Financial Stability Report

BANKA QENDRORE E REPUBLIKES SË KOSOVËS CENTRALNA BANKA REPUBLIKE KOSOVA CENTRAL BANK OF THE REPUBLIC OF KOSOVO

Number |07 July |2015

CBK Working Paper no. 4 Efficiency of Banks in South-East Europe: With Special Reference to Kosovo

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Number 7 Financial Stability Report

BANKA QENDRORE E REPUBLIKËS SË KOSOVËS CENTRALNA BANKA REPUBLIKE KOSOVA CENTRAL BANK OF THE REPUBLIC OF KOSOVO

Financial Stability Report

Number 7

Number 7 Financial Stability Report

PUBLISHER© Central Bank of the Republic of Kosovo Economic Analysis and Financial Stability Department 33 Garibaldi, Prishtina 10 000 Tel: ++381 38 222 055 Fax: ++381 38 243 763

Website www.bqk-kos.org

E-mail [email protected]

EDITOR-IN-CHIEF Arben MUSTAFA

EDITOR Albulena XHELILI

AUTHORS Krenare MALOKU Hana GAFURRI Taulant SYLA Zana GJOCAJ Bejtush KIÇMARI

TECHNICAL EDITOR Butrint BOJAJ

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ABBREVIATIONS:

ATM Automated Teller Machines CAR Capital Adequacy Ratio CBK Central Bank of the Republic of Kosovo CEE Central and Eastern Europe CIS Commonwealth of Independent States EBRD European Bank for Reconstruction and Development ECB European Central Bank FDI Foreign Direct Investments GDP Gross Domestic Product HHI Herfindahl-Hirschman Index IMF International Monetary Fund KAS Kosovo Agency of Statistics KPST Kosovo Pension Savings Trust MF Ministry of Finances MFI Micro-Finance Institutions MTA Money Transfer Agencies NFA Net Foreign Assets NIM Net Interest Margin NPISH Non-Profitable Institutions Serving Households NPL Non-Performing Loans ODC Other Depository Corporations OECD Organization for Economic Cooperation and Development POS Point of Sales pp Percentage Points PTK Post and Telecommunication of Kosovo RLI Rule of Law Index ROAA Return on Average Assets ROAE Return on Average Equity ROE Return on Equity RWA Risk Weighted Assets SDR Special Drawing Rights SEE South-Eastern Europe TPL Third Party Liabilities VAT Value-Added Tax

Note: Users of the data are required to cite the source. Suggested citation: Central Bank of the Republic of Kosovo (2015), Financial Stability Report No. 7, Prishtina: CBK. Any required correction will be made in the electronic version.

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CONTENT:

1. Governor’s foreword ------11 2. Summary ------13 3. External economic environment ------15 4. Kosovo’s Economy ------21 5. Financial System in Kosovo ------23 5.1. General Characteristics ------23 5.2 Exposure towards external sector ------25 6. Kosovo’s Banking Sector ------27 6.1 Banking Sector Structure ------27 6.2. Banking Sector Activities ------28 6.3. Performance of the Banking Sector ------40 6.4 Banking Sector Risks ------45 6.4.2 Credit risk ------48 6.5. Stress-Test Analysis ------58 6.6. Financial Infrastructure in Kosovo ------63 7. Pension Sector ------66 7.1 The structure of pension ------66 7.2. Pension Sector Performance ------67 8. Insurance Sector------68 8.1 Insurance Sector Structure ------68 8.2. Insurance Sector Activities ------69 8.3. Insurance sector Performance ------70 9. Microfinance Sector and Financial Auxiliaries ------72 9.1. Activity of Microfinance Sector ------72 9.2. The Performance of the Microfinance Sector ------74 9.3 Financial Auxiliaries ------75 10. Statistical appendix ------76 11. References ------94

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LIST OF FIGURES ------15 Figure 1. EURIBOR interbank lending rate and ECB refinancing rate ------15 Figure 2. Brent Crude oil price ------16 Figure 3. Structure of ProCredit Holding assets ------17 Figure 4.Growth trend of loans and deposits of ProCredit Holding ------17 Figure 5. Expenditures to income ratio and ROE and CAR of ProCredit Holding ------18 Figure 6. Structure of Raiffeisen Bank International assets ------18 Figure 7. Growth trend of loans and deposits of Raiffeisen Bank International ------18 Figure 8. Expenditures to income ratio and ROE and CAR of Raiffeisen Bank International ---- 19 Figure 9. Structure of NLB Group assets ------19 Figure 10. Growth trend of loans and deposits of NLB Group ------20 Figure 11. Expenditures to income ratio and ROE and CAR of NLB Group ------20 Figure 12. Real GDP growth rate ------21 Figure 13. Inflation and its main contributors ------21 Figure 14. Imports, exports, and trade balance ------21 Figure 15. Annual change of financial system assets and the appropriate sectors ------23 Figure 16. Structure of assets of the financial system ------23 Figure 17. Financial intermediation by sectors to GDP ------24 Figure 18. Financial intermediation rate of the banking sector to GDP ------24 Figure 19. Structure of foreign claims ------25 Figure 20. Structure of foreign liabilities ------25 Figure 21. Net foreign assets by financial institutions ------26 Figure 22. Exposure within assets and liabilities ------26 Figure 23. Capital structure of commercial banks ------27 Figure 24. HHI for assets, loans and deposits ------27 Figure 25. Structure of assets of the banking sector------28 Figure 26. Annual growth of the banking sector assets ------28 Figure 27. Structure of securities ------29 Figure 28. Contribution to loans growth, by sector ------29 Figure 29. Annual growth of new loans and total loans ------30 Figure 30. New loans by sectors ------30 Figure 31. Annual growth of new loans ------31 Figure 32.Main categories of new loans ------31 Figure 33. Total loans, new loans, paid loans and non-performing loans ------31 Figure 34. Structure of loans by economic activity ------33 Figure 35. Structure of industrial sector loans by sub-categories------33 Figure 36. Annual change in loans by economic sectors ------34 Figure 37. Structure of loans by maturity ------35 Figure 38. Growth trend of loans by maturity ------35 Figure 39. Structure of loans maturity by economic activity ------35

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Figure 40. Structure of deposits and annual growth ------36 Figure 41. Structure of enterprise deposits by sectors ------37 Figure 42. Non-residents deposits and interest rates on deposits------37 Figure 43. Structure of deposits by maturity ------37 Figure 44. Structure of time deposits ------38 Figure 45. Average interest rates ------38 Figure 46. Average interest rates on enterprise and household loans ------39 Figure 47. Average interest rates on enterprise loans ------39 Figure 48. Average interest rates on household loans ------39 Figure 49. Average interest rates on loans by economic activity ------40 Figure 50. Average interest rates on enterprise and household deposits ------40 Figure 51. Net profit, income and expenditures ------41 Figure 52. General structure of income ------41 Figure 53. Structure of income by category ------41 Figure 54. Annual growth rate of income by category ------42 Figure 55. Structure of expenditures by category ------42 Figure 56. Annual growth of expenditures by main categories ------42 Figure 57. Annual growth rates of expenditures by categories ------43 Figure 58. Annual growth of loan loss provisions and non-performing loans ------43 Figure 59. Profitability indicators ------44 Figure 60. Expenditures to income ratio ------44 Figure 61. The map of the banking sector risks ------45 Figure 62. Loans and deposits of the banking system ------46 Figure 63. Broad liquid assets ratio to short-term liabilities ------46 Figure 64. Banking system reserves ------47 Figure 65. Liquidity gap ------47 Figure 66. NPL to total loans ratio ------48 Figure 67. Annual growth of total loans and NPL------48 Figure 68. NPL by sectors ------48 Figure 69. Structure of loans by classification ------49 Figure 70. Loans movements by credit classifications ------49 Figure 71. NPL and provisions ------49 Figure 72. Concentration of credit risk ------50 Figure 73. Banking system capitalization ------50 Figure 74. Regulatory capital and RWA ------51 Figure 75. Structure of banking system regulatory capital ------51 Figure 76. Structure of Tier 1 capital ------52 Figure 77. Structure of Tier 2 capital ------52 Figure 78. Structure of RWA by risk weight ------53 Figure 79. RWA to total sector assets ratio ------53

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Figure 80. Opened positions in foreign currency against Tier 1 capital ------54 Figure 81. Loans and liabilities in foreign currency ------54 Figure 82. Loans and deposits sensitivity to interest rates ------55 Figure 83. The gap of assets and liabilities sensitivity to interest rates ------55 Figure 84. Structure of pension fund investments ------66 Figure 85. Assets under Kosovo Pensions Savings Trust management ------66 Figure 86. Assets under Slovenian - Kosovo Pension Fund management ------67 Figure 87. Structure of insurance companies assets ------68 Figure 88. Structure of insurance companies assets ------69 Figure 89. Liability and equity of insurance companies ------69 Figure 90. Premiums received and claims paid ------70 Figure 91. Assets of microfinance institution------72 Figure 92. Structure of MFI loans by sectors ------72 Figure 93. Structure of MFI loans by economic sectors ------72 Figure 94. Structure of loans by maturity ------73 Figure 95. Structure of MFI leasing by sector ------73 Figure 96. Interest rates on MFI loans ------73 Figure 97. Interest rates on MFI loans by sectors ------74

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LIST OF TABLES ------24

Table 1. The number of financial institutions------24 Table 2. Structure of assets in the banking sector ------29 Table 3. Structure of banking sector liabilities ------36 Table 4. Key efficiency indicators of the banking sector ------44 Table 5. Indicators of the banking sector capacity ------45 Table 6. The Indicators used to identify systemic importance of the banks in Kosovo ------56 Table 7. Results of systemic importance of the banks in Kosovo ------58 Table 8. Summary of stress-test results: credit risk ------61 Table 9. Summary of stress-test results: liquidity risk ------62 Table 10. The share of payment instruments to total EICS transactions ------63 Table 11. Banking Sector Network ------65 Table 12. The share of the value of cards transactions by terminal in the total value of card transactions ------65 Table 13. Pension funds structure by ownership ------66 Table 14. Penetration and density of the insurance sector in the countries of the region ------68 Table 15. Gross premiums collected ------70 Table 16. Claims paid ------70 Table 17. Additional efficiency indicators of the sector ------75

LIST OF BOXES ------17

Box 1. Performance of the main banking groups operating in Kosovo ------17 Box 2. New loans ------30 Box 3. Bank lending survey ------32 Box 4. Identification of banks with systemic importance in Kosovo ------56

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1. Governor’s foreword

Kosovo’s financial system continued to have a high level of stability during the second half of 2014. The risks to which financial system is exposed to in general continue to be well managed, whereas the financial performance of the individual sectors has improved. The overall macroeconomic stability, manifested by the positive economic growth rate, as well as fiscal and price sustainability, continues to contribute in the country’s financial stability. The high dependence of the economy on imported goods has made the overall level of prices influenced by the declining trends of global prices, which resulted in very low inflation rate in Kosovo. Kosovo continues to have a stable fiscal position, expressed with low rates of the budget deficit and public debt. For 2015, CBK projections suggest that Kosovo's economy will have an accelerated economic growth, in which the further expansion of bank lending is expected to have a significant contribution. The lending activity of the banking sector was recovered in 2014 after the slowdown marked in the previous two years. Significant impact in the accelerated growth of the lending activity had the loosened lending standards and the improvement of lending conditions by the banks, whilst the demand for loans has marked a growth. The growth of the lending activity was mainly financed by the growth of residents’ deposits collected within the country. During 2014, the banking sector was characterized by a significant drop of the interest rate on loans, which was preceded by a drop of the interest rate on deposits. The reduction of the bank financing costs represents a very favourable development for the economy, since the high of interest rates were often regarded as a significant barrier to the development of business activity in the country. Therefore, the lower financing costs are expected to be reflected in a larger business activity in the country which, subsequently, enables further expansion of financial intermediation. Financial soundness indicators continue to reflect a high degree of stability of Kosovo's banking sector, which continues to have satisfactory liquidity position, high level of capitalization, and good quality of loan portfolio. The remaining financial sectors which recorded positive growth of their activity were the pension sector, insurance sector, microfinance institutions sector, as well as financial auxiliaries. The pension sector continued to recording good financial performance, by increasing the price share of the invested assets and, consequently, recording a positive return on investments. Meanwhile, the insurance sector continues to be characterized with a poor financial performance, althpough it has managed to reduce the losses in comparison to the previous year. Central Bank of the Republic of Kosovo (CBK) continues to be committed to the advancement of infrastructure which ensures the maintenance of financial stability in the country. In this regard, in addition to the advancement in the field of micro-prudential regulation and supervision, the CBK has initiated the drafting of macro-prudential supervision policy, which represents a very important tool for strengthening the capacity needed to ensure the financial stability.

