289.9 … 289.9 111.5 111.3 67.2 83.7 83.7 15.9 15.2 52.6 __ __

2005 December 513.9 __ __ __ 387.9 … 387.9 117.9 125.2 144.7 126.0 126.0 19.5 21.0 85.4 __ __

2006 December 636.6 __ __ __ 490.5 … 490.5 128.7 127.7 234.1 146.1 146.1 19.7 24.7 101.7 __ __

2007 December 892.1 __ __ __ 691.5 0.2 691.3 174.0 122.6 394.6 200.6 200.6 24.0 29.6 147.1 __ __

2008 December 1,183.4 0.6 __ 0.6 901.8 0.1 901.7 191.0 132.3 578.4 281.0 281.0 20.9 30.9 229.2 __ __

2009 December 1,289.0 2.3 1.2 1.1 943.2 0.3 942.9 215.7 113.0 614.2 343.5 343.5 27.0 32.1 284.5 __ __

2010 December 1,458.7 5.7 2.6 3.0 1,014.5 6.3 1,008.3 259.4 64.3 684.5 434.3 434.2 26.5 30.7 377.0 1.6 2.5

October 1,678.8 14.9 12.9 2.0 1,119.6 1.5 1,118.1 302.2 72.6 743.3 505.0 504.4 38.7 31.3 434.4 32.8 6.4

November 1,686.2 15.8 14.1 1.7 1,122.0 1.5 1,120.5 304.2 74.1 742.2 509.3 508.3 40.6 31.6 436.1 32.7 6.4

2011 December 1,698.1 17.3 15.6 1.7 1,128.6 1.5 1,127.0 298.8 83.4 744.8 512.4 510.9 44.0 38.1 428.8 32.5 7.3

January 1,683.1 16.6 14.9 1.7 1,120.5 1.4 1,119.2 300.3 84.1 734.7 506.7 506.3 44.2 37.7 424.4 32.1 7.1

February 1,692.2 16.1 14.6 1.5 1,132.1 1.3 1,130.7 306.2 91.6 732.9 505.4 504.6 45.7 36.2 422.7 32.1 6.6

M arch 1,717.1 16.1 15.1 1.0 1,147.5 1.4 1,146.1 307.9 83.8 754.4 514.5 513.7 45.8 30.5 437.4 32.1 6.8

April 1,740.8 16.8 15.6 1.1 1,163.7 1.4 1,162.2 323.7 81.2 757.3 522.8 522.4 41.9 37.4 443.2 30.7 6.9

M ay 1755.3 17.3 16.4 0.9 1167.3 1.5 1165.8 322.5 79.2 764.1 533.0 532.0 43.0 39.1 449.9 30.7 7.1

June 1,776.3 18.3 17.4 0.9 1,180.3 1.5 1,178.8 347.1 80.6 751.1 539.3 538.4 47.1 46.9 444.4 30.8 7.6

July 1,767.1 20.3 18.4 1.9 1,167.3 1.4 1,165.9 338.4 80.2 747.3 541.5 541.1 55.5 38.8 446.8 30.3 7.7

August 1,753.8 19.6 17.8 1.8 1,154.5 1.4 1,153.1 289.8 95.4 767.9 541.8 541.1 48.1 38.7 454.3 30.1 7.7

September 1,758.7 18.6 15.9 2.7 1,159.1 1.4 1,157.7 309.5 92.4 755.9 543.2 542.2 50.4 38.5 453.3 30.2 7.6

October 1,748.4 18.2 16.2 2.0 1,155.0 1.4 1,153.6 304.5 92.4 756.7 545.3 544.9 51.5 38.4 455.0 22.4 7.5

November 1,758.8 18.7 16.0 2.6 1,167.6 1.4 1,166.2 316.4 89.5 760.3 542.6 541.9 50.0 37.6 454.3 22.4 7.5

2012 December 1,763.4 19.8 16.3 3.5 1,171.2 1.4 1,169.8 313.4 91.7 764.8 543.0 542.6 52.2 37.3 453.0 22.5 6.9

January 1,754.9 19.1 16.0 3.1 1,165.9 0.8 1,165.1 303.7 96.8 764.6 542.5 542.1 51.8 37.5 452.8 20.9 6.4

February 1,765.6 19.1 16.1 3.0 1,177.3 0.4 1,176.9 349.8 76.1 751.0 541.4 540.9 52.5 40.5 447.9 20.9 7.0

