Transcript Document

NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
THE BANKING SYSTEM
AND
THE ECONOMIC DEVELOPMENT
OF THE REPUBLIC OF MACEDONIA
Petar Goshev M.Sc.
Governor
7/20/2015
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Role and importance of the Banking System in
the Republic of Macedonia

The Banking System is the main financial intermediary in the
Republic of Macedonia, and hence it plays the key role in
financing the economic growth of the country.

There is no prosperous market economy without stable and
efficient financial intermediation.

There is no doubt that in circumstances when banking
dominates the financial intermediation in the Republic of
Macedonia, the Banking System should be a driving force of
the growth and development of the country.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

Main preconditions for the banks to perform their role:
 Stability;
 Operational efficiency primarily expressed by:
 Sound internal policies and procedures for efficient
allocation of the financial potential;
 Optimization of the overhead expenses;
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

Business environment which will enable functioning of the
principles of market economy and reasonable level of risks
undertaken by the banks when performing financial
intermediation.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

Banking System stability as the main precondition for efficient
conducting of its main function in the Republic of Macedonia
has been achieved:
 Avoided systemic banking crisis which a number of countries
in transition faced with (Czech Republic, Croatia, Bulgaria
etc.). The Banking System of the Republic of Macedonia
passed the stability test in 1999 during the Kosovo crisis and
in 2001, during the political and security crisis in the Republic
of Macedonia.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

The average capital adequacy ratio of the banks is 23.1%,
however registering a downward trend, as a result of the growing
financial intermediation in the Republic of Macedonia;

Satisfactory liquidity position of banks. During the first half of
2005, the average liquid assets of banks equaled 43.3%.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

The level of credit risk retains the downward trend. Banks’ credit
exposure classified in risk categories C, D and E was 11.8% at
the end of June 2005, which is a decline of 4.1 p.p. relative to
end 2002.

The process of operational restructuring of banks continues,
especially in the banks that are part of larger banking groups
(establishing adequate risk management systems, adequate
systems for increasing internal efficiency and costs optimization,
broadening of the array of banking and financial products etc.)
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Is stability sufficient?
Once stability is established and maintained, the challenge comes
from the need this stability to be used as a basis for increasing
the banks’ efficiency for the benefit of the economy of the
Republic of Macedonia, however, not compromising their
stability. On its part, increased efficiency should bring sustainable
stability for banks in a medium and in a long run.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

What do indicators of banks’ efficiency in the financial
intermediation in the Republic of Macedonia show?



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Total assets/GDP=50%
Total credits/GDP=23.8%
Total deposits/GDP=35.3%
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

Trend of improvement of the three indicators of efficiency in
the banks’ financial intermediation
Level of financial intermediation
60%
50%
40%
30%
20%
10%
0%
1999
2001
Total Assets / GDP(%)
2003
June 30, 2005
Total credits / GDP (%)
Total deposits /GDP (%)
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Does the Banking System in the Republic of
Macedonia perform its role, and to what extent?

Sources of this trend



Increase in deposits
Increase in credits
Increase in total assets
All three categories are at the historically highest level since the
Republic of Macedonia gained its monetary independence.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
According to the credit volume and dynamics, are the
banks in the Republic of Macedonia supporting
development?

Continuous upward trend in the banks’ credit activity:

Growth of credits of 39.4% for the period 31.12.2003 –
30.06.2005;

In the same period, the total banks’ credit exposure registered
an increase of 25.1%;
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
According to the credit volume and dynamics, are the
banks in the Republic of Macedonia supporting
development?

Starting from 31.12.2004, there is a change in the structure of
banks’ assets in favor of credits to the non-financial sector, at the
expense of the share of the placements to foreign banks.

Credits to non-financial entities/Total assets=40.7%;

Placements to other banks/Total assets=34.2%;
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
According to the credit volume and dynamics, are the
banks in the Republic of Macedonia supporting
development?
Semi -a nnua l di na mycs of the credi ts to non-fi na nci a l enti ti es
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Jun-02
Dec..02
Jun-03
Credits to enterprises
Dec.03
Jun-04
Dec.04
Jun-05
Credits to other clients
Credits to households
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Can be more done?

Banks’ financial potential is continuously increasing:


During the first half of 2005, total banks’ assets registered an increase of
12.1% and reached Denar 132.2 billion, which is historically the highest
level since the Republic of Macedonia gained its monetary independence;
The process of operational restructuring of banks and
improvement of their internal policies and procedures continues,
and the array of products offered on the banking market is
broadened;
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Can be more done?