Bedri Hamza

Governor

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2. Summary

The global economy during 2014 was characterized with an expansion of the economic activity. The improvement of the economic activity is reflected into the improvement of the credit cycle in the euro area, given that during 2014 lending to the private sector marked a modest growth based mainly on increased demand for financing fixed investment of enterprises and loosened lending standards by banks. The continuous decline of prices in international markets was also reflected in the euro area, which in December 2014, was characterized by a low inflation rate of 0.5 percent. In the euro area region a further strengthening of the economic activity is expected, based mainly on the further decline of oil prices, increase of consumer confidence and positive developments in the labour markets. Also, the continuous growth of the euro area exports is expected to have a positive impact on the economic activity, as a result of the depreciation of the euro as well as the European Central Bank (ECB) quantitative easing programme South-Eastern Europe during 2014 was characterized by a weaker performance of economic activity compared to the previous year. Similar to the euro area countries, deflationary pressures were also present in the countries of the region during 2014. Despite the weaker economic performance, the countries of the region in 2014 marked a positive growth of financial intermediation. With the exception of Montenegro which recorded a lower lending activity, all other countries were characterized by an accelerated loan growth. The countries of South- Eastern Europe also improved their credit portfolios with the exception of Bosnia and Herzegovina and Macedonia, which reported a growth of non-performing loans during 2014. For 2015, the IMF and the World Bank forecast an acceleration of the economic growth in the region of South-Eastern Europe. Kosovo's economy during 2014 was characterized by overall macroeconomic stability, manifested by a positive economic growth rate, as well as fiscal and price sustainability. During 2014, the real growth of the economic activity according to preliminary estimates of the Kosovo Agency of Statistics was 0.9 percent. The high dependence of the economy on imported goods has made the overall level of prices to fall being influenced by the declining global trends of prices, which in turn resulted in a very low inflation rate . Kosovo continues to have a sustainable fiscal position, expressed by low budget deficit and public debt rates. For 2015, CBK's forecasts suggest that Kosovo's economy will record an accelerated growth rate based on expectations for higher domestic demand and investments. Positive forecasts also rely on the important contribution of the bank lending growth. Kosovo’s financial system during 2014, was characterized with an activity expansion and a high level of sustainability in all its constituent sectors. The lending activity of the banking sector picked up after the slowdown of the previous two years, thus strengthening the role of the banking sector in financing the economic activity of the country. The total value of loans, until December 2014, reached euro 1.88 billion, representing an annual growth of 4.2 percent. A significant impact on accelerating the growth of lending activity was due to loosened lending standards and the improvement of lending conditions by banks, whilst the demand for loans marked an increase as well. Enterprise lending structure remains similar to the previous years, where loans intended for the trade sector represent the largest category with a share of 53.4 percent of total loans to enterprises. Growth of the lending activity in the country was mainly financed by the growth of deposits collected within the country. Deposits in Kosovo’s banking sector marked an annual growth of 3.6 percent, reaching euro 2.53 billion in December 2014. During 2014, the structure of deposits by date of maturity changed, i.e. a significant reduction of the share of time deposits is noted, which in the previous years represented the largest share of total deposits, a whilst the transferable and saving deposits increased. This development in the

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structure of deposits by date of maturity was mainly a result of the sharp decline of the interest rate on deposits, which might have discouraged the depositors to conduct time deposits. During 2014, the banking sector was characterized with a significant reduction of the interest rate on loans, which was preceded by the reduction of interest rates on deposits. The average interest rate on loans decreased to 9.2 percent in December 2014 from 11.1 percent in December 2013. Whereas, the average interest rate on deposits in December 2014 was reduced to 1.1 percent from 2.4 percent as it was in December 2013. In addition, the interest rate spread on loans and deposits in December 2014 was reduced to 8.1 pp, from 8.7 pp as it was in December 2013. Financial soundness indicators of the banking sector continue to reflect the high level of sustainability. During 2014, the banking sector marked a significant improvement of financial performance by reaching a net profit of euro 60.1 million, mainly as a result of a decrease in expenditures, particularly on provisions and interest expenses on deposits. The liquidity position of the banking system remains at a satisfactory level, taking into account that in December 2014 the ratio of broad liquid assets to short term liabilities stood at 43.3 percent, which is significantly above the minimum level of 25 percent that is required by the Central Bank. Capital levels in the banking sector strengthened during 2014, mainly due to the significant improvement of the financial performance, resulting in the improvement of the quality of the capital as well as the sector capitalization indicators. In December 2014, the Capital Adequacy Ratio reached 17.8 percent compared to 16.7 percent from the previous year. The banking sector exposure to credit risk has shown a declining trend during 2014, where the share of non- performing loans to total loans decreased to 8.3 percent from 8.7 percent in December 2013. The banking sector has also increased the coverage rate of non-performing loans with loan loss provisions which cover potential loan losses, where the coverage ratio of non-performing loans by provisions increased to 114.4 percent compared to 110.6 percent in December 2013. The exposure of the banking sector to market risk remains at a low level given the ongoing decline of aggregated net open position in foreign currency to Tier 1 capital, the decline of loans in non-euro currency, and low sensitivity of assets and liabilities to changes in interest rates given the fact that the largest share of loans and deposits carry fixed interest rates. Moreover, the stress-test analysis continues to suggest the high ability of the banking sector to manage the considered shocks in the context of hypothetical scenarios. Banking infrastructure during 2014 continued to expand. The increase in the number of ATMs and POS devices resulted in an increase on the number and the value of withdrawals through ATMs, and sales through POSs. During this period, the number and the value of transactions processed through the interbank payment system in Kosovo (IECS) has increased. An increase was also marked on the total number of bank accounts, e-banking accounts, as well as the number of debit and credit cards. All these developments led to the improvement of the banking services’ efficiency. Other financial sectors were also characterized with an increase in activities, including the pension sector, insurance sector and the microfinance institutions sector. The pension sector continues to be the sector with the highest rate of asset growth within the financial system of Kosovo, where the value of its assets, as of December 2014 amounted to euro 1.1 billion, marking an annual growth of 19.1 percent. The pension sector also continued to mark a good financial performance, marking an increase of share price in invested assets, and consequently, a positive return from investments. The insurance sector has marked an increase of activity, although the sector's financial performance continues to be unfavourable compared to the previous year, where the amount that was marked as a loss has been reduced. The microfinance sector in 2014 has stopped the trend of activity contraction pursued during the recent years, by maintaining the value of total assets at euro 112.9 million, and by improving its financial performance.

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3. External economic environment

During 2014, the global economic activity on the global level was developed in a more favourable macroeconomic environment. The US economy was characterized by the strengthening of the economic growth, driven mainly by domestic demand, while the euro area ultimately began the economic recovery despite uncertainties about any possible consequences of problems in Greece. During 2014, economic activity in euro area was gradually recovered, with improvement of consumer confidence and the gradual improvement of conditions in the labour market. However, economic growth remained concentrated in the central economy of the euro area, namely in Germany, while different parts of the euro area continued to be characterized by weak growth, namely economic decline. In 2014, economic growth of the euro area reached 0.9 percent, compared to the economic decline of 0.5 percent marked in the previous year. Although it is considered a modest economic growth, signals for further strengthening of the activity in the euro area region relies heavily on the further decline of oil prices, which is expected to reflect an increase of consumer trust and thus on the increase of expenditures. The increase of consumer confidence was mainly driven by lower prices of energy in 2014, but also due to the positive developments in the labour markets. The increase of the economic activity is expected to be supported by continuous growth of euro area exports as a result of depreciation of euro as well as the beginning of implementation of the quantitative easing programme from the European Central Bank (ECB). For 2015, IMF forecasts an economic growth of 1.5 percent in the euro area. According to ECB, the average inflation rate in euro area in 2014 declined to 0.4 percent, compared to 1.4 percent in 2013. Continuous decline of prices in international markets resulted in a deflation of 0.6 percent and 0.3 percent, respectively, in January and February 2015.

In order to counterbalance the elevated Figure 1. EURIBOR interbank lending and ECB risk of deflation in the euro area and to refinancing rate recover the fragile economy in the 3.00% region, ECB has decided to launch the 2.50% quantitative easing programme as of 2.00%

March 2015. The quantitative easing 1.50% programme aims to directly impact the 1.00% reduction of financing cost and 0.50% investment return rates (yield) by 0.00%

buying securities from European

Jun Jun Jun Jun Jun Jun

Mar Mar Mar Mar Mar Mar

Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec governments and from European 2009 2010 2011 2012 2013 2014 agencies and institutions in secondary 1m 12m ECB refinancing rate, (right axis) market on monthly basis in amount of Source: Euribor (2014) and ECB (2014) euro 60 billion, in order to promote corporate investments. The effect of ECB's program affected the return rate of investment in German government bonds, with 10 year maturity to decline to a record level of 0.18 percent in mid-May, while the return rate of France government bonds was 0.45 percent. Increase of the difference in the return rate of US government bonds (1.97 percent), mainly reflects the quantitative easing effects by the ECB. Quantitative easing programme is broadly expected to last until September 2016. In 2014, the ECB kept unchanged the key refinancing rate, which led to a slight increase of 1 month interest rate of Euribor interbank lending. In 2014, the average 1-month rate of Euribor increased on average 0.023 percent compared to 0.018 percent in September 2014 (figure 1). On the other hand, the Euribor rate for 12-month period declined on average 0.33 percent in 2014, from the average of 0.36 percent in September 2014.

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During 2014, the performance of the economic activity in the region of South-Eastern Europe is generally estimated to have been weaker than in 2013. The average economic growth in the countries of the region in 2014 was estimated to be around 1.5 percent (2.6 percent in 2013). The highest economic growth in the region was marked by Macedonia (3.8 percent) and Kosovo (2.7 percent), while Serbia was the only country in the region that was characterized with economic decline in 2014. For 2015, IMF forecasts an acceleration of the economic growth by 2.8 percent of the countries of South-Eastern Europe. Similar to the euro area countries, South-Eastern European countries are characterized by lower level of inflation, namely deflation in 2014 in comparison to the previous year. The average inflation rate in the countries of the region in 2014, according to the IMF was 0.4 percent. Serbia and Albania were characterized by a higher inflation rate of 2.1 and 1.6 percent, respectively, whereas Montenegro, Bosnia and Herzegovina and Macedonia were characterized with deflation.

1 The price of Brent Crude oil in 2014 Figure 2. Brent crude oil price, in USD marked an average annual decline of 140

about 9.1 percent. Gold was also 120 characterized with the price decline in 100 2014. In 2014, the price of gold was 80 about 10.3 percent lower compared to the previous year. Globally, the food 60 products in 2014 were characterized by 40 price decline compared to the previous 20

year. During 2014, compared to the 0

Jun Jun Jun Jun Jun Jun Jun

Mar Mar Mar Mar Mar Mar Mar

Dec Dec Dec Dec Dec Dec Dec

Sep Sep Sep Sep Sep Sep previous year, food products had a lower Sep price from an average of 3.7 percent, 2008 2009 2010 2011 2012 2013 2014 while cereals had lower price with an Source: World Bank, EIA (2014), and CBK calculations average of 12.5 percent. The decline of oil prices, aggressive monetary policy and improvement of economic activity particularly in Germany, were reflected into improvement of euro area lending cycle. After more than two years, in 2014 private sector lending marked a modest increase. According to ECB bank lending survey, growth of private sector lending is mainly attributed to increased demand for financing fixed enterprise investments and facilitation of lending standards by the banks. The countries of South-Eastern Europe were also characterized with the growth of lending activity. Except Montenegro that marked a lending decline, all the other countries were characterized by an acceleration of loans growth. However, lending growth in South-Eastern European countries relied mainly on growth of household lending, while lending to enterprises was estimated to have stagnated. In terms of deposits of commercial banks in South-Eastern European countries, Albania and Kosovo were characterized by a slower growth pace of total deposits in 2014, while all other countries had accelerated growth of deposits. During 2014, South-Eastern European countries mainly reported a decline of non-performing loans, with the exception of Bosnia and Herzegovina and Macedonia which reported deterioration of credit portfolio quality. During 2014, ECB's quantitative easing programme resulted into a weakening of the euro currency against the major currencies. The average exchange rate of euro against US dollar in 2014 was almost at the same level as in the previous year (0.1 percent increase), although in the previous four months of 2014, euro was characterized by significant decline against US dollar (10 percent annual decline in December 2014). Euro has marked an average annual decrease of 5.0

1 ‘Brent Crude’ represents commercial classification for the oil produced in the North Sea as the representative of oil price in global level.

