Ljube Trpeski, the Governor of the National Bank of the Republic of Macedonia, about the current developments in the banking system in the country
Interview for "Vecer", July, 2001
THE WAR CRISES WOULD INCREASE BANK INTEREST RATES
Ljube Trpeski, the Governor of the National Bank of the Republic of Macedonia, about the current developments in the banking system in the country
As a result of the last measures which NBRM undertook for defense of the exchange rate and maintenance of bank liquidity and the economy as a whole, it is normal to expect an increase in the lending bank interests.
NBRM sent a written request to the Government to amend the Law on Banks and to restore the previous solutions i.e. for each modification exceeding 3%, to request prior approval from the Central Bank, and for each change in the shareholders structure in banks, to give prove for the source of funds.
· There will be no devaluation of the Denar, and NBRM has strength, instruments and capacity in foreign exchange reserves to defend the domestic currency.
The current deteriorated political and security situation in the country negatively reflected upon the banking system, as well. The Central Bank undertakes a range of measures and activities to defend the Denar foreign exchange rate and to maintain the liquidity of Macedonian banks. For the developments in this sector, we interviewed the leading person in the monetary power in the country, the Governor Ljube Trpeski.
How does the deteriorated political-security situation in the country reflect upon the banking system, and which are the major problems the Macedonian banks are facing with?
The deteriorated security in the country has strong negative influence upon the economy in whole, within that framework and upon the banking system. In the banking sector, it can be seen in the decreased percentage of credits paid back to banks by economic agents, the withdrawal of the deposits from banks, the foreign currency outflow abroad, especially from the non-resident accounts.
Incremented bank efficiency
· The largest reform activities were planned for the previous and current year. This process includes the banking system reform as well. What point did you reach on this question, having in mind that certain banking circles speculate that the banking system reforms have not even started yet?
In 2000, the reform activities in the Macedonian banking system and its institutional framework continued, focused on building sound, stable and efficient banking system, which is to be a guarantee for stable and sustainable development of the Macedonian economy. In that context, the adoption of the new Banking Law should especially be emphasized, with which a further harmonization of legal regulation with the European directives from the banking sector, and so-called 25 Basic Principles for Efficient Banking Supervision is achieved. Implementing this Law and adequate by-laws, strengthening prudent standards and practices in bank’s performance, strengthening corporate management in banks and enlarged effectiveness in banking operations, then strengthening banking supervision is expected, especially in the domain of corrective actions which are undertaken against banks with stated problems in this performance and which endanger its stability and soundness. According to the adopted Banking Law, in the second half of 2000, intensive actions for revision of supervisory by-laws were undertaken, acting towards its harmonization with the Basle supervision standards. Also, within the regulation framework of banking and financial systems as a whole, it is important to mention the adoption of several important legal solutions, as following: Law on Securities, Law on Deposit Insurance Fund, Law on Consensual Mortgage and Law on Amendments to Law on Executive Procedure.
· Which phase is the consolidation process in, what banks have received a NBRM permission for merging and acquisitions until now, and is there any new banking deal of this kind, in the perspective? There are speculations for merging Makedonska Banka with Balkanska Banka.
The process of consolidation of the banking system is in its initial phase. First examples of consolidation of banks in the Republic of Macedonia include merging of Teteks Banka a.d. Skopje with Kreditna Banka a.d. Bitola, in Teteks - Kreditna banka a.d. Skopje, and acquisition of Zemjodelska Banka a.d. Skopje to Sileks Banka a.d. Skopje. Now, we have announcement for acquisition of Pelagoniska Banka a.d. Prilep to Komercijalna Banka a.d. Skopje. The reasons for these status changes are mainly due to the enlarged competition in the banking system, which occurred with the presence of foreign direct investments in part of some larger banks in the Republic of Macedonia. Moreover, the reforms in the payment systems and its assumption by the commercial banks give strong impetus to the initiated process of consolidation of the banking system. In this direction, the consolidation processes of the banking system are expected to continue in future. The basic effect, which is to originate from the process of consolidation of the banking system is the banking system concentration in smaller number of highly capitalized banks, which can be able to cover the assumed risks, adequately.
