The National Bank of the Republic of Macedonia Council discussed several issues related to its operations at its session held today.

Skopje, 30 July 2009

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 Council also discussed and adopted the Report on Banking System of the Republic of Macedonia in the first quarter of 2009. The contraction of banking system activities which started in the last quarter of 2008, continued in the first quarter of 2009. On March 31, 2009, the total assets of the banking system totaled Denar 246,973 million, which is by 1.5% less on quarterly basis. Main reason behind was the downtrend of the deposit core in the first quarter of 2009. In the first quarter of 2009, the deposits went down by 2.9% compared to the end of 2008, and on March 31, 2009 they stood at Denar 175,642 million. Further currency transformation of deposits was evident in favor of deposits with currency component, with apparent downtrend of the Denar deposits. Credits made by banks kept on increasing but in significantly slower pace relative to the preceding quarter. Thus on March 31, 2009, the total credits to nonfinancial entities amounted to Denar 171,734 million, registering a quarterly growth of 2.3%. In this quarter, the funds placed with banks started increasing again, whereas the net securities investments steeply fell. In the first quarter of 2009, the banks' credit portfolio quality indicators reported certain deterioration. Thus, the credit exposure classified in C, D and E risk categories registered a quarterly increase of 6.9% (or Denar, 1,162 million). Accordingly, the exposure classified in C, D and E risk categories accounted for 6.9% of the total credit exposure. The average credit exposure risk level went up by 0.4 percentage points quarterly, and on March 31, 2009 it reached 6.2%. In the first three months of 2009, the total nonperforming credits went up by Denar 1.597 million (or by 13.9%), making up 5.0% in the total banks' credit exposure.

The banking system still maintains stable liquidity position. On March 31, 2009, the average monthly amount of banks' liquid assets and highly liquid assets totaled Denar 51,571 million and Denar 39,709 million, respectively. Compared to the first quarter of 2008, they dropped by 27.2% and 6.4%, respectively.

The banks conduct currency risk management within the specified limits for aggregate open currency position.

In the first three months of 2009, the banking system's earnings totaled Denar 136 million, which is by 85.6% less compared to the same period of the preceding year. The rates of return on assets and equity equal 0.2% and 1.8%, respectively, which is considerably lower compared to the same period of the previous year (1.7% and 14.7%, respectively in March 2008). 

The banks hold sufficient amount of capital requirement for operating risks. On March 31, 2009, the capital adequacy ratio equaled 16.5%, which is as twice as higher than the legally set minimum of 8%.

The Council discussed and adopted the Quarterly Report, July 2009, drawing up the following conclusions:

The effects of the global recession have spilled over the domestic economy with shorter time lag than expected. Thus, the domestic economy started contracting back in the first quarter of the year, reporting a 0.9% GDP fall. The decrease in the international trade deeply impacted the export-oriented sector, whereas the import was adjusting in a slower pace, in environment of pressures of the domestic demand. The expanded trade deficit and the lower net-inflows from private transfers increased the current account deficit in the first quarter. Simultaneously, the capital inflows registered lower volume given the global risk aversion. Such developments, along with the worsened expectations of the domestic entities, created pressures on the currency demand, making the NBRM sell foreign currencies on the foreign exchange market in the first five months of the year and undertake suitable monetary policy measures.  Thus, besides the growth in the basic interest rate (from 7% to 9% in March), the rate of reserve requirement for the banks' liabilities with currency component also increased. The latest data show change in the developments, evident through the faster import contraction and the positive trends in the private transfers, which brought about changes in the tendencies on the foreign exchange market.  In June and July, NBRM intervened with a net-purchase of foreign currencies, and on July 24, the gross foreign reserves totaled Euro 1,371.8 million (Euro 175 million of which are inflows from the issued government Euro-bond). However, the time period of change is too short to draw up a conclusion that there is a change in trends, and the risks to the end of the year remain high. Alongside the contraction of the economic activity, the inflation, which in the first six months equaled 0.1% on average, annually, significantly slowed down. The monetary measures undertaken so far are expected to give the expected effect in the next period.

The weaker performances in the economic activity relative to the April assessments, when the projected global growth was downwardly revised, led to a downward revision of the projected growth rate of the Macedonian economy for 2009, from -0.4% to -1.8%. Also, the projection risks remain predominantly negative. Currently, the threshold of the GDP interval for 2009 swings around -2.5%.  The third quarter expects the most dramatic GDP fall of 2.9%, after which the economic contraction will tend to be moderate. Yet, unlike the previous projection, when the expectations were exceptionally bearish, the latest expectations for faster recovery of the global economy and the positive developments on the metal markets point to factors that could act divergently. Concerning the price changes, the lower inflation than projected and the perceptions for steeper fall of the domestic demand led to downward revision of the projected interval for 2009, from -0.4% to 0.6%, to interval from -1.1% to -0.4%.

At its today's session, the Council also discussed other issues concerning its operations, passing the Decision on the National Bank interest rates and the amendments to the Decision on the methodology for determining capital adequacy. 

Governor's Office