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Number 7 Financial Stability Report and 1.3 percent, respectively, against the British pound and the Swiss franc. In terms of the region currencies, euro during 2014 was appreciated against Serbian dinar, Croatian kuna and Macedonian denar with an average of 3.7, 0.7 and 0.1 percent, respectively, while it was depreciated against the Albanian lek by 0.2 percent.

Box 1. Performance of the main banking groups operating in Kosovo

ProCredit Holding – PCH (Germany)

The value of the total assets of the banking group ProCredit Holding (PCH) reached euro 6.0 billion in December 2014, by marking an annual growth of 2.2 percent. According Figure 3. Structure of ProCredit Holding assets in percent, December 2014 to the regional expansion, the structure 5.1% of assets of the group is focused on 2.4% South-Eastern Europe, which 15.5% 18.4% constitutes 45.0 percent of total assets of 13.5% the group. The second segment is Germany with 18.4 percent of the total 45.0% assets of the group, followed by Eastern America and Eastern Europe with a share of 15.5 percent and 13.3 percent, Southeastern Europe Eastern Europe Southern America respectively, of total assets of the group. The smallest share belongs to the Central America Africa Germany Source: Annual reports of ProCredit Holding (2015) Central America and Africa (figure 3). The group performance in 2014 was affected by general macroeconomic developments in the countries where it operates. More specifically, the deterioration of the situation in the Eastern Europe as a result of the conflict between Russia and Ukraine were reflected in the banking segment of Eastern Europe. The group performance depends largely on the performance of the banks in Serbia, Kosovo and Bulgaria, which are the three major institutions in Eastern Europe group, that marked a slight economic growth as a region during 2014. The region of South America, specifically the countries where the group operates, marked higher economic growth compared to South-Eastern and Eastern Europe, thus contributing positively to the group's financial performance. Figure 4. Growth trend of loans and deposits of The group's business model continues to be ProCredit Holding, in percent traditional, where the lending activity is 12% financed mainly by deposits (figure 4). In December 2014, total loans of PCH reached 10% euro 4.3 billion, representing an annual 8% increase of 3.5 percent compared to 0.1 6% percent decline from the previous year. PCH 4% banking group deposits amounted to euro 4.0 2% billion in December 2014, representing an 0% annual increase of 5.0 percent. In addition, the -2% loans to deposits ratio in December 2014 Dhjetor 2011 Dhjetor 2012 Dhjetor 2013 Dhjetor 2014 decreased to 108.5 percent compared to 110.1 Kredi Depozita percent in December 2013. Source: Annual reports of ProCredit Holding (2015) During 2014, PCH Group marked an improvement of overall efficiency indicator, expressed through the expenditures to income ratio, which marked a rate of 71.7 percent in December 2014, representing a decrease of 2.9 percentage points compared to the previous year (figure 5). The improvement is mainly attributed to accelerated decline of 10.9 percent of operational expenditures compared to the decline of 6.8 percent of operational income. Accelerated decline of operational expenditure came as a result of personnel expenditure reduction, which marked an annual decline of 14.0 percent, as well as reduction of administrative expenditures that marked a decline of 8.2 percent.

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In the context of income, interest income Figure 5. Expenditures to income ratio and ROE and CAR marked an annual decline of 9.9 percent (right axis) of ProCredit Holding, in percent

despite that the group's lending activity 100% 16% increased during this period. Also, income 90% 14% 80% from fees and commissions marked an 12% 70% annual decline of 3.2 percent in 2014. 60% 10% Despite the decline in income, better 50% 8% 40% 6% management of expenditures ensured 30% 4% significant higher profit of the group until 20% 10% 2% December 2014 compared to the previous 0% 0% year. By December 2014, the realized profit Dhjetor 2011 Dhjetor 2012 Dhjetor 2013 Dhjetor 2014 amounted to euro 50.2 million (euro 39.0 Expendtiures to income ratio ROE CAR million until December 2013). During 2014, Source: Annual reports of ProCredit Holding (2015) the group also significantly improved the return on equity (ROE) rate to 9.4 percent compared with 7.7 percent in December 2013. The Capital Adequacy Ratio (CAR) improved to 12.7 percent in December 2014 (12.2 percent in December 2013), while continuing to meet the regulatory requirements of capital adequacy (figure 5). Figure 6. Structure of Raiffeisen Bank International Raiffeisen Bank International – RBI (Austria) assets in percent, December 2014

35.3% The value of the total assets of the banking group Raiffeisen Bank International (RBI) 3.3% 10.2% amounted to euro 121.6 billion in December 17.6% 2014, marking an annual decline of 6.9 33.5% percent. According to the regional expansion, the structure of group's assets is focused on the Central Europe, which represents 33.5 percent of total group assets. Another important segment is that of South-Eastern Central Europe Eastern Europe Europe, which represents about 17.6 percent Eastern Europe – other RBI - Austria of total group assets. Austria with 35.3 percent Russia is third, followed by Russia and Eastern Source: Annual report of Raiffeisen Bank International (2015) Europe that represent 10.2 percent and 3.3 percent, respectively, of total group assets (figure 6). During 2014, most of the countries Figure 7. Growth trend of loans and deposits of where the group operates were characterized Raiffeisen Bank International, in percent by a slowdown of economic growth or economic contraction, which indirectly was reflected in 20% the group's activities. More specifically, reduction of RBI's assets was influenced by the 15% unfavourable geopolitical situation in Ukraine, 10% economic sanctions imposed on Russia and the depreciation of the Ukrainian and Russian 5% currencies against dollar and euro, amendments in the banking legislation in 0% Hungary as well as depreciation of fixed assets -5% - goodwill that impacted on RBI to allocate December 2011 December 2012 December 2013 December 2014 about euro 251 million for additional Loans Deposits provisions. Source: Annual reports of Raiffeisen Bank International (2015) The business model of RBI banking group continues to be traditional, based mainly in loans and deposits (figure 7). In December 2014, loans constituting 64.1 percent of total assets of RBI, reached the value of euro 77.9 billion, marking an annual decline of 3.4 percent. This decline was largely driven by tightening of the lending criteria in Russia and Ukraine. Deposits, which represent the main source of financing for this group, in December 2014 amounted to euro 66.1 billion, marking an annual decline of 0.5 percent. Reduction of deposits in Russia and Ukraine in 2014 contributed to the decline of total deposits of RBI. As a result of the significant decline of loans along the decline of the level of deposits, loan to deposit ratio declined to 3.5 percentage points compared to

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Number 7 Financial Stability Report the previous year, reaching 117.9 percent in Figure 8. Expenditures to income ratio and ROE and CAR December 2014. RBI group has marked an (right axis) of Raiffeisen Bank International improvement of overall efficiency 100% 18% indicator, expressed through the 90% 16% expenditures to income ratio, which 80% 14% 70% 12% declined to 56.5 percent in December 60% 10% 50% 2014 compared to 58.3 percent in 8% 40% December 2013 (figure 8). This 6% 30% improvement is mainly attributed to the 20% 4% accelerated decline of 9.5 percent of 10% 2% 0% 0% operational expenditures, along the decline of December 2011 December 2012 December 2013 December 2014 operational income of 6.5 percent in Expenditures to income ratio ROE CAR December 2014. Within operational Source: Annual reports of Raiffeisen Bank International (2015) expenditures, personnel expenditures were characterized by an annual decline of 11.2 percent, while administrative expenditures marked a decline of 6.6 percent until December 2014, whereas within operational income, the interest income marked an annual decline of 7.7 percent, while the income from fees and commissions marked an annual decline of 0.3 percent. In 2014, RBI allocated a higher expenditure amount for provisions against potential loan losses due to the developments in Ukraine and Russia. Consequently, RBI group until December 2014 marked a net loss of euro 492.7 million. The group marked a deterioration in return on equity (ROE) ratio, which in 2014 stood at 0.2 percent, representing a significant decline compared to the rate of 7.8 percent in 2013. Capital adequacy ratio (CAR) in December 2014 stood at 16.0 percent compared to the rate of 15.9 in December 2013 (figure 8). Meanwhile, the ratio of non-performing loans to total loans in December 2014 increased to 11.3 percent compared to 10.7 percent in December 2013. In December 2014, the coverage of non-performing loans by provisions stood at 67.4 percent (63.1 Figure 9. Structure of NLB Group assets in percent, percent in December 2013). RBI continues December 2014 to be the only one out of the three main banking groups operating in Kosovo that 28.8% trades its shares on the stock exchange. 0.9% RBI’s price per share on Vienna Stock

Exchange in December 2014 was reduced 70.3% to euro 12.5 compared to euro 25.6 in December 2013. This decline of the share price, among others, came as a result of the political and economical instability in Slovenia Southeastern Europe Western and Central Europe Ukraine and Russia. Source: Annual reports of NLB Group (2015) NLB Group (Slovenia) NLB banking group, during 2014 was also characterized by a decline of activity, while indicators of the financial performance and sustainability marked an improvement. In December 2014, the value of total assets of the group amounted to euro 11.9 billion, representing an annual decline of 4.6 percent. Regarding the group's regional assets extension, Slovenia represents the main market with 70.3 percent of total assets of the group. South-Eastern Europe is also a very important market for NLB group, given that 28.8 percent of total group assets are invested in this region. The remainder of the group’s assets is invested in Western and Central Europe with a share of 0.9 percent (figure 9). Although during 2014, Slovenia showed the first signs of economic recovery, they were not reflected in the banking sector which continued with the restructuring phase and was characterized by a reduction of assets. The business model of the NLB group is based mainly on lending that is largely funded by deposits (figure 10). During 2014, the NLB Group was characterized by a decline of lending level. In December 2014, the value of total loans amounted to euro 9.1 billion, representing an annual decline of 4.8 percent. Regarding liabilities, the value of total deposits in December 2014 amounted to euro 8.9 billion, representing an annual growth of 8.3 percent. Loan reduction and deposit growth affected the loan to deposit ratio to decline to 101.2 percent in December 2014 compared to 115.1 percent in December 2013.

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Number 7 Financial Stability Report

During 2014, NLB Group improved the key efficiency indicator and the financial performance. Overall efficiency indicator, expressed through expenditures to income ratio, marked an Figure 10. Growth trend of loans and deposits of NLB annual decline of 36.2 percentage points, Group, in percent thus declining to a level of 59.4 percent in 10% December 2014 (figure 11). This improvement is mainly attributed to 5% accelerated growth of operational income 0%

from 46.7 percent in December 2014 against -5% reduction of operational expenditures by 8.8 -10% percent. -15% Within income, the interest income marked -20% an annual growth of 0.6 percent, whereas Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 income from fees and commissions marked an annual growth of 1.5 percent until Loans Deposits December 2014. In terms of operational Source: Annual reports of NLB Group (2015) expenditures, personnel expenditures marked an annual decline of 7.8 percent by December 2014, while overall and Figure 11. Expenditures to income ratio, ROE and administrative expenditures declined by 11.0 CAR (right axis) of NLB Group

percent. As a result of the income growth 100% 40% level, better management of expenditures 90% 20% and reduction of provisioning expenditures 80% 0% (from euro 1.1 billion in 2013 to euro 141.4 70% -20% million in 2014), the group managed to 60% -40% recover from the losses incurred in the past 50% -60% five years, closing 2015 with a profit of euro 40% -80% 62.3 million. As a result, the return on equity 30% -100% 20% -120% (ROE) rate improved to 4.7 percent compared 10% -140% to -135.5 percent in December 2013. In 0% -160% addition, the group strengthened the December 2011 December 2012 December 2013 December 2014 capitalization level expressed through capital Expenditures to income ratio ROE CAR adequacy ratio (CAR), which amounted to Source: Annual reports of NLB Group (2015) 17.6 percent in December 2014, compared to 15.2 percent in December 2013 (figure 11). Positive movement was marked in the credit portfolio, where the ratio between non-performing loans and total loans decreased to 25.5 percent in December 2014 compared to 25.6 percent in December 2013. Whereas, the coverage of non-performing loans by provisions in December 2014 was 61.4 percent compared to 63.1 percent in December 2013.