On the other hand, there are factors which restrict further credit
growth :

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Major credit expansion of banks in a short period may cause
instability which, in turn, will have an adverse effect on the
economy as a whole. In the race for higher profit, the banks
must retain their prudential position:
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Can be more done?

The average capital adequacy ratio of the group of large banks,
where the largest potential for increasing the financial
intermediation is concentrated, equals 14.9%, which could be a
restrictive factor;

Lack of quality demand for credits for financing profitable
projects with acceptable level of credit risk;

Despite the downward trend, credit risk in the Republic of
Macedonia is still relatively high.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Is the price of bank credits in the Republic of
Macedonia high?


It is a fact that interest rates on bank credits are relatively high.
Presumptions for lowering the interest rates:





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Lessening of the political risk and improvement of the overall business
climate in the Republic of Macedonia;
Increased demand for credits by quality borrowers;
Increased competition in the banking sector;
Increased internal efficiency of the banks and reduced level of their
overhead expenses;
Increased efficiency of the judiciary. According to the latest analyses,
banks’ claims in the amount of nearly Denar 25 billion are “blocked” in
the courts in the Republic of Macedonia. Some of those claims go back as
early as 1993.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Can we be satisfied with the existing conditions in
the Banking System and its role in the economy?

The answer is positive if one has in mind how long-lasting the
development of the banking on market basis in the Republic of
Macedonia is, with all risks in its surrounding.

If we have in mind the point at which we should arrive, the
answer is negative, and there are still many things to be done in
order to strengthen the role of the banking in the economy of
the Republic of Macedonia.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Concept and activities of the National Bank of the
Republic of Macedonia for strengthening the role of
the Banking System in the economy




Further strengthening of the supervisory function;
Strict implementation of the prudential standards for sound
banking operations;
Implementation of a strategy for increased presence of financial
institutions as shareholders in the banks in the Republic of
Macedonia v.s. the shareholders from the corporate sector and
the natural persons;
Maintaining and development of the Credit Registry as an
instrument for reducing the asymmetry of information in the
system and increasing the quality of information that the banks
use in their credit decision-making process;
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Concept and activities of the National Bank of the
Republic of Macedonia for strengthening the role of
the Banking System in the economy

Amendments to the Banking Law are proposed, envisaging:

Increase of the capital census for establishing and operating a
bank;

Strengthened “fit and
shareholding in a bank;

Enhanced legal power of the National Bank with respect to
revoking approvals from existing shareholders in the banks if
they represent risk for the banks and their creditors, as well as
for the system as a whole;
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proper”
criteria
for
eligible
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Concept and activities of the National Bank of the
Republic of Macedonia for strengthening the role of
the Banking System in the economy

New solutions pertaining to receivership, which should enable its
efficiency in the rehabilitation of banks and adequate protection
of the assets of their creditors;



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Possibility to introduce receivership in case when over 50% of the
common shares are without a voting right;
Introducing a mechanism for auction sale of shares if the existing
shareholders, on the one hand, are not able to rehabilitate the bank, and
on the other, they are blocking the sale of the shares to other entities
which have the know how and are able to rehabilitate and run a bank;
Other solutions which increase the competences of the receivership
towards maximum protection of the position of the creditors of a bank in
receivership.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Concept and activities of the National Bank of the
Republic of Macedonia for strengthening the role of
the Banking System in the economy

Giving initiatives and proposals for amendments to
other Laws in the Republic of Macedonia, which
directly or indirectly influence banks’ security, stability
and efficiency.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Summarized in a few words:

The Banking System in the Republic of Macedonia is relatively
stable.

The growth dynamics is accelerated.

Its role as the key factor for the growth and development of the
economy is increasing.

From the viewpoint of the initial position, we may be satisfied,
but having in mind the point at which we should arrive, a lot of
work remains to be done.
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NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Yet, when evaluating the role of the banking system, we must
not forget that:
Just as it is not possible to have a market economy without
sound, stable, and efficient financial intermediation, it is not
possible to have a sound financial sector without firmly
established system of market economy.
Hence, the evaluations of the efficiency of the banking sector
must always consider this interaction. Isolated consideration may
lead to biased and incorrect evaluations of the banking and its
role in the economy.
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