M arch 1,782.7 19.9 16.3 3.5 1,188.3 0.3 1,188.0 354.7 79.9 753.4 546.8 545.8 53.8 40.9 451.1 21.0 6.7

April 1,801.6 18.7 16.2 2.5 1,204.0 0.3 1,203.7 364.7 86.8 752.2 551.4 551.0 57.4 41.3 452.3 20.6 6.9

M ay 1,810.0 18.6 16.1 2.5 1,209.4 0.3 1,209.1 374.2 87.1 747.8 554.4 554.0 57.1 41.1 455.9 20.6 7.0

2013 June 1,826.9 19.1 16.4 2.7 1,216.4 0.3 1,216.1 373.6 99.5 743.1 562.7 561.9 61.6 42.7 457.6 20.6 8.0

D escrip t ion

Financial

corporat

ions

Nonfinan

cial

corporat

ions

of which:

Total

Loans in

Non

Euro

Currency

Other

domest i

c

corporat

ions

Other

f inancial

intermed

iaries

Insuranc

e

compani

es

Public

nonf inan

cial

corporat

ions

Other nonf inancial corporat ions HouseholdsNon

residents


94 |

Table 6.4. ODC loans – main economic sectors


Source: CBK (2013)

Agriculture Services

Up to 1 year Over 1 year Up to 1 year Over 1 year Up to 1 year Over 1 year

2001 December 25.9 … … __ 3.8 3.8 … 22.2 22.2 …

2002 December 86.5 1.5 1.5 __ 13.6 13.6 … 71.4 71.4 …

2003 December 232.8 4.7 3.9 0.8 22.2 12.6 9.7 205.8 119.7 86.1

2004 December 289.9 7.9 3.9 4.1 47.8 22.5 25.3 234.2 89.5 144.8

2005 December 387.9 12.5 4.1 8.4 74.2 24.5 49.7 301.1 92.4 208.8

2006 December 490.5 16.4 3.4 13.0 97.7 28.0 69.7 376.4 120.6 255.8

2007 December 691.5 29.0 4.1 24.9 144.5 32.8 111.7 518.0 149.5 368.5

2008 December 902.4 37.4 4.1 33.3 160.2 28.9 131.2 704.8 126.4 578.4

2009 December 945.5 38.2 3.8 34.4 236.7 54.8 181.9 670.5 113.2 557.3

2010 December 1,022.8 38.2 1.7 36.5 269.3 77.1 192.2 715.3 188.5 526.8

October 1,136.9 39.9 2.2 37.7 286.5 86.6 199.9 810.5 223.7 586.8

November 1,140.3 40.0 2.1 37.9 283.7 84.1 199.5 816.6 229.9 586.7

2011 December 1,149.5 40.5 2.7 37.8 284.7 82.3 202.4 824.4 220.5 603.8

January 1,140.6 39.4 2.1 37.3 281.9 83.5 198.4 819.3 220.3 599.0

February 1,151.3 39.4 2.2 37.2 290.2 89.1 201.1 821.8 220.8 601.0

M arch 1,166.9 40.7 2.6 38.1 296.6 89.4 207.3 829.6 228.8 600.7

April 1,183.6 41.4 2.5 38.9 297.1 95.8 201.4 845.1 238.6 606.5

M ay 1,188.0 42.4 2.7 39.8 295.8 94.9 200.9 849.8 241.1 608.6

June 1,202.3 43.0 2.7 40.4 297.2 94.2 203.0 862.1 259.1 603.1

July 1,191.5 43.0 2.8 40.2 295.4 92.5 202.8 853.1 253.1 600.0

August 1,177.9 42.5 2.9 39.5 288.2 74.5 213.7 847.3 208.4 638.9

September 1,181.2 42.3 2.9 39.4 292.2 77.9 214.3 846.7 224.5 622.2

October 1,176.4 42.4 2.9 39.4 292.9 75.9 217.0 841.1 212.4 628.7

November 1,189.5 43.1 3.0 40.1 292.7 77.4 215.3 853.7 230.1 623.7

2012 December 1,194.2 43.6 3.0 40.6 290.4 74.1 216.2 860.2 232.3 627.9

January 1,187.5 43.7 3.2 40.6 289.3 69.4 219.9 854.5 226.5 628.0

February 1,199.2 44.7 4.2 40.5 291.7 90.8 200.9 862.9 251.6 611.3

M arch 1,210.9 46.1 4.5 41.6 294.3 93.2 201.1 870.5 253.5 617.0

April 1,225.4 47.1 4.4 42.7 296.4 93.2 203.2 881.9 262.7 619.3

M ay 1,230.8 48.0 4.4 43.6 296.3 94.5 201.7 886.5 270.6 615.9

2013 June 1,238.3 48.2 4.1 44.1 294.8 93.9 200.9 895.4 271.1 624.2

D escrip t ion

Total

Industry, energy and construct ion


| 95

Table 7.1. ODC loans – main economic sectors

(New contracts)