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Number 7 Financial Stability Report

4. Kosovo’s Economy

Kosovo's economy in 2014, according to Figure 12. Real GDP growth rate, in percent KAS preliminary estimates, marked a real growth of 0.9 percent (figure 12). 5.0 This estimation is based on investment 4.5 growth with 1.5 percent and 4.0 consumption with only 1.4 percent, 3.5 3.0 while net exports deepened the trade 2.5 deficit by 3.2 percent. The main 2.0 component within GDP remains the 1.5 consumption, with a share of 104.5 1.0 percent, investments with 27.8 percent 0.5 0.0 and net exports with -32.3 percent. 2009 2010 2011 2012 2013 2014 (e) In general, 2014 was characterized by a Source: KAS (2015) significant growth of remittances (11.8 percent) and growth of consumer loans (48.7 percent). In addition, the government’s decision to increase the salaries and pensions, marked a significant increase on the government's current expenditures (11.9 percent). On the other hand, a considerable decline was marked in public investments (22.3 percent), while the foreign direct investments were lowered almost in half in 2014 compared to 2013. The price decline in international Figure 13. Inflation and its main contributors markets during 2014 was also reflected in Kosovo's economy. Inflation in Kosovo, expressed by the consumer price index (CPI) in 2014 was characterized by 7.4 a significantly lower rate compared to 2.5 1.8 0.4 the previous year. The annual average 3.5 -2.3 inflation rate in 2014 was 0.4 percent, compared to the inflation of 1.8 percent in 2013 (figure 13). During 2014, energy -13 prices and alcoholic beverages marked 2009 2010 2011 2012 2013 2014 Transport Other an increase, whereas there was a decline Health Energy Furnishing Alcohol. beverages of prices mainly in imported goods, Source: KAS and CBK calculaions (2014) namely food products and soft drinks. As a consequence of the high dependency of Figure 14. Import, export and trade balance, Kosovo's economy on imports, as well as non-cummulative in millions of euro relatively high participation of tradable 1000 goods and services in the consumer 800 600 basket, the price movements in 400 international markets continue to be the 200 0 main determinant of price movement in -200 the country. In 2014, the CPI, import -400 -600 prices and producer prices were -800 characterized with lower rates compared Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 2008 2009 2010 2011 2012 2013 2014 to the previous year. The import price index marked an annual decline of 0.5 Trade Exports Imports percent (in 2013 was marked a growth of Source: KAS (2014) 0.2 percent) whereas the producer prices marked a growth of 1.6 percent (in 2013 was marked a growth of 2.4 percent).

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Fiscal sector in 2014 was characterized by a slight growth in income and similar level of expenditures compared to the previous year. Budgetary primary income marked a growth of 1.5 percent and reached a value of around euro 1.3 billion. On the other hand, the total budget expenditures amounted to about euro1.5 billion, which represents a similar level to the previous year. Therefore, the Kosovo budget marked a primary deficit of euro 131 million or 2.4 percent of GDP. Public debt at the end of 2014 amounted to 10.6 percent of GDP, which is for 1.5 percentage points higher compared to the end of 2013. The external sector was characterized by deterioration of trade position in 2014 (figure 14). Despite the increase of exports of goods by 10.4 percent, the increase of imports of goods by 3.6 percent has impacted on the growth of trade deficit by 2.7 percent. Secondary income category continues to affect on the deficit reduction of the component of the current and capital account of the balance of payments of Kosovo. Remittances as one of the main components of the current account marked a growth of 11.8 percent in 2014 and reached a value of euro 693.7 million. Financial account in 2014 marked a negative balance of euro 145.1 million compared to the negative balance of euro 132.2 million in 2013. Regarding liabilities, FDI continues to be the main category, whereas regarding assets, the main category was other investments (mainly deposits and commercial loans) outside Kosovo's economy. FDI balance was characterized with deterioration in 2014, determined mainly by the decline of FDI in the country, which declined to euro 151.3 million from euro 280.2 million as they were in 2013. The financial system is characterized with expansion of its activity and a high level of sustainability in all its constituent sectors. The role of the banking sector in financing the economic activity in the country was strengthened in 2014. Acceleration of the growth of lending activity during this period, mainly was driven by the supply side, and continuous reduction of financing costs have contributed to a further growth of private consumption and investment. In 2014 9.404 new enterprises were registered or 16 enterprises fewer than in the previous year, while 1,671 businesses were closed or 163 businesses more than in the previous year. The structure of newly registered enterprises is similar to last year dominated by trade, hotels, manufacturing, construction and agriculture. Compared to the previous year, there was a reduction in the number of registered businesses of real estate enterprises by 198 enterprises and construction enterprises by 140 enterprises, while hotels and manufacturing enterprises marked an increase of 123 and 106 enterprises, respectively. Registered enterprises in the trade sector have also marked an increase. In terms of 2015, Kosovo's economy is expected to accelerate the growth pace. This growth is expected to be generated by domestic demand, while net exports are expected to continue to have a negative contribution to the GDP growth. Consumption, as the main component of the domestic demand, is expected to have a major contribution to economic growth also during 2015. Investments, unlike last year, are expected to be characterized by a significant increase of public investments. Also, the decline of interest rates and easing of lending standards for approving loans by banks is expected to have significant impact in encouraging private sector investment. Also FDI, which until April 2015 marked a significant growth, is expected to contribute to the growth of total net investments. Position of net export is expected to continue to have a negative impact on GDP growth. Despite forecasts for higher growth of exports, the highest level of imports of goods compared to exports will have an impact in deepening the trade deficit of goods.

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Number 7 Financial Stability Report

5. Financial System in Kosovo

5.1. General Characteristics

Financial system in Kosovo continued to Figure 15. Annual change of financial system expand its activity during the year. In assets and the appropriate sectors, in percent

December 2014, the total financial 30% system assets amounted to euro 4.5 25% billion, marking an annual increase of 20% 15% 7.4 percent (figure 15). The growth of 10% total assets of financial system is mainly 5% attributed to the growth of assets of 0% -5% commercial banks and pension funds. -10% The insurance sector, despite the -15% December 2011 December 2012 December 2013 December 2014 expansion of its activity, had lower Financial system Banking sector Pension sector contribution on the growth of total assets Insurance sector Microfinance sector of financial system, while the impact of Source:CBK (2015) the microfinance sector was neutral.

The structure of financial system Figure 16. Structure of assets of the financial continues to be dominated by the system, in percent banking sector, which represented 70.1 December 2013 December 2014 percent of total assets of the system in 21.7% 24.1% December 2014, followed by pension 0.2% funds representing 24.1 percent of total 2.7%0.2% 3.1% 72.3% 2.5% 70.1% assets (figure 16). Pension sector 3.1% continues to be the sector with the highest rate of asset growth within the financial system. In December 2014, Banks Banks Insurance Insurance assets of the pension sector marked a Microfinance Microfinance Financial auxiliaries Financial auxiliaries growth of 19.1 percent, thus reaching Pension Pension their share to the total of financial Source: CBK (2015) system assets to 24.1 percent compared to 21.7 percent in December 2013. The insurance industry was also characterized with the accelerated growth of activity. In December 2014, assets of the insurance companies marked a growth of 5.8 percent (1.5 percent in December 2013). The share of insurance sector assets to total assets of the financial system remained the same as in the previous year at 3.1 percent. The microfinance sector, during the last three years was characterized by a decrease of activity, and in 2014 stopped the downward trend, where assets value of the sector remained unchanged as in the previous year. However, participation of the sector in total financial system assets declined to 2.5 percent (2.7 percent in December 2013), mainly as a result of a higher rate of asset growth of other sectors. In December 2014, financial auxiliaries’ assets marked a growth of 18.6 percent, but their share in the financial system continues to be low with a representation of only 0.2 percent of the total financial system assets.

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During 2014, the rate of financial Figure 17. Financial intermediation rate by sectors intermediation, calculated as the ratio of to GDP, in percent

financial system assets to GDP 70%

deepened, thus reaching 81.3 percent 60% compared to 79.4 percent in December 50% 2013. However the situation is different 40% in relation to individual financial sectors 30% where compared to the last year, the 20% share of the banking sector to GDP has 10% marked a slight decline as a result of 0% slower growth of activity, thus stopping Banking sector Pension sector Insurance sector Microfinance sector

the growing trend followed over the past December 2011 December 2012 December 2013 December 2014 three years. On the other hand, the Source: CBK (2015) pension sector, for the fourth consecutive year, including 2014, expanded its share Figure 18. Financial intermediation rate of the to the financial intermediation in the banking sector to GDP, in percent country. The share of the insurance 140%

sector to financial intermediation in the 120%

country remained the same as in the 100% previous year, while the microfinance 80% sector reduced its share to total financial 60% intermediation (figure 17). 40% 20% Compared to the countries of the region, it is noted that the level of financial intermediation in Kosovo continues to be December 2011 December 2012 December 2013 December 2014 relatively low in all constituent sectors of the financial system. Based on this, it Source: CBK (2015) may be understood that, in relation to the economy size, the financial sector of Kosovo has still a possibility for the growth of financial intermediation in order to converge towards the average of other countries of the region (figure 18).

Table 1. Number of financial institutions2

Description December 2011 December 2012 December 2013 December 2014

Commercial banks 8 9 9 10 Insurance companies 13 13 13 14 Pendion funds 2 2 2 2 Financial auxiliaries 34 38 39 42

Microfinance institutions 20 17 17 18

Source: CBK (2015)

The structure of financial system in terms of the number of financial institutions was expanded compared to the previous periods. During 2014, a new bank with foreign capital was added to the country’s financial system (which has been granted a preliminary license), bringing the number of banks that operate in the country to ten. Also, a microfinance institution with foreign capital was added as well in the insurance companies sector with foreign capital (which has been granted the preliminary license) bringing their number to 18 namely 14. The number of financial

2 The number of financial institutions represents the number of institutions that are licensed to operate in Kosovo market.

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Number 7 Financial Stability Report auxiliaries reached 42 from 39 as they were in the previous year, while the number of pension funds remained the same. Most financial institutions in the country continue to consist of microfinance institutions and financial auxiliaries, whose total number reached 60 in December 2014 (Table 1).

5.2 Exposure towards external sector

Kosovo financial system3 assets that are Figure 19. Structure of foreign claims, in percent invested abroad, in December 2014, amounted to euro 1.6 billion, marking 100% 30% 4 26.8% an annual growth of 26.8 percent. The 80% 25% accelerated growth of assets invested 20% 60% abroad was mainly due to the expansion 15% 40% of Kosovo pension fund investments in 8.0% 10% 20% 8.1% the external sector. The structure of 6.1% 5% foreign assets consists mainly of assets 0% 0% and other equities with a share of 63.5 December 2011 December 2012 December 2013 December 2014 Deposits Securities other than shares percent, followed by deposits with a Loans Assets and other equities share of 20.4 percent and securities with Other Annual growth (right axis) a share of 12.1 percent. The remainder Source: CBK (2015) consists of loans with 3.8 percent and other assets with 0.2 percent (figure 19).

Within total of foreign assets, the Figure 20. Structure of foreign liabilities, in percent highest rate of growth was marked by pension fund investments in assets and 100% 20% 15.4% 15% equities (57.3 percent) and bank 80% deposits held in the external sector (33.2 10% 60% 5% percent). Meanwhile, investments in 2.4% 0% other categories declined during 2014. 40% -5%

The most significant decline rate was -10% 20% -13.5% marked by loans (-45.2 percent) followed -15% by securities investments which also 0% -18.2% -20% December 2011 December 2012 December 2013 December 2014 marked a decline (-24.3 percent). The Deposits Loans Other Annual growth (right axis) decline marked in two categories was due to the reduced investments of Source: CBK (2015) commercial banks in these instruments. Also, the decline in securities abroad came as a result of shifting the bank investments from securities abroad to securities of the Government of Kosovo, which during 2014 were characterized by higher interest rates.

The total value of liabilities to the external sector, in December 2014, amounted to euro 243.3 million, marking an annual increase of 2.4 percent. The structure of external liabilities is dominated by loans with a share of 61.5 percent, followed by deposits with 37.2 percent and other liabilities with a share of 1.3 percent (figure 20). During 2014, within the total external liabilities, the category of loans marked a slower growth of 3.1 percent (28.0 percent in December 2013). This is attributed mainly to the reduction of loans received by microfinance institutions (-

3 In this context, the financial system does not include the Central Bank of the Republic of Kosovo. 4 Within the requirements of Kosovo financial system to the external sector it is not included "cash" category. In monetary and financial statistics the "cash" category is considered as external asset (requirement to non-residents), due to the fact that euro is not national currency of Kosovo, but in this analysis these means are considered as such since they are kept in banks in Kosovo.

