The National Bank of the Republic of Macedonia Council held session today, with several issues within its operating area being discussed at.
Skopje, 2 July 2009
Press release of the NBRM
The National Bank of the Republic of Macedonia Council held session today, with several issues within its operating area being discussed at.
The Council discussed and adopted the Financial Stability Report for the Republic of Macedonia in 2008. This is the third such report, containing comprehensive analyses of the financial system in the Republic of Macedonia and its stability. Although in 2008 the risks increased, mainly due to the global crisis, the financial stability was preserved.
The global economic and financial stability had limited direct impact on the financial stability, but significant influence on the macroeconomic stability in the Republic of Macedonia. The decrease in the economic activity in the developed countries, and primarily in the countries which are the largest trade partners of the Republic of Macedonia, and especially the severe drop in the prices of metals, representing strategic export products of the Macedonian economy, reflected on deceleration of the economic activity in the country and increase in the external misbalance. The increase in the macroeconomic risks influenced on the financial stability risks.
In comparison with 2007, the significance of the risks arising from the real sector (sectors "households" and "enterprises") increased. The slower annual growth of the households' financial assets (of 7.9%) and of its available income (of 8.6%), compared to the growth rate of its indebtedness (of 37%), contributes to decrease in its capacity for debt servicing to banks and other financial institutions. The high level of households' indebtedness with currency component and adjustable interest rates exposes this sector to both currency and interest rate risk. Hence the hedging of the households' financial assets and liabilities, through maintenance of the macroeconomic stability, has essential meaning for the financial stability.
Neither the corporate sector of the Republic of Macedonia remained isolated to the developments related to the economic environment. The indebtedness of the corporate sector continued to increase also in 2008, with intensified dynamics compared to the previous year (annual growth rate of 31.2%) being registered. The significant presence of the currency component, as well as of the adjustable and variable interest rates in the enterprises' total debt, exposes this sector also to both interest rate and currency risk.
The risks arising directly from the individual segments of the financial system, generally remained within controlled frames. The financial system of the Republic of Macedonia remains to characterize with relatively simple structure, with obvious dominance of the banks. It emphasizes their significance for the entire stability. The traditional structure of the financial system and the supply of the financial instruments and services on the market, contributed to lower degree of inter sector risks spill-over.
On December 31,2008, the total assets of the financial system, amounted Denar 280,907 million and in comparison with 2007 they went up by 13.7%, which is only a half of the annual growth rate in 2007. They represent 70.5% of the gross domestic product, which is a rise of 0.8 percentage points compared to 2007. The highest growth rates were registered in the assets of both pension funds and leasing companies.
Despite the increased external and domestic factors of risk, in 2008 the banks remained stable and safe. Several factors contribute to that: maintenance of traditionally high liquidity and solvency by the banks, the banks' orientation to the classic banking activities, their insignificant exposure to nonresidents, including also the relatively low dependence on external financing. The different stress-test scenarios show that the banking system is significantly resistant to variety of hypothetical shocks. However, the transformation of the financial into a real sector crisis, followed by tightening of the operating conditions of the domestic credit users resulted in increase in the credit risk in the banks' operating. On December 31, 2008 the share of the credit exposure with higher risk level (classified in the risk categories C, D and E) in the total credit exposure equaled 6.4%.
At the end of 2008, the assets of the insurance sector equaled Denar 11,920 million, which is more by 7.6% compared to the end of 2007. The insurance sector retained its satisfactory solvent position, but its profitability deteriorated. The underdeveloped supervisory function, and thus the hampered identification and measurement of risks remain to be the basic risk with the insurance sector.
In 2008, the most fast growing segments of the financial system were the leasing companies and the pension funds, compared to the brokerage houses which, although numerous, registered apparent decrease in the activities. Despite the increase in the assets of the leasing sector by 73%, its share in the total assets of the financial system remained low and equaled 3.1%. The value of the concluded leasing contracts took 2% of the GDP. The total assets of the pension funds registered high annual increase of 61.2%, but it is obviously lower than in the previous year, when an increase of 151.5% was registered. The pension funds management companies remain to face with the challenge for hedging the real value of the pension fund assets.
- At today's session, the National Bank of the Republic of Macedonia Council adopted the Decision on the manner and the procedure for establishing and enforcing the program of a bank for money laundering prevention and financing terrorism. This Decision precisely prescribes the elements of the banks' program for money laundering prevention and financing terrorism, the basis of which has been set in the Money Laundering prevention and Other Proceeds from Crime and Financing Terrorism. The Decision provides significant compliance with the recommendations of the Financial Action Task Force - FATF, as widely accepted international standards for money laundering prevention and financing terrorism. Also, the largest portion of the remarks from the Report of the special Committee of the Council of Europe (Moneyval) for the compliance of the Republic of Macedonia with the recommendations of the Financial Action Task Force has been accepted.
The NBRM Council was also informed on the latest macroeconomic movements, presented within the Monthly Information 05/2009. The last data on the inflation for May 2009 point to stabilization of the general level of consumer prices, with the annual inflation rate being equal to 0.4%, while the average annual inflation rate in the first five months of 2009 equaled 0.5%. Within the economic activity domain, in continuity of the achievements in the last two months, the monthly rate of change of the industrial output in April was once more positive and it equaled 1.3%. However, relative to the same month of the previous year the industrial output plunged by 7.7%, mostly as a reflection of the reduced production of basic metals. Thus the cumulative decrease in industry in the first four months equaled 9.9%. In the first five months the foreign reserves reduced, and on May 31, 2009 they equaled Euro 1,166.8 million. Such change in the reserves is a reflection of the unfavorable movements in the balance of payments' current account, where in the first three months of 2009, further deterioration of the trade balance was registered, which in conditions of lower inflows from private transfers and capital inflows imposed a need of NBRM interventions towards net sale of foreign assets. However, in June the movements on the foreign exchange market changed, and the NBRM started with a net purchase of foreign exchange (and in June 01 - 24, 2009 period the foreign reserves augmented by Euro 41.8 million, on a monthly basis). Although such movements give positive signals for gradual stabilization in the expectations and positive movements in the external sector, it is still early to estimate whether it is change in the trends or short-term changes. Within the banking sector, the trend of slowing down of the dynamics of the annual growth in the total deposits continued also in May, when annual growth rate of the total deposits with the banks (with demand deposits) of 2.9% was registered (compared to 6.3% in the preceding month). In May, the banking sector crediting went up annually by 18.5% (21.4% in April), given more intensive deceleration of the annual growth rate with the households' credits.
Governor's Office