Source: CBK (2013)

Up to 1

month

Over 1

month

and up

to 3

months

Over 6

months

and up 1

year

Over

2years

Up to 1

month

Over 1

month

and up

to 3

months

Over 6

months

and up 1

year

2005 December 3.12 0.26 2.07 2.37 3.40 * 2.90 * * 1.71 0.04 1.85 2.24 * 3.33 3.87 4.04 1.74

2006 December 3.11 0.39 2.06 2.85 4.32 * 3.11 * * 1.53 0.03 1.93 2.35 * 3.44 4.16 4.51 1.65

2007 December 4.00 0.48 2.68 2.93 4.35 * 4.27 4.15 * 2.45 0.02 2.55 2.75 * 3.60 4.72 5.27 2.25

2008 December 4.42 0.53 3.09 3.97 5.32 * 3.61 4.92 * 2.85 0.11 3.21 4.60 * 4.45 4.99 3.95 2.74

2009 December 3.98 0.72 3.42 3.42 5.03 * 3.88 4.88 * 2.63 0.34 3.09 3.28 * 4.39 5.00 5.50 2.51

2010 December 3.38 0.63 2.44 3.08 4.96 5.14 * 3.74 * 2.07 0.55 2.58 2.63 3.15 4.49 4.77 5.14 2.21

October 3.26 0.92 2.21 2.55 4.85 * 2.26 3.76 * 2.26 0.48 2.51 2.45 2.72 4.24 4.64 5.07 2.05

November 3.75 0.89 2.03 2.59 4.56 * 2.22 3.63 5.32 2.17 0.49 2.48 2.49 2.84 4.34 5.15 4.92 2.00

2011 December 3.71 0.86 0.00 2.91 4.90 5.05 * 3.88 5.25 2.20 0.48 2.49 2.47 2.88 4.21 4.56 5.36 2.06

January 3.09 0.77 1.71 2.62 4.65 * 1.46 4.04 * 2.10 0.50 2.32 2.26 2.73 4.00 4.48 5.11 2.06

February 3.39 0.69 2.20 2.93 4.73 * 1.80 * * 2.14 0.51 2.39 2.43 2.99 4.03 4.50 5.22 1.93

M arch 3.33 0.85 2.15 * * 4.31 2.77 3.91 2.66 2.13 0.50 2.57 2.65 2.89 4.01 4.53 5.18 2.06

April 3.63 0.87 2.29 2.71 5.03 * 1.74 3.81 5.42 2.10 0.49 2.39 2.50 2.92 4.10 4.49 5.09 2.00

M ay 3.54 0.78 2.37 2.89 4.53 5.19 1.62 3.91 4.73 2.08 0.50 2.62 2.46 2.92 4.22 4.51 5.32 2.05

June 3.59 0.92 2.25 * 4.51 * 1.82 3.95 * 2.00 0.49 2.45 2.72 2.92 4.29 4.64 5.49 1.99

July 3.41 0.88 2.09 * 4.32 5.62 1.74 * * 2.01 0.50 2.04 2.38 2.88 4.26 4.52 5.39 2.04

August 3.93 0.94 2.24 2.87 5.02 * 1.30 * 4.88 2.02 0.50 2.81 2.57 2.77 4.26 4.64 5.39 2.04

September 3.73 1.25 2.07 2.77 3.94 * 1.37 3.92 5.46 1.97 0.51 2.26 2.60 2.65 4.32 3.87 5.26 1.97

October 3.73 0.85 1.93 * 4.94 5.24 * * * 2.00 0.54 2.28 2.38 2.70 4.26 4.63 5.23 2.04

November 3.74 0.96 2.46 * 4.96 * * 3.93 5.19 2.18 0.52 2.21 2.49 2.84 4.35 4.49 5.28 1.98