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1.5 percent) and lower growth of loans received by commercial banks (6.5 percent). The category of deposits in 2014 marked a growth of 0.2 percent compared to the growth of 3.3 percent that was in December 2013.

Subsequently, until December 2014, the Figure 21. Net Foreign Assets by financial value of net foreign assets (NFA) of institutions, in millions of euro Kosovo financial system amounted to 1,300

euro 1.4 billion, marking an annual 1,100

growth of 32.4 percent. The growth of 900

pension fund investments in the external 700

sector was the main contributor to the 500

growth of NFA. Moreover, pension funds 300

continue to represent the largest share of 100 NFA (75.1 percent), while the remaining -100 December 2011 December 2012 December 2013 December 2014 part consists mainly from NFA of the Pension sector Banking sector banking sector (29.4 percent). The only Microfinance sector Insurance sector and financial auxiliaries segment which marked a negative Source: CBK (2015) balance of NFA continues to be the microfinance sector (-4.5 percent), Figure 22. Exposure within assets and liabilities, mainly as a result of the high reliance on December 2014, in percent external financing, in form of credit lines 80% (figure 21). 70% 60% Exposure of the total financial system to 50% non-resident continues to be more 40% pronounced within assets, whereas there 30% is noticed a lower exposure within 20% 10% liabilities. More specifically, the ratio of 0% foreign assets to total assets of financial Financial system Banking sector Pension sector Microfinance sector

system in December 2014 reached 35.5 Foreign assets/Total assets Foreign liabilities/total assets

percent (30.1 percent in December 2013), Financial system does not include the CBK while that of foreign liabilities to total Source: CBK (2015) system’s liabilities amounted to 5.4 percent (5.6 percent in December 2013) (figure 22). Regarding the sector exposure, the banking sector continues to have lower net exposure to the external sector. The ratio of foreign assets to total assets of the sector is 18.3 percent, while the ratio of foreign liabilities to total liabilities of the sector is 5.7 percent. Within the banking sector, the largest banks are observed to be more exposed to external sector compared to smaller banks, in terms of assets as well as liabilities. This reflects the fact that the largest banks, which are mostly foreign banks, have a higher level of interaction with the external sector, and particularly with their parent banks. Pension funds sector continues to be exposed to the external sector within assets. In December 2014, assets invested abroad accounted to 94.0 percent of total assets of the pension sector. Unlike other sectors, the microfinance sector is exposed only within liabilities and until December 2014 the level of exposure was 54.7 percent of total liabilities. The microfinance sector has high exposure in terms of liabilities because it uses foreign credit lines to finance the lending activities, given that MFIs have no legal right to receive deposits.

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Number 7 Financial Stability Report

6. Kosovo’s Banking Sector

6.1 Banking Sector Structure

The banking sector structure continues Figure 23. Structure of commercial banks assets to be dominated by foreign owned banks, 100% where out of ten licensed banks 5.3% 7.0% 7.4% 8.0% 90% (including one with a preliminary 15.6% 15.6% 80% 15.9% 16.2% license), eight are foreign-owned and 70% 27.1% 23.4% 23.9% 24.9% manage 90.4 percent of the total sector 60% 50% assets and 93.1 percent of the total 40% 31.0% 30.0% 27.3% 26.4% banking sector capital. The majority of 30% 20% 10.1% 9.6% 10.9% 10.6% the banking sector assets (51.3 percent 10% 8.4% 11.4% 13.3% 13.7% of total assets) are managed by two 0% December 2011 December 2012 December 2013 December 2014 banks originating from Germany and Austria. Slovenia is represented by a Turkey Kosovo Germany Austria Slovenia Serbia Albania bank which continues to be the third Source: CBK (2015) bank in the market with a share of 15.6 percent of the total sector assets. Turkey is represented by three banks which in the last four years have increased their share reaching to 13.7 percent in December 2014. Albania continues to be represented by one bank which has a share of 8 percent in total banking sector assets. A bank from Serbia also operates in Kosovo's banking sector, with a share of 1.8% percent to the total sector assets. In December 2014, two local banks, had a share of 9.6 percent to the total banking sector assets, which compared to the previous year represents a decline of 0.5 percentage points

During 2014, the banking sector Figure 24. HHI for assets, loans and deposits concentration level continued to have a declining trend. In December 2014, the 2150 share of assets of three largest banks 2100 2050 declined to 66.9 percent compared to 2000 67.4 percent from the previous year. The 1950 decline of concentration level is also 1900 expressed through the Herfindahl- 1850 Hirschman Index (HHI), which shows a 1800 steady decline of assets concentration of 1750 December 2011 December 2012 December 2013 December 2014 loans and deposits during the period 2011-2014 (figure 24). Decreased Assets Loans Deposits concentration level in assets and loans Source: CBK (2015) came as a result of accelerated assets growth, and smaller bank lending along with the slower growth of assets in the three largest banks. Three largest banks in December 2014 marked an annual growth of 3.7 percent in assets and an annual decline of 0,1 percent in loans, compared to the annual growth of 6.2 percent of assets and 13.9 percent of loans in other banks. On the other hand, during 2014, the index suggests a slight concentration level increase in deposits, despite a declining trend that occurred in the last three years. A slight increase of deposit concentration in 2014 resulted due to a higher increase of deposits in three major banks (annual growth of 4.4 percent) compared to the increase of deposits in other banks (annual increase of 2.1 percent).

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6.2. Banking Sector Activities

6.2.1. Assets The value of assets of the banking sector Figure 25. Structure of the banking sector assets of Kosovo in December 2014 reached euro 3.18 billion, marking an annual 3,500 9% growth of 4.2 percent, thus representing 3,000 8% 7% 2,500 a decline of the growth trend compared 6% to the growth rate of 8.1 percent marked 2,000 5% Inmillions 1,500 4% in December 2013 (figure 25). The 3% 1,000 slowdown of the banking sector growth 2% 500 1% trend was mostly a result of the 0 0% slowdown in deposit growth which was December 2011 December 2012 December 2013 December 2014 Cash and balance with CBK Balance with commercial banks mainly due to the significant decline in Securities Gross loans Fixed assets the deposits interest rate, during 2014. Other assets Annual growth of total assets (right axis) Within assets structure of the banking Source: CBK (2015) sector, it is observed a slight increase in the share of categories such as balance Figure 26. Annual growth of the banking sector with commercial banks, securities and assets, in percent loans, whereas the share of the cash and 60% balance category with CBK marked a 40% decrease in the total assets. Fluctuation in the assets structure show an 20% allocation of the surplus over the 0% obligatory minimum held at CBK under profitable instruments such as loans, -20%

securities and balance with commercial -40% banks. The increase of lending share in December 2011 December 2012 December 2013 December 2014 Gross loans Securities the total sector assets reflects an Balance with commercial banks Cash and balance with the CBK accelerated loan growth in 2014, and a Source: CBK (2015) recovery from a slower growth in recent years. Unlike loans, during 2014, the category of securities and balance with commercial banks marked a slowdown in the growth, whereas the cash and balance with CBK was characterized with an annual decline (figure 26). The category of balance with commercial banks which includes deposits and credit lines in banks abroad marked an increase of 15.0 percent (18.1 percent in 2013). Whereas, cash and balance with CBK was the only category of assets that was characterized by a decline during 2014. This category marked an annual decline of 3.5 percent compared to the growth of 8.8 percent from the previous year (Table 2). The decline was mainly a result of the annual decrease of 5.1 percent of commercial bank reserves in CBK. In December 2014, the category of investments in securities reached euro 383.8 million, marking an annual growth of 8.3 percent, which is significantly lower compared to 38.2 percent growth marked in the previous year. Consequently, in December 2014 the share of securities in the banking sector assets reached 12.0 percent compared to 11.6 percent in the previous year. In context of total investments in securities, during 2014, it is observed a larger orientation of banks towards investments in securities of the Government of Kosovo. In December 2014, investments in securities of the Government of Kosovo marked an annual growth of 92.6 percent, thus increasing the portfolio share of total investments in securities with 50.2 percent (28.2 percent in December 2013) (figure 27). Orientation toward investments in the country was mainly a result of higher interest rates in securities of the Government of Kosovo compared to the previous year,

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Number 7 Financial Stability Report and along with lower interest rates of Figure 27. Structure of securities, in percent foreign government securities. In 100% December 2014, the average of interest rates in securities of the Government of 80% 49.7% Kosovo was 1.6 percent compared to 1.0 71.8% 60% percent from the previous year. Another 76.7% 99.8% contributing factor to the increase of 40% investments in securities of the 50.2% 20% Government of Kosovo was the short 23.3% 28.2% period of their maturity (about 73.9 0% percent had a maturity of 6 months to 1 December 2011 December 2012 December 2013 December 2014 Other financial and non financial corporations year). Foreign governments On the other hand, investments in Source: CBK (2015) securities in the foreign sector, which mostly consists of foreign government bonds, marked an annual decrease of 25.0 percent thus reducing the share to 49.7 percent of total portfolio on investment in securities (71.8 percent in December 2013). This significant decline of securities in foreign markets was influenced by the significant decline of interest rates from the previous year along with the higher interest rates of securities of the Government of Kosovo. In December 2014, the average of interest on foreign5 government securities was 0.2 percent compared to the rate of 0.6 percent in the previous year. Investments in securities of other financial and nonfinancial corporations, which are considered instruments of a higher rate of risk, have a lower share on investments portfolio, indicating that banks are avoiding high-risk investments.

Table 2.Structure of assets in the banking sector

December 2011 December 2012 December 2013 December 2014 Description In millions of In millions of In millions of In millions of Share (%) Share (%) Share (%) Share (%) euro euro euro euro Cash and balance w ith the CBK 331.5 12.5% 425.7 15.0% 463.3 15.1% 447.1 14.0% Commercial banks 329.5 12.4% 287.9 10.2% 339.9 11.1% 390.8 12.3% Securities 202.0 7.6% 256.6 9.1% 354.5 11.6% 383.8 12.0% Gross loans 1,698.1 64.1% 1,763.4 62.3% 1,805.8 59.0% 1,882.3 59.1% Fixed assets 47.4 1.8% 57.7 2.0% 55.5 1.8% 53.7 1.7% Other assets 41.3 1.6% 38.1 1.7% 40.3 1.4% 28.8 0.9% Total 2,649.7 100% 2,829.3 100% 3,059.3 100% 3,186.6 100%

Source: CBK (2015) Figure 28. Contribution to loans growth by sectors, in Loans percentage points 0.18 18% Loans continue to be the main category 0.16 16% of the banking sector assets with a share 0.14 14% 0.12 12% of 59.1 percent to total assets of the 0.1 10% sector in 2014. The lending activity 0.08 8% 0.06 6% showed signs of recovery, thus 0.04 4% accelerating the growth rate compared 0.02 2% to the slowdowns marked during the last 0 0% -0.02 -2% two years. In December 2014, the value December 2011 December 2012 December 2013 December 2014 Other Households of total loans reached to euro 1.88 Enterprises Annual growth rate of loans (right axis) billion, which represents an annual Source: CBK (2015) growth of 4.2 percent (2.4 percent in

5 In calculation of the average interest rate for foreign governments were includes countries: Germany, France, Belgium and Italy.

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December 2013). New loans issued by the banking sector in 2014 were characterized with a significant increase of 30.4 percent (Box 2). The acceleration of loans growth in the banking sector came due to the influence of loan supply and demands for both households and enterprises (figure 28). The results of bank lending survey for the second half of 2014 shows an easing of, to some extent, lending standards and conditions by the banks and an increase of demand by borrowers (Box 3). The main factors which clarify the eased bank lending policies are: satisfactory liquidity situation of the banking sector, competition in financial system, positive developments in the real estate market and increase of consumers confidence. The increase of demand for loans, particularly by households, could have been impacted by the increase of salaries for civil servants and easing of lending standards by banks. The structure of loans continues to be dominated by enterprise loans, which in December 2014 accounted for 65.9 percent of the total loans, and marked an annual growth of 2.1 percent (2.0 percent in December 2013). However, the main contribution to the accelerated growth of total loans was provided by household loans, which account for 33.7 percent of total loans, and marked an accelerated annual growth of 12.7 percent, compared to 3.9 percent growth from previous year. Other loans, namely those in non-euro currency and loans for non-government organizations, which represent 0.3 percent of total loans, marked an annual decrease of 12.0 percent. Also, loans to non-residents (mainly loans issued to foreign enterprises), which have a share of 0.02 percent in December 2014, representing the smallest category in the total bank lending, marked an annual decline of 97.7 percent.

