The National Bank of the Republic of Macedonia Council held its fourth session today. At its today's session, the Council adopted the Annual Report for 2013.

During 2013, the monetary policy was conducted in line with its primary monetary objective - maintaining price stability and a stable Denar exchange rate, as an intermediate monetary target. The total average annual inflation equaled 2.8%, which is lower than the last year's average and followed a downward trend, particularly in the second half of the year. The Denar exchange rate was stable and averaged Denar 61.58 per one euro. The movement of real effective exchange rate also was relatively stable, showing almost unchanged price competitiveness. Amid adequate level of foreign reserves and assessments for absence of major pressures on the exchange rate, in 2013, the National Bank continued the cycle of monetary easing. Namely, in order to stimulate domestic economic activity, the CB bill interest rate was cut by 0.5 percentage points, with a few macroprudential measures being taken by changing the reserve requirement system. These National Bank's measures were aimed to further stimulate lending to recover the economy, encourage inflow of long-term foreign capital and support currency restructuring of the banks' deposit base. Loosening of monetary conditions allows for significant reversal of liquidity in the banking system, contributes to reducing the lending and deposit interest rates and continuing the deeuroization process in the economy.

Observing individual macroeconomic indicators, in 2013, the GDP data showed that the domestic economy is back in the area of positive growth. Structural changes in the economy, as a result of foreign direct investment, and gradual and moderate recovery of foreign demand made particularly positive impact on the export sector. Growth in lending accelerated in 2013, particularly at the end of the year. However, the lending potential was not fully utilized, given the prudent policy of banks in terms of loan portfolio quality, the uncertainty about the global environment and its impact on economic recovery in the domestic real sector. Therefore, in order to encourage the recovery of domestic economy, the fiscal policy was expansionary and led to a further increase in the fiscal deficit.

During 2013, the external sector developments were also under considerable influence of the slow recovery of the euro area and the unfavorable changes in prices of key export products on the international markets. On the other hand, structural changes in the domestic economy made a positive impact on the external position, which contributed to increased resilience of exports. Thus, in 2013, the current account deficit decreased to 1.9% of GDP, mainly due to the smaller negative gap in the trade of goods and services. Moreover, notwithstanding the growth of foreign direct investment and external debt of the economy, the total net inflows in the capital and financial account were not sufficient to fully finance the current account deficit. In these circumstances, in 2013, foreign reserves declined. Despite the annual decline, the indicators of foreign reserves adequacy suggested a comfortable level of foreign reserves, whereby during the year, the National Bank held foreign reserves that were sufficient to absorb any major shocks to the economy and to maintain the stability of the domestic currency.

At today's session, the National Bank Council also adopted the Report on Risks in the Banking System in 2013. The report concludes that the overall stability of the Macedonian banking system strengthened in 2013, mainly due to the gradual recovery of domestic economic activity and the monetary, macro-prudential and other measures taken by the National Bank. Typical for the year is that the overall rate of non-performing loans, after the peak in July, has been declining steadily to 11.5% at the end of the year, hitting a record low for the year, with the exception of January. This trend runs along with the enhanced efforts of banks to restructure the claims on those clients whose lending terms needed to be adjusted to their current financial difficulties.

Stable and high liquidity continued to be the main feature of the banking system. Slower growth in liquid assets was due to the gradual strengthening of credit activity in the second half of 2013. However, they still covered almost 60% of household deposits in banks. Capital adequacy, as the main solvency indicator of the banking system, was still twice the minimum requirement and amounted to 16.8%. In 2013, banks were mostly striving to increase capital through reinvestment of profit. Profitability increased by 58% compared to 2012, primarily due to the growth in net interest income that resulted from the reduction in interest expenses.

At today's session, the Council also adopted a Decision on amending the methodology for determining capital adequacy. Two amendments to the current decision were made, which are expected to contribute positively to commercial banks' lending to the corporate sector. The adoption of this decision contributed to the harmonization with the EU Regulation No. 575/2013, under which performance guarantees are medium/low risk items that are subject to a lower conversion factor (20%) instead of the previous 50%. Another novelty is that it introduces a more favorable regulatory treatment of funds established by one or more central governments, multilateral development banks or public institutions. For these funds, the risk weight will equal 0%, and requires the units to be fully paid-up, i.e. balance sheet and off-balance sheet activities to be covered by the fund's capital.

At its today's session, the Council also adopted a Decision on putting into circulation a collector coin "Cyril and Methodius", and a Decision on putting into circulation a collector coin "Lion" from the Zodiac series. The coins "Cyril and Methodius" will be in denominations of 100 and 1000 Denars, while the coin "Lion" will be in denomination of 10 Denars. The Council adopted a Decision on issuing and a Decision on putting into circulation a collector coin "Virgo" from the Zodiac series in denomination of 10 Denars. The collector coins will be put into circulation on 15 May 2014. Given their high quality, the collector coins will contribute to a better representation of the country both domestically and internationally.

The Council also considered other matters within its jurisdiction. 

Governor's Office