2012 December 3.74 0.83 * 2.79 * * 2.67 4.02 4.75 2.15 0.54 2.30 2.46 2.84 4.20 4.52 4.76 2.06

January 3.64 0.85 1.28 2.79 4.84 * 2.88 * 3.57 1.98 0.60 2.30 2.33 2.81 4.12 4.48 5.25 1.71

February 3.64 0.79 1.79 2.14 3.00 * * 4.03 * 1.93 0.61 2.13 2.43 2.97 4.07 4.56 5.18 1.60

M arch 3.54 1.02 1.78 * 2.12 * * * 5.05 1.97 0.60 2.11 2.46 2.92 3.91 4.43 4.67 1.68

April 3.40 0.80 0.83 1.56 * 4.90 * * * 1.97 0.59 1.94 2.20 2.71 3.90 4.47 4.95 1.63

M ay 3.52 0.74 * * 4.42 * 2.26 3.70 3.83 2.02 0.57 2.23 2.12 2.67 3.77 4.53 5.00 1.64

2013 June 3.50 0.90 * * 3.61 * * * * 2.00 0.59 2.01 2.74 2.50 3.91 4.38 4.85 1.59

D escrip t ion

Deposit

rates

Nonfinancial corporat ions Households

Transfer

able

deposits

Other deposits Saving

deposits

Transfe

rable

deposit

s

Other deposits Saving

deposit

sLess than 250.000 euro M ore than 250.000 euro Up to 1

month

Over 1

month

and up

to 3

months

Over 3

months

and up 6

months

Over 6

months

and up 1

year

Over 1

year

and up

2 years

Over

2years


96 |

Table 7.2. ODC effective interest rate – deposits interest rate

(New contracts)

Source: CBK (2013)

Credit

lines

Loans

covered

by

deposits

Up to 5

years

2005 December 14.47 17.34 13.29 13.29 15.18 14.38 15.11 11.51 … * * … * 11.51 * * *

2006 December 14.70 * 14.50 14.50 13.60 15.18 15.72 12.36 … * * … * 12.36 * 13.36 *

2007 December 14.06 * 13.76 13.76 * 14.64 15.09 13.72 … * * … * 13.72 12.92 12.36 *

2008 December 13.79 * 13.92 13.92 14.20 13.45 15.03 13.50 … * 19.48 … … 13.50 9.81 10.82 8.13

2009 December 14.09 * 14.34 14.34 * * * … * 17.83 … … 13.31 * 10.67 *

2010 December 14.31 16.13 13.95 * 18.66 14.44 12.65 13.27 7.69 * 22.57 6.55 8.56 14.56 * 11.67 10.26

October 13.93 14.24 13.53 * 16.76 14.64 11.92 13.39 5.49 10.05 17.35 6.87 8.90 13.71 15.72 11.75 11.58

November 13.62 14.47 13.02 13.53 15.06 14.19 11.46 13.92 6.43 10.20 14.20 7.28 9.08 13.97 * 11.48 10.94

2011 December 13.69 15.89 13.55 11.68 16.40 13.80 11.78 12.12 6.10 9.88 16.44 6.01 8.58 14.02 14.31 11.99 10.83

January 14.53 17.85 14.01 * 17.96 15.56 12.25 13.69 6.16 8.80 18.31 6.99 9.22 14.25 12.38 11.34 9.62

February 13.33 15.84 12.68 10.90 16.83 14.23 10.90 12.96 6.33 * 16.79 6.81 8.47 13.83 9.73 11.71 10.39

M arch 13.81 14.25 13.46 12.80 17.65 14.86 11.19 11.70 7.29 * 16.83 6.33 8.18 13.41 * 11.89 10.40

April 13.45 15.73 13.48 10.13 18.21 14.59 10.81 11.94 6.56 * 16.62 7.11 8.31 13.10 * 11.15 11.11

M ay 13.40 14.13 13.03 10.80 15.65 15.52 11.20 12.07 5.37 * 16.80 7.01 8.36 13.15 * 11.33 10.12

June 13.50 15.51 13.05 10.94 19.83 14.16 10.72 10.92 7.21 9.61 16.23 7.05 8.08 13.47 7.72 11.67 10.50

July 13.06 8.68 12.22 11.90 14.54 14.97 11.18 11.94 7.68 * 16.50 6.26 8.74 13.54 14.16 11.48 10.30

August 13.38 15.92 12.43 * 16.34 14.78 10.75 11.72 6.78 * 15.96 6.74 7.95 13.72 * 11.45 10.09