Box 2. New loans Total value of new loans issued by the banking sector during 2014 reached euro 993.9 million, marking an annual increase of 30.4 percent. (figure 29).

Figure 29. Annual growth of new loans and total Figure 30. New loans by sectors, in millions of loans, in percent euro

35% 30.4% 700 30% 600 25% 16.4% 20% 500 15% 400 10% 2.4% 3.8% 4.2% 5% 300 0% -7.2% 2.4% 200 -5% 1.0% -10% 100 December 2011 December 2012 December 2013 December 2014 0 December 2011 December 2012 December 2013 December 2014 Annual growth of total loans Annual growth of new loans New loans to enterprises New loans to households

Source: CBK (2015) Source: CBK (2015)

New loans continue to be dominated by enterprise loans, which in December 2014 accounted to 61.9 percent of the total new loans and marked an annual growth of 31.5 percent (figure 30). Whereas, household loans accounted to 38.1 percent of the total new loans and marked an annual growth of 28.7 percent (figure 31). Structure of new loans for enterprises consists of investment loans, non-investment loans and loans with favourable conditions. Investment loans continue to dominate with a share of 59.8 percent to total new loans for enterprises (figure 32). Non-investment loans and loans with favourable conditions in 2014 accounted for 31.3 percent and 8.9 percent, respectively, of total new loans issued to enterprises.

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Figure 31. Annual growth of new loans, in percent Figure 32. Main categories of new loans, in percent

37% 90% 31.5% 32% 75% 74.4% 27% 28.7% 64.4% 22.1% 60% 57.8% 59.8% 22% 17% 45% 33.0% 12% 31.3% 6.6% 30% 7% 15.6% 14.0% 14.0% 15% 2% 9.2% 8.9% 8.5% 3.5% -6.1% -3% -0.1% 0% Investing Non investing Favourbale Consuming Mortgage Favourable -8% -7.9% -13% Loans to enterprises Loans to households December 2011 December 2012 Decemebr 2013 December 2014 Annual growth of new loans to enterprises Dhjetor 2013 Dhjetor 2014 Annual growth of new loans to households Source: CBK (2015) Source: CBK (2015)

The structure of new loans provided to households consists mainly of consumer loans, mortgage loans and loans with favourable conditions. Consumer loans, which continue to dominate new loans to households, in 2014, increased their share to 74.4 percent of the total new loans to households (64.4 percent in 2013). During 2014, mortgage loans continued to have a share of 14.0 percent to the new loans to households. Additionally, loans with favourable conditions decreased their share in the structure of new loans to households to 8.5 percent, from 15.6 percent in 2013. With the purpose of identifying the Figure 33. Total loans, new loans, paid loans and impact of new loans, returned loans and outstanding loans, in millions of euro write-offs in the increase of total active 2,000 credits stock, figure 33 shows the 1,750 development trends of these loan 1,500 categories. All three categories have 1,250 different impact on the total amount of 1,000 active loans, whereby new loans affect 750 positively on the growth of this amount; 500 whilst the return of loans and write-offs 250 0 have a negative or decreasing effect on December 2011 December 2012 December 2013 Decemember 2014 the total value of active loans. Figure 33 Total loans New loans Paid loans Write offs shows that the amount of new Source: CBK (2015) accumulated loans during one year is significantly higher in 2014 compared to the previous years. This increase of new loans was reflected in the increase of returned loans which marked an annual growth of 28.9 percent (5.7 percent in 2013), whereas write-offs marked an annual decline of 21.6 percent (growth of 18.8 percent in 2013). In 2014, the ratio of returned loans and write-offs to new loans was 92.3 percent compared to 94.4 percent in 2013. This means that despite the high growth of new loans in 2014, their impact in the increase of total loan stock was low due to the high level of returned loans and write-offs, regardless that this ratio marked a decline of 2.1 percentage points. However, the decline in the ratio of returned loans and write-offs to new loans influenced the acceleration to the growth trend to the total active loans in 2014. The ratio of write-offs to total new loans declined to 1.6 percent from 2.6 percent in 2013, which means that the effect of write-offs in "avoiding" the growth of total loans from the increase of new loans is declining. Furthermore, the ratio of returned loans to total new loans declined to 90.7 percent from 91.8 percent in 2013, and impacted on the increase of total loan stock in 2014.

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Furthermore, in 2014, the "ratio of returned loans and write-offs to new loans" for households and enterprises was also improved compared to the previous year, however it was more significant in relation to enterprises.

Box 3. Bank Lending Survey The recent results of the bank lending survey reflect the developments in the bank lending activity during the period September 2014 - March 2015, and the expectations regarding changes in the lending activity for April-September 2015.

Lending activity in the second half of 2014 and in the first months of 2015 is characterized with an accelerated growth trend, compared to the decline of growth that appeared in the previous period. Dynamics of country's lending activity is estimated to have been at the highest level in the last three years. The trend of accelerated lending growth which characterized 2014 and the first months of 2015 is attributed mainly to the facilitated bank lending offer for enterprises and households during this period, whereas the demand was reported to be lower by large enterprises, but higher by SME's and households.

Facilitated lending offer for enterprises in general is attributed to facilitation of lending standards, particularly for small and medium enterprises (SME's)and long-term loans, whereas a more conservative approach of banks towards lending to large enterprises is reconfirmed. The increase of support for SMEs through eased lending standards, particularly in sectors that previously were less credited, such as agriculture and manufacturing, as well as the growth of long-term crediting, shows a gradual shift of banks from a conservative approach toward an alternative which enables expansion of their business.

Standards for loans provided to households were eased to a certain extent during the reporting period. Crediting standards were eased for both categories of house purchase and consumer loans. If we analyse the lending standards by the purpose of use, it is noted that banks have declared eased crediting standards for both, house purchase and consumer loans. Regarding the loan approval rate for the period September 2014-March 2015, banks declared to have applied a more eased approach, mainly for SME’s and consumer loans.

The main factors which explain facilitated bank lending policies in the period September 2014 - March 2015 were the satisfactory position of commercial banks liquidity, competition in the financial system and banks expectations regarding economic developments in the country. Facilitated lending policies by the banks in the reporting period is realized mainly through decline of the average interest rates, and provision of loans with a longer term of maturity and increase in the amount of the loan.

Banks participating in the survey reported that the demand for loans during the period of September 2014-March 2015 has increased from SME’s and households in general; banks reported a decline of demands for loans by the large enterprises during this period. Within households’ category, the demand for loans was higher for house purchase loans and consumer loans. In relation to loan maturity, commercial banks reported an increase of demand for long- term loans during the reporting period. The increase of the demand for loans by households was in compliance with the increase of internal consumption during this period, which could have been driven by the increase of salary and wages for public servants in April 2014, and a continuous decline which characterized the banks financing cost. On the other hand, the increase of demand by SME’s is neutralized, to a certain extent, by the decrease of demand for loans from large enterprises, which could be attributed to a weak investment activity that characterized the country in general during 2014. The slight increase of demand for loans by SME’s is reported to have been positively influenced by the increase of demand for fixed investment of enterprises to finance working capital and debt restructuring. Whereas, the slightly increased demand by households is mainly attributed to the developments in the real-estate marked an improvement in consumers confidence.

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In the next six months (April-September 2015), the bank lending offer, expressed through applied lending standards, is expected to remain generally eased. Banks expect to have eased lending standards for SME’s in terms of enterprise lending, whereas almost all banks stated that they expect a certain facilitation of lending standards that will be applied for households (house purchase and consumer loans). Concerning the rate of loan approval, banks are expecting an easier approach of bank financing for the SME’s and households. For the period April - September 2015, banks stated that they are expecting a recovery of the demand for loan. Demand for loans is expected to be higher from SME's and large enterprises. Banks also expect a higher demand by the households.

The structure of loans by economic activity Lending structure of enterprises according to the economic activity Figure 34. Structure of loans by economic activity, in remains similar to previous years (figure percent 34). Loans designated for trade sector 100% 3.5% 3.7% 3.8% 4.0% represent the largest category with a 24.8% 24.3% 23.9% 23.3% share of 53.4 percent in the total loans 80% by enterprises, followed by loans to 60% industrial sector (mines, manufacturing, 52.7% 53.2% 52.6% 53.4% 40% energy and construction presented in figure 35 have a share of 23.3 percent in 20% December 2014. The lowest access to 19.0% 18.8% 19.7% 19.3% 0% bank financing continues to be in the December 2011 December 2012 December 2013 December 2014 agricultural sector with a total share of Agriculture Industry Trade Other services 4.0 percent compared to the total loans. Source: CBK (2015)

During 2014, the economic sectors which Figure 35. Structure of industrial sector loans by marked an increase in lending were subcategories, in percent manufacturing, agriculture and trade. 100% Growth is mainly attributed to the 36.0% decline of loan interest rates on these 80% 40.8% 43.1% 40.7% sectors during this period. Another 60% 5.9% 5.1% 7.1% factor that could have driven the growth 5.5% 40% in the abovementioned sectors is the 51.4% 48.0% 45.8% 45.2% easing of standards by banks for lending 20% enterprises. 6.9% 0% 6.1% 5.6% 6.8% December 2011 December 2012 December 2013 December 2014 During 2014, loans designed for manufacturing sector marked a more Construction Energy Manufacturing Mining significant increase of 13.1 percent, Source: CBK (2015) compared by the annual decline of 1.0 percent marked in the previous year. This reflects in the bank's increased support for the manufacturing sector in countries which provided a lower credit rate during the year. Another factor that could influence the growth of lending in this sector is the general developments in the manufacturing sector, whereby during 2014 was marked a significant growth in the number of registered businesses.

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Loans designated for the sector of agriculture were characterized by an Figure 36. Annual change in loans by economic sectors, in percent accelerated growth namely annual growth of 7.9 percent (5.0 percent in 40% December 2013) (figure 36). In addition 30% to the decline of the interest rate, the 20% support of USAID through the loan 10% portfolio guarantee program could have 0% influenced the increase of lending for -10% this sector. Based on the Plans of the -20% Government of Kosovo for drafting a -30% December 2011 December 2012 December 2013 December 2014

scheme for guaranteeing loans in the Agriculture Construction Energy Manufacturing Mining Trade Other services agriculture sector, it is expected a Source: CBK (2015) further increase of lending and further improvement of lending conditions for this sector. Loans for the trade sector were characterized with an accelerated growth which in December 2014 marked an increase of 3.6 percent compared to the previous year when they marked an increase of only 0.8 percent. The acceleration of lending in the trade sector reflects the increase of Kosovo's trade activities with other countries. Another factor that may have influenced the acceleration of lending growth was the increase in the number of registered businesses in the trade sector during 2014, compared to a significant decline in the previous year. On the other hand, despite the decline of interest rate on the trade sectors, and eased lending standards for enterprises by the banks, the sector of energy, construction and mines marked a decline in 2014. In December 2014, loans issued for the energy sector marked an annual decrease of 17.8 percent compared to the growth of 30.6 percent registered in December 2013. However, lending of the energy sector during the most part of 2014 was characterized with an increase which was finally neutralized by the significant decline of 19.6 percent in December 2014. The termination of the medium-term credit line of euro 1.8 million in December 2014 had a significant importance in the lending sector. The effect of this credit-line was pointed-out considering the fact that this sector is dominated by loans with maturity up to 1 month. Lending to construction sector during 2014 was characterized with a further decline, marking an annual decrease of 12.2 percent in December 2014 (a decline of 5.2 percent in 2013). The decline in lending of this sector might have reflected the general developments in the construction sector, where it is considered that activities in this sector have decreased. In 2014, a decline in the number of new enterprises registered in the construction sector, and an increase of subdued businesses compared to the previous year was evidenced. Loans to the mining sector were also characterized with a decline of 2.2 percent in December 2014 (an increase of 24.7 percent in December 2013). The decline of activities in the mining sector, which is represented through the industrial circulation index, has had an impact in reducing the demand for loans in this sector, thus reflecting the decline of lending to the mining sector.

