Transcript Structure of the Banking System of the Republic of

Forum: Republic of Macedonia Development
Strategy and Investment Opportunities
Monetary Policy and Financial System in
the Republic of Macedonia
By Ms. Emilija Nacevska
Vicegovernor
National Bank of the Republic of Macedonia
October 19, 2005, London
Monetary policy stance
Monetary policy oriented towards maintaining
price stability, as final monetary policy goal and
precondition for sustainable economic growth
 The result: maintenance of law and stable
inflation since 1995, close to the average level of
inflation in EU

2005 proj.
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
Average inflation rate
(in %)
400
350
300
250
200
150
100
50
0
-50
Monetary policy stance (cont’d)

The maintained price stability is a result of
successful implementation of the exchange rate
targeting strategy
– Denar exchange rate as a nominal anchor

The strategy is supported by the fiscal policy
31.VII.2005
31.V.2005
31.III.2005
31.I.2005
30.XI.2004
30.IX.2004
31.VII.2004
31.V.2004
31.III.2004
31.I.2004
30.XI.2003
30.IX.2003
31.VII.2003
31.V.2003
31.III.2003
31.I.2003
30.XI.2002
30.IX.2002
31.VII.2002
31.V.2002
31.III.2002
31.I.2002
Exchange rate - Main nominal anchor in the economy
Denar / EUR
65
64
63
62
61
60
59
58
57
56
55
Monetary policy stance (cont’d)

The price and exchange rate stability contributed
for overall macroeconomic stability and
economic growth
-10%
2005 proj.
2004 estim.
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
GDP
- real growth rates -
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Inflation 2000-2005
Average
growth rates:
month / previous month
period / the same period of the previous year
7
5
3
1
-1
VI
V
IV
III
II
I.2005
XII
XI
X
IX
VIII
VII
VI
V
IV
III
II
-3
I.2004
5.8% in 2000

5.5% in 2001

1.8% in 2002

1.2% in 2003

-0.4% in 2004

1.2% in 2005
proj.
Inflation 2004-2005
Balance of payments
Current Account Balance
- as % of GDP 1993
1994
1995
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
*projected data for Dec. 2005
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005*
Components of the current account
- as % of GDP 20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
1993
1994
1995
1996
1997
1998
1999
2000
Trade balance as % of GDP
Income as % of GDP
Services as % of GDP
Current Account as % of GDP
2001
2002
2003
Transfers as % of GDP
2004
Gross foreign exchange reserves of
NBRM
- In million US Dollars 1200.0
1000.0
800.0
600.0
400.0
200.0
VIII.2005
XII.2004
XII.2003
XII.2002
XII.2001
XII.2000
XII.1999
XII.1998
XII.1997
XII.1996
XII.1995
XII.1994
XII.1993
XII.1992
IV.1992
0.0
In 2004, compared to 2003, the gross FX reserves
increased by US Dollar 82 million, or by 9.2%.
Apr. 1992
0

Dec. 1992
59.8

Dec. 1995 274.8

Dec. 1998 333.5

Dec. 1999 458.4

Dec. 2000 713.6

Dec. 2001 775.2

Dec. 2002 725.0

Dec. 2003 893.0

Dec. 2004 975.0

Aug. 2005 1002.0
Liberalization of current and capital
transactions


With the acceptance of Article VIII of the IMF
Articles of Agreement (June 1998) complete
liberalization of current transactions; partial
liberalization of capital transactions;
In line with the implementation of the
Stabilization and Association Agreement with EU,
in October 2002, new Law on Foreign Exchange
Operation was adopted with further liberalization
of capital transactions.
Liberalization of Capital Transactions