However, the National Bank of the Republic of Macedonia has not received an announcement for merging Makedonska with Balkanska Banka for the time being.
· These days Makedonska Banka has made a lot of fuss in the public. What is your opinion as a leading banker in the country, regarding the last transaction with 27% from the shares of the Bank, namely, do you think that this transaction is legal, from your point of view?
The problems with the change in the ownership structure in banks resulted from the new solutions in the Banking Law, according to which, there is no need of prior approval from NBRM for the each change up to 10%, and NBRM is not authorized to review the source of funds used for purchase of shares. Those solutions in the Law enable total change in the bank’s ownership structure, without approval from the NBRM requested. We have similar situation in Makedonska Banka, where almost one third of the shareholders’ capital has changed its owners, with no approval from the NBRM being requested. From those reasons, NBRM send a written request to the Government for amendments to the Banking Law. In fact, NBRM requests the old solutions to be returned, i.e. that a previous approval from the NBRM is needed for each change exceeding 3%, and to give prove for the source of funds, meaning, whether they originate from the taxed income or not.
The war scared the foreigners
· The World Bank insists on decrease of those 10%, limit above which the interested share purchasers in banks have to request approval from NBRM. Do you prepare such kind of amendments?
The letter received from the World Bank is in that context. Now, the Government and the Parliament are on move. The sooner they react, the smaller damages will be.
· Is there any announcement at the moment, actually, is there any foreign bank that is interested to invest in one of our banks?
Before the crisis, there were certain announcements for foreign investments in the Macedonian banking sector. These last few months, normally, there are no such announcements. However, I am certain that announcement for foreign investments in Macedonian Banks will be renewed immediately after the war developments in the Republic of Macedonia, which I hope will not last for long.
· From Monday, a payment operations reform is starting. What do you think, are the banks prepared for this operation?
The payment operations reform is one of the most complex reforms, because it includes changes in many other sectors (banks, Public Revenue Administration, funds, statistics, etc). This reform has been preparing since 1997, and its implementation is expected in July. The implementation would be carried out in phases, with only small part of the legal entities being transferred in banks, in order to check the systems of banks. The largest part of the accounts is expected to be transferred between 26 of September and 21 of November, while the deposit accounts will be transferred to commercial banks, so the payment operations will be totally transferred in banks and the Payment Operations Bureau will be transformed into several institutions.
The National Bank of the Republic of Macedonia actively participate in the payment operations reform. It has fulfilled all its obligations in accordance with the new Law on Payment Operations: We have built a settlement system, which functions according to RTGS principles, we built an infrastructure for cash distribution in the country, we defined the standards which are to be fulfilled by banks in order to be carriers of payment operations, etc. According to the simulations with banks accomplished so far, it can be stated that the Macedonian banks are at different preparation level to integrate in the new payment operation system. There are banks (the largest ones), which are ready to integrate in the new payment operations system instantly, there are banks which need a certain period of time to finish the preparations before they are included in the payment operations, and there are also banks that are in the initial phase of preparation.
· These days we have witnessed fluctuations of the exchange rate of the Denar on exchange offices market. Is the NBRM strong enough to defend the exchange rate, actually, can it guarantee its stability?
On the NBRM Council meeting held on 28 June, a new Monetary Policy Projection for 2001 was adopted, which represents part of the redesigned macroeconomic policy for the second half of 2001 in accordance with the last negotiations with the IMF mission. Hence, the NBRM determination for maintenance of the Denar exchange rate stability against the Deutsche Mark remains to be the nominal anchor in the economy, which will be defended by all available instruments of the macroeconomic policy.
Successful protection of the exchange rate
· How much money from the foreign exchange reserves has been spent in the country in order to defend the local currency since the beginning of the crisis?