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Loans structure by maturity

Loans structure by maturity during 2014 Figure 37. Structure of loans by maturity, in percent continues to be similar to the previous periods (figure 37). Most of loans 100% continue to be dominated by loans with longer maturity. In December 2014, 80% loans with maturity ‘over 2 years’ 71.6% 71.4% 67.2% 69.2% 60% comprised 69.2 percent of total loans marking a slight increase of the share 40% 7.7% compared to 2013. The increase of the 7.2% 7.4% 7.3% 20% share reflects the high rate of the annual 21.2% 21.1% 25.0% 23.5% increase of 7.3 percent (figure 38) of the 0% December 2011 December 2012 December 2013 December 2014 loan value with this maturity. Over 2 years Over 1 year up to 2 years Up to 1 year Source: CBK (2015) The short-term maturity loans, namely "up to 1 year" continued to be the second Figure 38. Growth trend of loans by maturity, in category with a share of 23.5 percent to percent total loans (25.0 percent in December 30% 2013). Whereas, medium-term maturity 25% 20% loans, namely "1 up to 2 years" continue 15% to have a lower share within total loans, 10% thus representing 7.3 percent in 5% December 2014 (7.7 percent in December 0% -5% 2013). Medium-term maturity loans and -10% short-term maturity loans, during 2014 December 2011 December 2012 December 2013 December 2014 marked an increase of the value of 2.0 Up to 1 year Over 1 year up to 2 years Over 2 years percent. Source: CBK (2015) Growth of long-term lending is observed in both enterprise loans and household Figure 39. Structure of loans maturity by economic loans. In the context of lending to activity, in percent enterprises, long-term lending growth is 90% more noted in the sectors of 80% 70% manufacturing, agriculture, trade and 60% other services. The main factor that may 50% have contributed to the growth of long- 40% 30% term lending is the provision of lower 20% interest rates from commercial banks in 10% 0% the country for long-term loans to these Up to 2 Over 2 Up to 2 Over 2 Up to 2 Over 2 Up to 2 Over 2 Up to 2 Over 2 Up to 2 Over 2 Up to 2 Over 2 years years years years years years years years years years years years years years economy sectors (figure 39). Agriculture Construction Energy Manufacturing Mining Trade Other services

December 2011 December 2012 December 2013 December 2014 6.2.2. Liabilities Source: CBK (2015) In 2014, the structure of liabilities of the banking sector continued to be similar to the previous years. Deposits continue to be the main funding source of commercial banks in the country, representing 79.6 percent of total liabilities of the banking sector (Table 3). The continuous growth of domestic deposits allowed banks to benefit from a stable funding source and avoid exposure to the fluctuations in international financial markets.

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The second category in terms of shares to total liabilities of the sector remains Own Resources, which in December 2014 represented 10.1 percent of total liabilities. This category marked an annual growth of 16.3 percent compared to 2.6 percent for the same period of the previous year. The significant growth of own resources was driven mainly by the accelerated growth of profit accumulated in the banking sector during 2014.

Regarding liabilities, the category of balance with commercial banks marked the most significant annual growth of 93.4 percent, which reflects the increase of inter-bank activity. On the other hand, the category of subordinated debt was the category with the most significant decline within obligations. During 2014, the subordinated debt decreased by 16.0 percent compared to a significant growth of 81.5 percent that was marked in 2013. The increase of subordinated debt in 2013 was the result of changes in regulatory requirements, which required capital increase by banks, where a part of the additional capital was financed through subordinated debt. Whereas the good financial performance of the banking sector in 2014, expressed with a significant increase in profit, reduced the need to use the subordinated debt to meet the requirements of the capital.

Table 3. Structure of the banking sector liabilities

December 2011 December 2012 December 2013 December 2014 Description In millions of In millions of In millions of In millions of Share (%) Share (%) Share (%) Share (%) euro euro euro euro Balance from other 31.8 banks 40.0 1.5% 6.0 0.2% 16.5 0.5% 1.0% Deposits 2,104.0 79.4% 2,279.1 80.6% 2,449.0 80.1% 2,537.0 79.6% Other borrow ings 30.4 1.1% 18.9 0.7% 13.4 0.4% 14.9 0.5% Other liabilities 191.5 7.2% 223.6 7.9% 246.2 8.0% 232.7 7.3% Subordinated debt 31.0 1.2% 31.0 1.1% 56.3 1.8% 47.3 1.5% Ow n resources 252.8 9.5% 270.7 9.6% 277.8 9.1% 323.1 10.1% Total liabilities 2,649.7 100% 2,829.3 100% 3,059.3 100% 3,186.8 100% Source: CBK (2015)

Deposits

In June 2014, the value of total deposits Figure 40. Structure of deposits and annual growth, of the Kosovo banking sector amounted in percent

to euro 2.53 billion, showing an annual 100% 15% 14% 90% growth of 3.6 percent. During this year, 24.9% 23.2% 22.7% 22.1% 13% 80% 12% 11% a slowdown on the deposits growth trend 70% 10% 60% 8.3% 9% was marked, which is mainly due to 7.5% 8% 50% 8.6% 7% significant decline of the interest rate in 40% 6% 5% 30% 3.6% deposits during this period. The 4% 20% 3% 2% slowdown on the growth of deposits 10% 70.8% 72.0% 72.5% 72.8% 1% could have been affected by the increase 0% 0% December 2011 December 2012 December 2013 December 2014 of migration in Kosovo in the last Other deposits Non resident deposits Enterprises Household deposits months of 2014. Annual growth (right axis) Source:CBK (2015) Household deposits, which are considered to be more stable in comparison to other sources of funding, continue to dominate the deposit structure of the banking sector, thus representing 72.8 percent of total deposits (figure 40). In December 2014, the value of household deposits marked an annual growth of 4.1 percent compared to an annual growth of 8.2 percent in December 2013, thus representing the key contributor to the slowdown in the increase of the total deposits. Enterprise's deposits comprise

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22.1 percent of total deposits and this year they marked an annual growth of 0.7 percent, which represents a lower growth rate compared to the previous year (5.4 percent in December 2013).

The structure of enterprise's deposits Figure 41. Structure of enterprise deposits by continues to be represented mainly by sectors,120% in percent deposits of non-financial corporations’ 100% (private enterprises), which represent 80% 70.8 percent of total deposits of 54.9% 63.6% 71.5% 70.8% enterprises (figure 41). Compared to the 60% previous year, this category marked an 40% 24.5% annual decline of 0.3 percent compared 14.3% 20% 13.0% 11.0% to an annual growth of 18.5 percent 20.5% 22.1% 15.5% 18.2% marked in December 2013). The second 0% December 2011 December 2012 December 2013 December 2014 category by weight within the structure Other non financial corporations Other public enterprises of enterprise deposits are comprised of Other financial corporations other financial enterprise deposits, Source:CBK (2015) which in December 2014, was the only Figure 42. Non-residents deposits and interest rates category within the enterprise deposits on deposits that marked an annual growth of 18.1 100 5% 86.9 89.1 88.9 percent. Its growth was mainly as a 90 5% 80 result of the growth of pension funds 4% 70 64.2 and insurance companies deposits. The 4% 60 3.6% category of public enterprise category 3.5% 50 3.4% 3% 40 was characterized with a significant millionsIn 3% 30 decline of 14.3 percent, thus becoming 2% 20 the main contributor in slowing down 10 1.1% 2% the growth of enterprise deposits. 0 1% December 2011 December 2012 December 2013 December 2014 The remainder part of total deposits is Non-residents deposits Deposit interest rate (right axis) comprised of non-resident deposits with Source: CBK (2015) a share of 3.5 percent and other deposits (government and other non-governmental organizations) with a share of 1.6 percent. Non- resident deposits, whose value amounted to euro 88.9 million in 2014 marked an annual decline of 0.2 percent (figure 42), whereas, other deposits were characterized with an annual increase of 39.0 percent, mainly as a result of the central government deposits increase in commercial banks.

Figure 43. Structure of deposits by maturity, in The structure of deposits by maturity 120%percent According to maturity, the structure of 100% deposits has changed during 2014. 16.5% 15.6% 16.5% 21.1% While in the previous year the structure 80% of deposits was dominated by time 31.7% 60% 50.2% 51.4% 46.7% deposits, in December 2014, the 40% majority of deposits were transferable 47.2% 20% deposits with a share of 47.2 percent to 33.2% 33.0% 36.8% total deposits. Time deposits are the 0% second largest category with a share of December 2011 December 2012 December 2013 December 2014 31.7 percent, whereas saving deposits Saving deposits Time deposits transferable deposits constitute 21.1 percent of total deposits. Source:CBK (2015) Changes to the structure of deposits by maturity (figure 43) show that the significant decline of the interest rate in deposits has discouraged depositors of time deposits.

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The increase of the share of transferable deposits to the total structure of deposits reflects the significant annual growth of 33.0 percent of this category during 2014. In the context of the transferable deposits, household deposits recorded a more significant annual growth of 46.8 percent (increase of 24.4 percent in December 2013), marking the main contribution to the growth of total transferable deposits. Transferable deposits of enterprises are characterized by a slow growth of 12.6 percent compared with the growth of 16.7 percent marked in the previous year. Time deposits during 2014 marked an annual decline of 29.7 percent. This decline was as a result of households time deposits which marked a significant decline of 31.6 percent. Other time deposits (the government and other non-government organization) were the only category that marked an annual growth rate of 7.9 percent (33.7 percent in December 2013).

During 2014, within the structure of Figure 44. Structure of time dposits, in percent time deposits, was marked a decline in

time deposits "up to 1 year", whereas 100% 90% 17.1% 18.3% 19.1% there was a growth of medium-term 26.8% deposits "from 1 to 2 years" and long- 80% 70% 28.5% 25.1% 18.8% term deposits "over 2 years" (figure 44). 60% 22.7% In December 2014, the deposits with 50% 40% maturity of "up to one year ', which 56.5% 62.1% 30% 54.4% 50.5% continue to be the main category of time 20% deposits, had a share of 50.9 percent of 10% December 2011 December 2012 December 2013 December 2014 total time deposits, compared to 62.1 Over 2 years From 1 up to 2 years Up to 1 year percent from the previous year. The shift of time deposits structure toward a long- Source: CBK (2015) term maturity could be a reflection of higher interest rates of loans with longer maturity. Saving deposits marked an accelerated growth in December 2014, thus recording an annual growth rate of 32.4 percent (13.8 percent in December 2013). Within them, non-resident deposits marked a significant growth of 40.3 percent compared to the growth of 8.4 percent registered in the previous year. However, household deposits were the main contributor to the growth of saving deposits, taking into account that they dominate the structure, and marked a growth of 32.2 percent (20.0 percent in December Figure 45. Average interest rates, in percent 2013). Whereas, other deposits category, which constitutes 0.04 percent of total saving deposits was the only category 16% 14% within these deposits that marked an 12% annual decline of 36.6 percent in 10% December 2014. 8% 6% 4% 6.2.3. Interest rates 2% 0% Interest rates on loans and deposits December 2011 December 2012 December 2013 December 2014 Interest rates on loans Interest rates on deposits continued their declining trend in 2014 Interest rate spread as well. The average interest rate on Source: CBK (2015) loans decreased to 9.2 percent in December 2014 from 11.1 percent in December 2013. The decrease of the interest rates on loans reflects the decrease in the interest rate on deposits during this period which could also be the result of a higher competitive pressure in the banking market, whereby the easing of lending standards and criteria could be an indication of it. In December 2014, the average interest rate

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Number 7 Financial Stability Report on deposits declined to 1.1 percent from 2.4 percent in December 2013. The decline was mainly due to sufficient presence of liquidity in the banking sector. As a result of these developments, the interest rate spread on loans and deposits in December 2014 was reduced to 8.1 percentage points, from 8.7 percentage points in December 2013 (figure 45). Figure 46. Average interest rates on loans to enterprises and households, in percent The downward trend of interest rates on 16% loans is noticed on both loans to 15% enterprises and loans to households 13% (figure 46). In December 2014, the 12% average interest rate on loans to enterprises decreased to 9.4 percent 10% from 10.9 percent in the same period of 9% the previous year. In the context of loans 7% to enterprises, during December 2014, December 2011 December 2012 December 2013 December 2014 the investment loans were characterized Enterprises Households by an average interest rate of 9.7 percent Source: CBK (2015) (10.9 percent in December 2013), while other business loans had an average of interest rate of 10.5 percent (12.3 percent in December 2013) (figure 47).

