The NBRM Council, at its eighth session held today, has discussed the Financial Stability Report in the Republic of Macedonia for 2011.
Skopje, 5 July 2012
Press release of the NBRM
The NBRM Council, at its eighth session held today, has discussed the Financial Stability Report in the Republic of Macedonia for 2011.
This report makes analysis of the stability of each financial system segment, their interrelation and significance to the financial stability, noting the importance of capacity and performances of nonfinancial sector. It was ascertained that financial system stability was preserved in 2011, while the risks to its future sustainability increased. These risks are primarily attributed to the continuation and potential deepening of euro area debt crisis, thus affecting the future dynamics of domestic economic activity.
In 2011, total funds of financial system went up by 9.2%, registering a growth of almost all of its segments. Risk of sector interrelatedness and possibility for contagion by risk spillover from one institutional segment to another in the Republic of Macedonia is restricted. The banking sector, constituting 88.6% of the financial system assets, is a generator of the financial stability in the Republic of Macedonia. Banks, facing higher risks that emerge from the broader surrounding, proved to be exceptionally prudent in their activities. In 2011, the banking activities enhanced at a slower pace compared to the preceding year, with their share in the gross domestic product of the country increasing. The stability of banking sector is also confirmed through the full coverage of nonperforming loans with impairment, its high liquidity and high and stable solvency. In addition, stress-tests results indicate satisfactory banking system resilience to simulated shocks.
Pension funds and the insurance sector, with a share of 4.3% and 3.4%, respectively, are the next two most important financial sector segments. In 2011, pension funds, compared to all other segments, registered the fastest growth of as much as 29.1%, pointing to life assurance as a segment with the greatest potential for further development within the insurance sector. Other financial system segments made modest contribution to the overall financial stability in the Republic of Macedonia.
Crucial factor for the stability of overall financial system, along with the favorable macroeconomic environment, are the performances and financial standing of nonfinancial entities. In 2011, risks arising from corporate and household sectors to the financial stability were under control and not expected to cause graver adverse effects on the financial stability in a short run.
The major corporate sector risks are caused by the protraction or the potential deepening of the turmoil in the wider external surrounding, any subsequent recession pressures on domestic economy and their effect on liquidity and capacity of domestic companies to regularly service their debt. Corporate sector liquidity is still low, notwithstanding the slight improvement in 2011, with signs of more efficient use of funds.
Scope of activities and performances of the corporate sector and its efficient risk management largely determine the disposable income and the overall household financial power. High unemployment rate and low productivity are still the main reason behind the insufficient growth of disposable income. In 2011, the capacity of household sector for one-off service of total debt improved due to the faster growth of financial assets compared to the growth of total debt. The 17.1% increase of financial assets was mostly attributable to domestic bank deposits and life assurance. Household nonperforming loans remained almost the same.
The interest rate risk exposure of corporate and household sectors is a risk to their financial position, caused by the frequent application of so-called adjustable interest rates that can change upon unilateral decision of the banks. On the other hand, currency risk is hedged because of the conduct of strategy of de facto fixed exchange rate of Denar against Euro. The National Bank remains consistent in the implementation of its objective conferred by law to contribute to the maintenance of stable and competitive market-oriented financial system and to undertake all available actions and measures to achieve its objectives.
At its session, the National Bank Council was informed on the recent macroeconomic developments.
The recent macroeconomic developments in the domestic economy, in monetary terms, are basically a continuation of trends of the previous two months. In June, domestic prices decreased again on a monthly basis. Thus, inflation pressures in April, partially caused by one-off factors, kept on steadily exhausting. Inflation perceptions are as expected, without significant changes in the pace of inflation to the end of 2012. The absence of larger inflation risks is illustrated by the economic activity indicators that clearly signal underutilization of capacities and lack of pressures through demand.
As for now, effects of the reoccurrence of problems with the euro area debt crisis and deteriorated global economic prospects on the domestic economy are restricted to the real sector.
Foreign reserves still follow the expected path and are preserved at adequate level, ensuring ample room for offsetting any adverse shocks. Yet, there is still a need of further prudent conduct of monetary policy and changes in the monetary conditions, if needed.
The National Bank Council adopted the Decision on amending the Decision on the manner and conditions under which residents which are not authorized banks may open and hold accounts abroad. This Decision facilitates the inflow of funds from resident account with foreign bank for natural persons who stayed abroad for a longer period of time and still hold foreign passport with residence address abroad, but returned to and decided to reside in the Republic of Macedonia.
At today's session, the Council also discussed other issues within its competence.
Governor's Office