Complete liberalization of foreign direct investments;
Complete liberalization of credit and loan transactions;
Investments in securities:
– For residents trading abroad
 authorized banks only; Deposit Insurance Fund, insurance
companies, pension and investment funds only in line with
laws governing their operations;
 after the expiration of the phase I of the SAA with EU,
other residents will be able to trade foreign securities
abroad.
– For non-residents trading domestically
 authorized to issue and introduce securities on the domestic
market up to three-year maturity; may trade domestic
securities through authorized participants.
FDI
350
14.0
320
12.0
290
260
10.0
230
200
8.0
170
6.0
140
110
4.0
80
50
2.0
20
-10
1993
1994
1995
1996
1997
1998
FDI as % of CA
1999
2000
2001
FDI as % of GDP
2002
2003
2004
0.0
Banks' lending interest rates
Banks' deposit interest rates
Jul.05
Jan.05
Jul.04
Jan.04
Jul.03
Jan.03
Jul.02
Jan.02
Jul.01
Jan.01
Jul.00
Jan.00
Jul.99
Jan.99
Jul.98
Jan.98
Jul.97
Jan.97
Jul.96
Jan.96
Banks’ Interest Rates
30
25
20
15
10
5
0
Monetary Policy Instruments
Reserve requirements
On domestic currency
On foreign currency
Open market operations
Issuance of CB bills
Credit operations (credit auctions)
Standing facilities
Lombard credit
Reserve Requirements
Reserve requirements ratios
10.0% - to banks, for reserve requirements in
domestic and foreign currency
2.5% - to saving houses, for reserve
requirements in domestic currency deposits
Remuneration of reserves
In domestic currency: holdings of required
reserves are remunerated at 2%
In foreign currency: holdings of required reserves
are not remunerated
Open Market Operations
Credit operations (credit auctions)
Not used since 2000
Issuance of 28-day NBRM bills
For sterilisation purposes, through volume
tender auctions (unlimited amount) carried
out twice a week; Current interest rate –
10.0%
Standing Facilities
Lombard credit
Overnight standing facility
Availability: on banks’ request at the end of
the day
Interest rate: 13.0%
Recent undertaken activities in order to
foster the financial market developments
 in April 2005, in the absence of Code for good practices, the regulatory
framework for OTC trading - Rules for the Manner and the Procedure for Trade
in and Settlement of Securities Transactions on the Over-the-counter Markets,
was set up.
 Starting from April 2005, services for settlement of securities are provided free
of charge in order to promote secondary trading and introduction of repurchase
agreements,
 In July 2005, an electronic trading platform with information on securities prices
and real time information on trades in foreign exchange was established in order
to enhance competition and increase transparency
 Market maker agreement with the major participants on the FOREX market was
signed in August 2005
 Master Repurchase Agreement with commercial banks was signed in September
2005
 Beginning from October 2005, repo transactions for intra day credit and lombard
credit were introduced
Core priorities of NBRM in the area of further
developments of financial markets in RM
 Reducing the NBRM reliance on CB bills (its own
securities) and introducing Treasury bills for monetary
policy purposes, as a start up measure for switching to open
market operations with government securities
 Finalizing all legal and accounting requirements to start use
repo operations as main instrument of the monetary policy
- replacing CB bills auctions with reverse repo auctions
- replacing collateralized credit auctions with repo
auctions
 Setting the criteria for choosing market makers for
government securities
Structure of the Banking System of the
Republic of Macedonia
as of June, 2005

20 Commercial Banks – 98.6% of the total
assets of the banking system
• 15 banks - full operating license (all financial
activities including domestic banking operations and
activities abroad)
• 4 banks - limited operating license (only domestic
banking operations and limited activities abroad)
• 1 state owned bank – specialized in development and
promotion

15 Savings Houses (operating license mainly
covers the activities with citizens)
Main indicators of the banking system
as of June, 2005







Total assets – 132.2 billion denars (2.2 billion
EUR)
Credit portfolio growth – 33.8% for the last 3 years
Average level of credit portfolio risk – 8.9%
Banking assets in GDP – 50%
Total deposits 94 billion denars (1.5 billion EUR)
Total capital – 21.3 billion denars (0.35 billion
EUR)
Capital adequacy ratio – 23.1%
Share of foreign capital
as of June, 2005

Foreign capital is present in 15 banks (51.6% of
the total capital)
• 8 banks are foreign owned banks (foreign
capital over 50%)
• 4 banks are subsidiaries of a foreign banks
(NBG Greece, Alpha Bank Greece, Ziraat
bankasi Turkey, Nova Ljubljanska Banka
Slovenia)
Structure of the Banking System of the
Republic of Macedonia
as of June, 2005
60
Private banks
with domestic
capital
50
40
Banks with
foreign capital*
30
20
10
State owned
bank
0
Capital
Total
assets
Deposits
Credits
(net basis)
* Banks with more than 50% foreign capital .
Concentration of the banking system of
the Republic of Macedonia
80
70
60
50
Assets
Capital
Credits
Deposits
40
30
20
10
0
Large banks



Medium banks
Small banks
Large banks – assets above 15 billion denars
Medium banks – assets between 2-15 billion denars
Small banks – assets lower than 2 billion denars
Enhancement of the banking
corporate governance

Amendments of the Banking Law:
– Enhancement of the “fit and proper” criteria for
qualified shareholders;
– Enhancement of the regulatory power of the NBRM
to revoke previously issued license to qualified
shareholder
– Introduction of two-tier corporate governance model
– Widening of the duties and responsibilities of the
management bodies
– Enhancement of the “fit and proper” criteria for
banks’ board members
Enhancement of the banking
corporate governance (con’t)

Amendments of the Banking Law (con’t):
– Expanding the ground under which the NBRM
can revoke the license of a board member
– More clear definition of duties and
responsibilities of Risk management Committee
and Audit Committee
– Enhancing the internal audit function
– Expanding of the provisions related to
accounting, financial reporting and external
audit
Enhancement of the banking
supervision of the NBRM
 Supervisory
Development Plan - Risk
based supervision
Supervisory Development Plan –
key objectives
– Standardization of the supervision approach;
– Efficient allocation of supervisory resources;
– Enhanced transparency and consistency of risk
analysis results;
– Development of supervisory strategies for
individual banks and for the whole banking
sector;
– Use of efficient corrective actions