Compared to the amount of the foreign exchange spent for the defense of the Denar foreign exchange rate, I can state that it is not a large amount, due to the fact that the NBRM has acted more in the demand, so far. The National Bank of the Republic of Macedonia is ready to act actively in the supply, according to the conditions on the foreign exchange and exchange offices market. We feel comfortable with our foreign exchange reserves, which capacity is sustainable for successful defense of the Denar exchange rate.
· A redesigned macroeconomic framework has been agreed with the last IMF mission. It is planed to have 4% inflation up to the end of the year. Can we maintain this rate if the war in the country continues in the following several months? And, can we expect the Denar devaluation?
All monetary policy measures are focused on the defense of the foreign exchange rate of the Denar as an intermediary aim for accomplishing the ultimate objective, and that is the price stability in the economy, i.e. low inflation. I would like to use this opportunity to confirm that there would be no Denar devaluation. I hope that, if the war developments in Macedonia end soon, we are going to have the inflation rate as it was agreed with the IMF arrangement.
· The Paris Club of Creditors accepted the Macedonia’s request to insert a clause in the agreements for converting our debt in the environmental projects. How large is this amount we are talking about and how much from it can be converted in projects, expressed in percentage?
The Paris Club of Creditors only enables part of our debt to be converted in ecological projects. How much of it can be converted in the ecological projects, depends on the bilateral agreements between the separate members of the Paris Club of Creditors, and the Republic of Macedonia.
· Does it mean writing off part of the debt or new indebtedness of Macedonia, now, in the non-Governmental organizations of the state-creditors of the Paris Club under very favorable conditions?
It, more precisely, means paying off part of the debt towards these creditors, with the obligation for the Republic of Macedonia to implement environmental projects. In fact, the funds are to be paid back to certain countries as a debt, which are invested in environmental projects in the Republic of Macedonia in accordance with that country.
· On the negotiations for the succession of the property of ex-SFRY held in Vienna, it was agreed that the problem with the old foreign exchange savings should be resolved additionally and with mediation of BIS Bank in Basle. Is there any new information for this case, and how much funds does Macedonia demand from the ex-Yugoslav republics on this basis?
The battle for receiving compensation for the foreign exchange savings of the households, which saved in the branches or operating units of banks from the ex-Yugoslav republics will be very hard because of the omissions made in the past. Namely, despite the recommendations from the science, Ljubljanska Banka to retain the same status - as a branch, it was not respected, so the status changes were allowed, and afterwards, shares were sold to local persons. All this was kept as a secret for more than 3 years. Croatia applied exactly the same actions as those recommended by Macedonian science, Ljubljanska Banka remained its status, and today it is a branch office in Zagreb. I wish I was wrong, but I am afraid that it could be decisive on the negotiations.
However, the Republic of Macedonia requires from the ex-SFRY about Deutsche Mark 180 million on the basis of old foreign exchange savings in Ljubljanska Banka.
· In what phase is the case “Anglo-Yugoslav Bank” in London?
Regarding the “Anglo-Yugoslav Bank” in London, a business plan for reactivation of the bank was submitted to Financial Services Authority, which represents an authorized supervisory agency for financial industry of Great Britain. Their first reactions are positive. A final answer is expected and we hope that the bank will be reactivated in the near future.
· Is the NBRM included in the action for revealing corrupted bankers, as it is the case with selling the foreign currency revealed in public recently by the Minister Gruevski, and are there any particular findings on this matter?
The control is underway, and until it is not completed and until we don’t receive the results from it, I can’t tell you anything more for the time being.
· Regarding the deterioration of the situation in the economic sector, which directly reflects upon the banking sector, can we expect interest rate changes of banks, even though the NBRM has brought several decisions on increasing the interest rates in its domain, these days?
As a result of the last measures undertaken by the NBRM focused on the defense of the foreign exchange rate of the Denar and maintaining the total liquidity in the banking sector and the economy as a whole, it is normal to expect increment in the lending interest rates of banks. I would like to stress that these measures the NBRM undertakes are temporary, due to the war developments in the Republic of Macedonia, and that as soon as favorable circumstances are created, i.e. when there will be no causes for such measures, the NBRM will ceased them.
by the economy section of the daily “Vecer”