The National Bank of the Republic of Macedonia Council held its seventh session today and adopted the Financial Stability Report of the Republic of Macedonia for 2012.
Press release of the NBRM
The National Bank of the Republic of Macedonia Council held its seventh session today and adopted the Financial Stability Report of the Republic of Macedonia for 2012.
The Report has been prepared for the sixth consecutive year, according to the standard practice of most central banks in the developed countries. It contains an overview of risks faced by economic agents in the Republic of Macedonia and is divided into analysis of financial and of non-financial sector.
In 2012, the financial stability in the Republic of Macedonia was preserved, with the negative information about the new hot spots of financial crisis in the EU having only occasional, incidental and short-term effects on the financial system. Same as in recent years, the direct adverse effects on the Macedonian banking system are minimal, given the slight dependence of domestic banks on foreign funding. However, increased risks to the global economy may in the future hit the external position of the domestic economy, and thus pose a challenge to the maintenance of financial stability of individual sectors, primarily non-financial corporate sector.
Risks generated by households in 2012 are still under control, while some indicators improved. Although household debt grew, the faster growth of financial assets improved their ability to repay debt and increased the space for further borrowing. In 2012, the declining Euroization as a result of the public perceptions for uncertainty about the future of the Euro, as well as the persistent differences in returns on savings in Euro and in Denar, reduced the exposure to currency risk, although it still exists due to the FX clauses. Credit risk to households is lower, but the frequent spillover of risks from the non-financial corporate sector suggests caution.
The share of total banking system in the overall financial system was the largest in 2012, as well. High and stable liquidity and solvency are foundations of stability, with slightly higher risks being identified in the corporate sector. Materialization of credit risk during 2012 caused a slight increase of non-performing loans. However, the non-performing component of loan portfolio remains fully covered by provisions allocated by banks. Most risks arising from the lack of proper regulation and supervision of the smaller segments of the financial system have been addressed.
In 2012, work meetings were initiated between representatives of the financial supervisory authorities in the Republic of Macedonia, which, by promoting mutual cooperation, aim to contribute to maintaining safe and sound financial system, which is a current, international practice.
At today's session, the Council passed a Decision on amending the Decision on reserve requirement, reducing the reserve requirement ratio for banks' liabilities in domestic currency from 10% to 8%, and increasing the reserve requirement ratio for liabilities in foreign currency from 13% to 15%. In fact, this measure is a continuation of the practice of applying differentiated reserve requirement ratios, thus providing support to the growth of savings in local currency and continuing the trend of gradual, but stable restructuring of the currency composition of liabilities of the banking system. In order to preserve the ratio of reserve requirement allocated in Denar and in Euro, the portion of Euro reserve requirement allocated in Denars is planned to be increased from 23% to 30%.
Moreover, in order to stimulate credit growth, the National Bank adopted yet another cyclical macroprudential measure. Namely, for attracting long-term inflows of foreign capital for credit support in the country, the amendments to the Decision on reserve requirement allow 0% ratio for banks' liabilities to nonresidents - financial companies, with contractual maturity of over one year, and for all liabilities to nonresidents with contractual maturity of over two years. The current reserve requirement ratio of 13% will further apply to the category of short-term liabilities to nonresidents - financial companies with maturity of up to one year.
The Council also considered other matters within its jurisdiction.