The National Bank of the Republic of Macedonia Council discussed several issues related to its operations at its session held today.
Press release of the NBRM
The National Bank of the Republic of Macedonia Council discussed several issues related to its operations at its session held today.
The NBRM Council passed the Decision on issuing licenses to banks and the Decision on issuing approvals. These Decisions constitute the regulatory framework concerning the bank and savings house licensing, which is an essential element of the supervisory function of the National Bank. These decisions specify the type of documentation and the terms and procedure for issuing a license for founding and operating a bank, status change of a bank and issuing approvals to banks, appointing members of the banks' supervisory board and board of directors, acquiring qualified participation in the banks' shareholder structure, performing certain financial activities by the banks, establishing organizational units of the banks abroad, etc. These decisions mirror the tightened licensing criteria defined in the new Banking Law and the latest Basel principles for effective bank supervision.
The today's session discussed and adopted the first Financial Stability Report for 2006. Thus the National Bank joined the group of roughly 50 central banks that issue such report. The report provides an assessment of the level of stability of the financial system of the Republic of Macedonia, underlining the banking system as its dominant segment. It also attempts to identify the major systemic risks that could bring about grave disruptions in the functioning of the financial system.
In 2006, the financial system stability in the Republic of Macedonia was satisfactory. As of December 31, 2006, the total assets stood at Denar 195.8 billion, which is by 23.3% more compared to the end of 2005. The risk profile of the financial system is primarily determined by the risks the banks face with in their operations, as a dominant part accounting for 89% of the total assets of the financial sector. In environment of intensive credit activity, the credit risk remains dominant risk the banks face with. Yet, in spite of the faster credit growth, the banks' credit portfolio quality shows no signs of deterioration.
The non-banking financial institutions are relatively less significant to the financial system stability. The insurance sector is the second largest segment in the financial system making up 7.5% of the total assets of the financial institutions. The leasing companies and the pension funds constitute roughly 1% each, of the total potential of the financial institutions. Nevertheless, the capital market development, the completion of the pension system reforms and the investments of foreign strategic investors in various segments of the financial system are expected to increase the relevance of these institutions and to introduce new types of financial institutions, such as investment funds.
Last year was also distinguished by the accelerated trade in shares and bonds on the Macedonian Stock Exchange accompanied by inflow of foreign portfolio investments that increased the market capitalization and improved the capital market liquidity. The enhanced trade in shares and the their higher prices, in turn, generate new risks which would be most evident in the case of excessive expectations for the future performances of the issuing companies and the prices of their shares.
The Council adopted a Decision on the method and the terms under which residents, who are not authorized banks, may open and have accounts abroad. This Decision introduced new bases on which residents, who are not authorized banks, may open and hold accounts abroad, specified the required documentation for opening accounts abroad and abolished the approvals for registering settlement accounts.
The Council passed Basic Policies on accounting records and financial reporting of the National Bank of the Republic of Macedonia. These policies specify the basic principles for recording transactions emerging from the performance of the National Bank functions and will apply to the financial reporting of the National Bank as required by the Law on the National Bank of the Republic of Macedonia and the International Financial Reporting Standards. The major change is the determination of the new economic life of the NBRM assets that affect the depreciation rate. These policies define the requirement for reevaluation of the economic live of the NBRM assets once a year and identification of any indication that the assets have been impaired.
At its today's session, the NBRM Council was informed on the continuation of the positive macroeconomic developments in the Macedonian economy. In the first half of 2007, the annual inflation rate equaled 0.9%. In line with the favorable foreign trade developments, the higher inflows from private transfers and non-resident portfolio investment, the NBRM has still been purchasing foreign assets on the foreign exchange market, thus ensuring that the stock of gross foreign reserves at the end of June 2007 is the same as at the end of 2006, in spite of the high outflow from the repayment of the public debt to the Paris Club of Creditors, the World Bank and to the IMF in a total amount of Euro 212 million. The average interest rate at the last CB bills auction held on July 11, 2007 equaled 5.12%. The uptrend of the total deposits and total bank placements to the private sector carries on, and in May 2007 they surged by 31.3% and 32.3%, respectively, compared to the same month of the preceding year.