September 13.80 16.53 13.51 * 14.51 15.76 10.82 11.44 6.35 9.90 16.54 7.17 6.80 13.44 12.12 11.61 9.69

October 13.18 14.21 12.94 10.79 14.75 13.96 11.20 13.76 6.63 9.96 16.12 6.58 6.75 13.30 * 11.43 10.34

November 12.72 14.64 12.16 9.67 14.05 14.40 10.43 10.83 7.06 * 16.08 7.21 8.16 13.30 * 10.39 8.97

2012 December 12.86 15.37 12.03 10.19 15.29 13.66 10.70 11.90 5.92 * 12.46 6.11 7.97 13.06 * 10.78 9.79

January 13.57 12.70 13.72 * 15.52 15.38 10.73 12.64 5.60 * 16.39 6.46 4.78 12.63 11.95 11.22 10.29

February 13.49 14.10 14.05 * 16.71 14.15 9.71 11.56 * * 14.98 6.48 6.71 12.81 * 11.02 9.83

M arch 12.63 15.24 12.30 11.00 15.95 13.79 11.03 12.85 7.31 9.94 15.84 6.22 6.74 12.10 * 11.03 9.45

April 12.59 12.86 12.45 10.48 16.10 14.12 10.54 13.37 6.98 10.35 16.91 6.58 5.75 12.03 13.43 11.34 9.73

M ay 12.25 13.26 12.98 10.25 15.16 13.92 10.74 12.23 7.41 * 15.46 6.89 5.52 11.79 * 11.06 9.60

2013 June 12.01 12.93 11.52 9.37 14.22 13.49 10.34 11.87 6.75 * 13.20 6.76 8.87 12.18 13.59 11.23 9.77

Loans

covered

by

deposits

D escrip t ionLoan

rates

Invest ing loans

Other business loans

(non-invest ing)

Overdrafts Overdraft

s

Consume

r loans

M ortgage loans

Up to 1

year

Over 1

year up

to 5 years

Over 5

years

Up to 1

year

Over 1

year up

to 5 years

Over 10

years

Non f inancial corporat ions Households

Loans with

favourable

condit ions

Loans with

favourable

condit ions

Other

loans

Other

loans

Over 5

years and

up to 10

years


| 97

Table 8.1. ODC income statement – income and expenditures

(Cumulative data, within the calendar year, in millions of euro)

Source: CBK (2013)

Net

Incomeof which: of which:

Loans Securit ies Fees and

commissi

ons

Deposits Borrowin

gs

Other Provision

s for loan

and other

assets

losses

2001 December 5.5 16.6 7.2 2.1 … 9.4 9.2 10.1 1.3 0.8 0.5 … 0.6 0.6 8.2

2002 December 0.9 31.9 17.8 9.4 0.2 14.0 13.2 28.4 3.5 3.1 0.4 … 3.3 3.3 21.6

2003 December 5.3 48.7 30.7 23.8 0.8 18.0 16.8 40.9 5.3 4.8 0.5 … 7.7 7.7 27.9

2004 December 10.7 73.4 54.0 48.1 3.4 19.4 17.5 58.9 10.0 9.2 0.7 … 11.1 11.1 37.8

2005 December 11.0 94.3 74.6 68.0 2.7 19.7 17.4 78.0 15.4 13.9 1.5 … 13.4 13.4 49.2

2006 December 19.7 114.0 88.8 79.4 2.8 25.2 22.5 88.5 19.9 17.5 2.4 … 13.7 13.7 54.8

2007 December 41.7 157.3 117.9 103.0 3.6 39.5 23.8 115.6 26.0 23.2 2.8 … 19.9 17.8 69.7

2008 December 38.0 195.0 155.7 140.4 2.3 39.3 30.2 146.0 43.1 35.1 2.8 5.1 27.7 22.8 86.2

2009 December 31.4 203.3 164.6 159.6 1.2 38.7 32.7 171.9 52.1 48.1 3.6 0.4 32.6 33.4 86.4

2010 December 37.9 217.2 175.8 169.6 3.1 41.4 37.5 179.4 55.3 49.4 4.8 1.1 36.0 28.3 88.1

October 33.3 197.3 160.9 153.8 3.3 36.3 34.1 164.0 48.2 42.1 4.8 1.3 37.7 30.7 78.0

