Skopje, 31 July 2020
The National Bank Council held a regular session, at which it reviewed and adopted the latest Quarterly Report, Report on the risks in the banking system in the first quarter of this year and Annual Report on payment systems oversight in 2019 and adopted the Decision on the method of determining connected persons/entities and exposure limits, which further harmonizes the domestic regulation with the provisions of the European Union regulations and with the guidelines issued by the European Banking Authority.
The Quarterly Report emphasizes that the monetary setup is in line with the existing economic and financial developments. It is expected that the measures taken by the National Bank in the first half of the year will provide further adequate support to the Macedonian economy in dealing with the challenges of the corona crisis.
The comparison of the latest macroeconomic indicators of the domestic economic with their forecasted pace within the April cycle of forecasts points to certain deviations in terms of the economic growth intensity and structure due to COVID-19. At the same time, it emphasizes that the annual inflation rate in the second quarter was 0.5%, on an average. The uncertainty regarding the future path of world commodity prices in the upcoming period still exists, but according to the National Bank, inflation in the domestic economy will remain within acceptable limits.
The analysis of the balance of payments in the first quarter suggests that the current account deficit is almost unchanged compared to the same quarter in the previous year. The foreign reserves, which increased in the first half of the year, according to all indicators of their adequacy, are still in the safe zone, in which they would remain.
The Report also determines that during the second quarter of the year, an accelerated growth of both the credit activity and deposit base was registered, above the expectations according to the April forecasts. The quarterly lending growth, which is largely due to the lending support to the corporate sector, is due to the series of measures of the National Bank adopted at the beginning of the crisis, which created conditions for reducing the costs of financing through banks’ loans and provided additional banking system liquidity. On an annual basis, at the end of the second quarter, the growth of lending reached 6.6%, while total deposits reached a solid 8.4% partially as a reflection of the government measures which provided additional funds for companies and households in order to improve liquidity and disposable income.
In terms of risk sources, it is pointed out that they continue to exist globally and are almost entirely related to COVID-19 pandemic. In the following period, the National Bank will continue to carefully monitor the trends and potential risks from the domestic and external environment for further proper monetary policy setup.
The data in the Report on the risks in the banking system suggest that the banking system is entirely characterized with adequate levels of liquidity and solvency, which allows banks to meet the needs of their clients amid the severe shock caused by the corona crisis. The capital adequacy ratio has moderately increased compared to the end of the previous year and amounts to 16.5%, which is twice more than the statutory limit. The growth of own funds of the banking system had the greatest contribution to its increase. The adequate liquidity level is also confirmed by the individual indicators through which the liquidity position of the banking system is monitored. Almost one third of the assets of the banking system are liquid assets, which cover nearly 60% of household deposits.
In terms of banking system exposure to credit risk, as indicated in the Report, it is particularly important that the coverage of non-performing loans with impairment increases and is at a relatively high level of 68.7%. Such level, coupled with the satisfactory volume and quality of own funds limits the potential negative effects on the solvency of the banks from the possible total non-collection of non-performing loans, which are still within the historically lowest level i.e. at the end of March amounted to 5%.
According to the data published in the Report, the domestic banking system in the first quarter of this year is still profitable, but with lowest indicators of return on equity and assets compared to the first quarter in 2019.
The Council also reviewed and adopted the Annual Report on payment systems oversight in 2019 and the implementation of the given recommendations. Through oversight, the National Bank assesses whether the structure and functionalities of the payment systems according to their importance are in accordance with the regulatory requirements for their uninterrupted, safe and stable operation, which are also in line with the international standards on payment systems operations.
The results from the oversight during the last year indicate that payment system operators in the country have established infrastructure, policies, rules and procedures for operations which enable safe and uninterrupted execution of payments through the systems they manage, and also have appropriate controls for dealing with internal and external operational risk sources. The assessments from the Report confirm that payment systems in the country consistently provide a high degree of safety and operational confidentiality, which is a significant contribution to creating a favorable economic environment for both the businesses and the population. Payment systems availability during the last year was at the highest level of 100%, without any breakdowns or disruptions in their operations.
At the session, the Council also reviewed and adopted the Decision on the method of determining connected persons/entities and on exposure limits, which will be applied in banks’ operations at the beginning of the next year. This Decision further harmonizes the domestic regulation with the European Union provisions and with the guidelines issued by the European Banking Authority, in term of the manner of determining and monitoring connected persons/entities, determining exposures to persons/entities and great exposure and the manner of determining and monitoring exposure limits.
Council also discussed other matters within its jurisdiction.