Today, the National Bank of the Republic of Macedonia Council held its ninth session at which the latest Quarterly Report was discussed and the latest macroeconomic developments were presented.
Skopje, 1 August 2012
Press release of the NBRM
Today, the National Bank of the Republic of Macedonia Council held its ninth session at which the latest Quarterly Report was discussed and the latest macroeconomic developments were presented.
Since the change in the monetary policy until present day, the global economic environment has experienced changes that implied further increase in the risks regarding the monetary policy. Changes in the global environment had some, however limited effects on current trends in the domestic economy and on future expectations. The expectations for deterioration of the economies of the major trading partners, and the weaker domestic GDP in the first quarter suggest that the growth of the economic activity in 2012 will be weaker and will be around 1%, versus 2% expected in the April projection. Although the current assessments indicate stronger slowdown of the economic growth compared to previous expectations, it is not expected that this dynamics will jeopardize the capacity for growth of the domestic economy. Thus, in 2013, gradual recovery of the economies of foreign partners is expected, which would create positive transmission effects on consumer and investment decisions of domestic agents. Moreover, growth of foreign and public investment and active credit support from the banking sector are expected, leading to increased economic growth to around 3%.
It is expected that the banking sector will actively support the domestic private sector, due to the disposable funds for financial support, adequate liquidity and capitalization and relaxed monetary conditions. In that sense, it is expected that the credit activity of banks during this and next year will grow at rates of about 8% and 10% respectively.
It is expected that the average inflation during this and next year will amount to about 2.2%, thus remaining within acceptable limits. The risks around the projection are upward, as a consequence of the movement of import and regulated prices. Recent evaluations of imported food prices show higher price level than previously expected, caused by a negative shock in the world supply. On the other hand, the weaker growth and retention of the negative output gap until the end of 2013 indicate absence of pressures from the demand on domestic prices.
The macroeconomic picture until the end of 2013 indicates maintaining of the balance of payments position, with a moderate current account deficit of 2.9% of GDP in 2012 and 3% of GDP in 2013. It is expected that capital inflows will be lower amid emphasized uncertainty on the international financial markets and rising costs of borrowing. However, it is estimated that total capital inflows are sufficient to finance the current account deficit and make an additional increase of foreign reserves by the end of 2013. In addition, the current macroeconomic scenario suggests absence of a greater imbalance in the foreign exchange market and further maintenance of an adequate level of foreign reserves.
Given such macroeconomic picture for the next period, so far it is estimated that the current monetary stance is appropriate. In any case, NBRM will closely monitor the developments also in the next period and, if necessary, it will make appropriate changes in the monetary policy in order to successfully achieve the monetary targets.
At today's session of the National Bank Council, also the Report on the Banking System in the Republic of Macedonia in the First Quarter of 2012 was discussed. It was concluded that the banking system maintained its stability and safety and the risk profile of the banking system is still moderate.
The risks are mainly arising from the banks' loan portfolio. Identified deterioration in the quality of the loan portfolio mainly stems from the corporate sector, where non-performing loans grew. As a result of this growth, non-performing loans increased their share in total loans from 9.5% as of 31.12.2011 to 9.9% as of 31.03.2012. However, full coverage of non-performing loans with calculated impairment and special reserve, coupled with high levels of liquidity and solvency, reduces the risk of major adverse effects on the stability of banks, as confirmed by the results of the stress tests, which show satisfactory resilience of the banking system to simulated shocks.
At the end of the first quarter of 2012, liquid assets of the banking system registered a quarterly growth of 2.8%, and at the same time liquidity indicators improved. The reduced liquidity risk is perceived also through the improved maturity profile of assets and sources of funding for banks. Deposits of non-financial entities retained the dominance in the structure of sources of financing of the banking system.
Solvency of the banking system has further improved. The capital adequacy ratio reached 17.5%, or growth of 0.7 percentage points compared to the end of 2011. The growth of capital adequacy is due primarily to the increase of own funds, which mostly stems from the retention of part of the profit for 2011 in the reserve fund of banks and from conducted recapitalizations.
The need to cover credit risk with additional impairment caused loss to the banking system, which as of 03.31.2012 equaled Denar 229.9 million. However, operational efficiency increased. The cost-to-income ratio decreased from 72.1% (03.31.2011 ) to 64.1% (31.03.2012).
At today's session, the Decision on Amending the Decision on exposure limits was adopted. The purpose of the amendments to the Decision is to harmonize it with the new methodology for determining capital adequacy, by which banks are no longer allowed to use so-called supplementary capital II, for covering the market risk. As a result, banks will not be able to use these capital items (subordinated instruments with fixed maturity exceeding two years and one day after the inflow of cash in the bank) also in establishing and monitoring the exposure limits.
The amendment to the Decision on the manner of conducting supervision and oversight specifies the conditions for granting approval of the National Bank for insight in the contents of the minutes of the conducted inspection.
The Council also adopted the Decision on the single tariff of fees for services rendered by the National Bank of the Republic of Macedonia. The adoption of a new decision was prompted by the need for harmonization of the existing legal provisions governing this matter and adoption of a reference document aimed at customers who use the services of the National Bank.
At today's session the Council considered other matters within its jurisdiction.
Governor's Office