November 36.5 217.6 177.7 169.7 3.7 40.0 37.7 181.1 53.2 46.6 5.1 1.5 41.0 33.3 86.9

2011 December 42.2 240.0 195.0 186.2 4.2 45.0 41.7 197.8 58.4 51.3 5.6 1.5 42.7 34.2 96.7

January 3.3 20.3 16.9 16.1 0.5 3.5 3.3 17.0 5.1 4.6 0.4 0.1 3.6 3.0 8.2

February 4.2 39.9 32.8 31.5 0.9 7.1 6.6 35.7 10.0 9.1 0.7 0.3 9.0 7.7 16.7

M arch 8.8 61.4 50.0 47.9 1.3 11.4 10.3 52.5 15.2 13.8 1.0 0.4 12.7 10.7 24.7

April 11.9 81.9 66.7 63.9 1.8 15.2 13.9 70.0 20.3 18.2 1.5 0.5 16.8 14.3 32.9

M ay 14.2 103.2 84.1 80.6 2.3 19.1 17.8 89.0 25.4 22.9 1.8 0.7 22.3 19.0 41.4

June 12.6 124.2 101.1 96.9 2.8 23.1 21.5 111.6 30.5 27.6 2.1 0.8 31.5 27.5 49.7

July 15.2 145.6 118.2 113.5 3.1 27.4 25.5 130.4 35.6 32.3 2.4 0.9 36.7 32.0 58.0

August 18.3 164.9 133.5 130.1 1.6 31.4 29.4 146.7 40.9 37.2 2.7 1.1 39.2 33.7 66.5

September 20.8 184.8 149.7 146.0 1.8 35.1 33.0 164.1 46.3 42.0 3.0 1.3 42.9 36.8 74.9

October 23.6 205.8 166.7 162.6 2.0 39.0 36.8 182.1 51.9 47.1 3.3 1.5 47.2 40.3 83.1

November 24.8 225.8 182.8 178.2 2.2 43.1 40.7 201.0 57.4 52.3 3.9 1.2 51.8 44.3 91.9

2012 December 22.4 247.0 200.5 194.9 3.0 46.6 44.2 224.6 63.1 57.6 3.2 2.3 59.1 50.3 102.4

January 2.3 20.8 16.7 16.2 0.1 4.2 3.7 18.6 5.6 5.2 0.2 0.2 4.8 4.2 8.1

February 1.5 39.8 31.9 31.0 0.3 7.9 7.1 38.3 10.6 9.8 0.4 0.4 11.4 9.8 16.3

M arch 6.8 60.6 49.0 47.4 0.7 11.6 10.6 53.8 16.2 15.0 0.7 0.5 13.3 10.9 24.4

April 8.8 81.2 65.6 63.6 0.9 15.6 14.5 72.4 21.5 19.9 0.9 0.7 18.2 15.1 32.7

M ay 13.0 102.1 82.5 80.0 1.0 19.6 18.3 89.1 26.8 24.8 1.1 0.9 21.5 17.7 40.7

2013 June 16.3 122.7 99.1 96.3 1.2 23.6 21.9 106.4 31.9 29.5 1.3 1.0 25.5 21.0 49.0

D escrip t ion

Income Expenditures

of which: Non-

Interest

expenditu

res

Interest expenditures Non-

Interest

income

General

and

administr

at ive

expenses

Interest

income


98 |


| 99

10. References

European Central Bank (2013): Monthly Bulletin, European Central Bank, Frankfurt.

European Commission (2013): EU Candidate and Pre-Accession Countries; Economic Quarterly 3,

Economic and Financial Affairs;

European Commission (2013): Eurostat Database;

International Monetary Fund (2013): World Economic Outlook, WOE Database;

International Monetary Fund (2013): World Economic Outlook, WOE Report;

International Monetary Fund: Global Financial Stability Report, April 2013;

Kosovo Agency of Statistics (2013): Economic Statistics;

Ministry of Finance (2013): Semiannual Income and Expenditures Report;

NLB Group (2013): Annual Report 2012, NLB Group

NLB Group (2013): Semi-Annual Reports 2013, NLB Group

PCH (2013): Annual Report 2012, Pro Credit Holding

PCH (2013):Consolidated Financial Report, Quarterly Report II, Pro Credit Holding

RBI (2013): Annual Report 2012, Raiffaisen Bank International

RBI: (2013): Quarterly Report, Raiffaisen Bank International

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Tel: +381 38 222 055; Fax: +381 38 243 763

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