With regard to loans to enterprises by Figure 47. Average interest rates on enterprise maturity, in December 2014 was loans, in percent marked a higher interest rate for other 17% business loans with maturity "over 5 15% years" (11.8 percent), while the lowest 13% rate was recorded in investment loans 11% with a maturity 'over 5 years' (8.4 9% percent). In 2014, the decline of interest 7% rates on loans to enterprises reflected 5% the growth of new loans to enterprises, December 2011 December 2012 December 2013 December 2014 which during this period marked a Investing loans Other business loans Overdrafts significant growth compared to the previous year. Source: CBK (2015) In December 2014 the average interest rate on loans to households decreased to Figure 48. Average interest rates on loans to households, in percent 9.0 percent from 11.4 percent in December 2013. Regarding loans to 20% 18% households, the interest rate on 16% 14% consumer loans declined to 9.1 percent 12% in December 2014 (11.7 percent in 10% December 2013), while the average rate 8% 6% on mortgage loans declined to 8.2 4% 2% percent (9.7 percent in December 2013) December 2011 December 2012 December 2013 December 2014 (figure 48). Regarding mortgage loans, Overdrafts Loans with favourable conditions more significant decline of interest rates Consumer loans Mortgage loans to 8.0 percent in December 2014 from Source: CBK (2015) 10.4 percent in December 2013, was marked at loans with maturity “over 5 to 10 years”. The decline of interest rates on household loans was also reflected with the growth of new loans in 2014, which marked a significant growth compared to the previous year.

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With regard to interest rates on loans Figure 49. Average interest rates on loans by according to economic sectors, the economic activity, in percent agriculture sector continues to be 24% characterized with the highest interest 21% rate, despite the decline marked during 18% the year, where the average rate 15% declined to 12.6 percent from 15.0 12% percent in December 2013 (figure 49). 9% Although it is still at a higher level 6% compared to other sectors, the interest 3% 0% rate for agriculture sector loans was December 2011 December 2012 December 2013 December 2014 characterized by a more noticeable Agriculture Industry Services decline during the period 2011-2014, Source: CBK (2015) thus significantly narrowing the difference in interest rates of other sectors loans. In December 2014, the average interest rate of industry sector loans declined to 8.9 percent from 11.0 percent in December 2013, whereas the service sector (including trade) declined to 9.9 percent from 10.9 in December 2013. During 2014, the highest interest rate of 12.8 percent was marked in the agriculture sector in the loans with maturity of 'up to 1 year', whereas the lowest rate of 7.8 percent was marked in the industry sector in loans with maturity of 'over 5 years'. In 2014, the average interest rate on deposits marked a significant decline compared to the previous year. The decline was largely driven by the decline of the household deposits rates which dominates the total deposits structure. In December 2014, the interest Figure 50. Average interest rates on enterprise and rate on household deposits declined to 0.9 household deposits, in percent percent from 2.8 percent as it was in 6% December 2013. In 2014, the decline of 5%

interest rate in enterprises deposits, also 4% significantly contributed to the decline in 3% the average interest rates on deposits. The average interest rate was low 2% throughout the year, particularly during 1%

the second and third quarter, and 0% recovered in the last quarter reaching to December 2011 December 2012 December 2013 December 2014 Enterprises Households 1.9 percent in December 2014. (1.2 percent in December 2013) (figure 50). Source: CBK (2015)

6.3. Performance of the Banking Sector

Kosovo’s banking sector, during 2014, marked a significant improvement of financial performance. The net profit realized during 2014 amounted to euro 60.1 million, whereas the net profit registered in 2013 was euro 26.0 million (figure 51). During 2014, the banking sector's income declined slightly, primarily as a result of income decline from interest rate on loans and income from fees and commissions. Consequently, the growth of the profit in the banking sector, during 2014, was a result of expenditure reduction, particularly those for provisions (loan loss provisions) and interest expenditures in deposits.

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Considering the unsatisfactory Figure 51. Net profit, income and expenditures, in performance of income, profit of the millions of euro banking sector remains highly sensitive 280 249.0 240.1 247.0 244.2 to a possible increase of deposit interest 240 228.6 223.0 rates, which could happen considering 204.1 200 184.2 the acceleration of lending growth. Also, 160 profit remains sensitive to a possible 120 deterioration of loan portfolio quality, 80 which will need to increase the 60.1 36.0 40 26.0 expenditures for provisions. Therefore, 18.5 to ensure a sustainable level of 0 December 2011 December 2012 December 2013 December 2014 profitability, banks need to generate Net profit Income Expenditures more income, which under the Source: CBK (2015) conditions of declining interest rates on loans, require higher growth of loan portfolio. However, the increase of lending must be done by observing the principles of sound lending in order to ensure the maintenance of a good loan portfolio quality. Providing profit sustainability also requires measures to increase banks operational efficiency, which means a Figure 52. General structure of income, in percent more stable reduction of banking expenditures. 100% 90% 18.7% 18.8% 19.9% 19.6% Income 80% 70% In December 2014, banking sector 60% income amounted to euro 244.2 million, 50% 81.3% 81.2% 79.6% 80.2% representing an annual decline of 1.9 40% 30% percent. The income structure of the 20% sector is mainly dominated by interest 10% December 2011 December 2012 December 2013 December 2014 income, followed by non-interest and revaluation income. Interest income, Revaluation income Non-interest income Interest income including income from interest on loans, Source: CBK (2015) securities, and placements with other Figure 53. Structure of income by categories, in banks and other income, represent 80.2 percent percent of total banking sector income 100% (figure 52). 17.4% 17.9% 18.3% 18.2% 80% In December 2014, interest income 60% marked an annual decline of 1.2 percent (a decline of 1.1 percent in December 40% 77.6% 78.9% 77.3% 77.6% 2013), providing the main contribution 20% to the decline of total income of the 0% banking sector. Whereas non-interest Dhjetor 2011 Dhjetor 2012 Dhjetor 2013 Dhjetor 2014 income, which are the second category Loans Bank placements Securities Other Fees and commissions Other operating income regarding the weight in the overall structure of income, in December 2014 Source: CBK (2015) marked an annual decline of 3.6 percent (increase of 6.4 percent in December 2013). The effect of revaluation income had a low impact in the trend of total income, considering the share of only 0.2 percent in the structure of total income.

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The decline of total interest income was Figure 54. Annual growth rate of income by mainly as a result of the decline of category, in percent income from interest on loans, which are 80% the main determinants of the trend of 60% interest income, considering that 40% 20% comprise 96.7 percent of total interest 0% income (figure 53). The second category -20% regarding the weight in the structure of -40% -60%

total income, the non-interest income, -80%

Jun Jun Jun Jun

Mar Mar Mar Mar

Dec Sep Dec Sep Dec Sep Dec marked a decline mainly as a result of Sep the decline of income from fees and 2011 2012 2013 2014 commissions, which comprise 93.1 Loans Placements Securities Fees and commissions

percent of total non-interest income. Source: CBK (2015) In December 2010, the category of income from interest on loans marked an Figure 55. Structure of expenditures by category, in percent annual decline of 1.6 percent, which 100% coincides with the decline of interest 90% 80% rates on loans during this period (figure 47.6% 44.8% 45.1% 70% 55.3% 54). During 2014, income from fees and 60% commissions marked an annual decline 50% 40% 21.2% 25.8% 24.9% of 2.6 percent, despite the prices increase 30% 17.2% 20% for certain banking services. This may 28.6% 27.6% 28.6% 10% 23.9% reflect the increase of the number and 0% volume of e-banking transactions during December 2011 December 2012 December 2013 December 2014 Interest expenditures Non-interest expenditures 2014, which have lower fees. Until General and administrative expenditures Revaluation losses Fees provisions December 2014, the number of e-banking Source: CBK (2015) transactions increased to euro 1.6 million (euro 1.1 in 2014), while the value of transactions to euro 4.2 billion (euro 2.7 billion in 2013). During 2014, the category of income from interest on securities was the sole category of income which was characterized with an increase. This category marked an annual increase of 25.8 percent in December 2014, compared to a decline of 24.5 percent marked during the previous year. The increase reflects the orientation of commercial banks in the country towards investments on securities of the Government of Kosovo, which during the year had higher interest rates compared to the previous year and compared to the securities of foreign governments. In 2014, the average interest rate on securities of the Figure 56. Annual growth of expenditures by categories, in percent Government of Kosovo was 1.6 percent 80% compared to 1.0 percent in 2013. The 67% placement in the market of government 54% 41% 36.6% bonds with two year maturity, which 28% 21.3% have higher interest rates, had a 15% 8.0% 10.3% 1.1% significant impact in the increase of 2% 5.9% 5.4% -1.9% 1.2% -11% income from interest on securities. -6.1% -24% -31.1% -37% -43.0% Expenditures -50% December 2011 December 2012 December 2013 December 2014 In December 2014, total expenditures of Interest expenditures Non-interest expenditures the banking sector amounted to euro General and administrative expenditures 184.2 million, marking a decline of 17.4 Source: CBK (2015)

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Number 7 Financial Stability Report percent compared to the previous year. The structure of expenditures is dominated by the category of general and administrative expenditures which increased its share compared to the previous year, reaching 55.3 percent in December 2014 (45.1 percent in Figure 57. Annual growth rate of expenditures by December 2013). Interest and non- categories, in percent interest expenditures category have 140% decreased their shares in the structure 110% 80% of total expenditures, by declining to 50% 23.9 percent and to 17.2 percent, 20% respectively (figure 55). -10% -40% General and administrative -70% expenditures in 2014 marked an annual Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2011 2012 2013 2014 growth of 1.2 percent compared to the Deposit interest rate Fees and commissions decline of 1.9 percent in 2013 (figure 56). Provisions General and administrative expenditures

In this category, general expenditures Source: CBK (2015) marked a decline of 2.2 percent, those of personnel increased by 0.1 percent, while other non-interest expenditures marked a growth of 8.8 percent. In 2014, interest expenditures marked an annual decline of 31.1 percent compared to 1.1 percent growth marked during the previous year. The decline is mainly attributed to the reduction of interest expenditures on deposits, which is the main component of this category with a share of 82.7 percent in total interest expenditures. Interest expenditures on deposits marked an annual decline of 37.3 percent as a result of the significant decline in deposit interest rates during 2014 (figure 57). In December 2014, the category of non-interest expenditures was characterized by a significant decrease of 43.0 percent, thus contributing to the decline of total expenditures in 2014. The reduction of these expenditures is attributed to the annual decline of 55.4 percent of expenditures on provisions for loan-losses, which also constitutes the majority of non-interest expenditures. The lower amount of provisions allocated during this period was a result of improved loan portfolio quality, namely the reduction of non-performing loan value in 2014 compared to the previous year (figure 58). Despite the fact that expenditures on provisions marked a significant decline, the level of coverage with provisions continues to be at a satisfactory level with 114.4 percent in December 2014 (110.5 percent in December 2013). Figure 58. Annual growth of loan loss provisions and NPL, in percent

Profitability and efficiency 60% 44.8% The considerable profit increase in 2014 40% 22.9% 35.8% 18.6% 20% impacted on the significant improvement 13.6% of profitability indicators of the banking 0% -0.2% -8.4% sector compared to previous years. -20% Return on Average Assets (ROAA) -40% reached 1.9 percent from 0.9 percent in -60% -55.4% 2013. Return on Average Equity (ROAE) -80% December 2011 December 2012 December 2013 December 2014 also marked an increase, reaching 20.2 Growth rate of loan loss provisions NPL growth rate percent from 9.4 percent in 2013 (figure 59). Source: CBK (2015) Significant reduction of expenditures, despite the slight decline of income, had an effect on improvement of overall efficiency indicator, which is expressed through the ratio of expenditures

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to total incomes. In December 2014, this indicator decreased to 75.4 percent from 89.6 percent in the previous year (figure 60). A slight improvement of the banking Figure 59. Profitability indicators sector efficiency is noted observed in the ratio of operational expenditures to total 60 25%

assets, which in December 2014 was 50 20.2% 20% reduced by 0.1 percentage points 40 14.9% compared with the same period of the 15% 30 previous year (Table 4). Also, net 9.4% 6 10%

interest margin marked a slight growth 20 7.1% In millions of euroInmillions of 0.1 percentage point, to 5.8 percent in 5% 1.9% 10 1.4% December 2014. The growth of this 0.7% 0.9% indicator reflects the accelerated growth 0 0% December 2011 December 2012 December 2013 December 2014 of net interest income (as a result of Profit ROAA (right axis) ROAE (right axis) decline of interest expenditures in Source: CBK (2015) deposits) compared to the growth of interest-bearing assets. Some indicators of capacity of the banking sector are presented in table 5, whose developments in recent years suggest the growth of capacity utilization of the sector. This is expressed through indicators that present the ratio of the average value of assets managed by one employee and the report of the average number of loans issued by one employee. The data for both indicators, up to December 2014, suggest increased capacity utilization by the banking sector of Kosovo.

Table 4. Key efficiency indicators of the banking sector, in percentage

Description December 2011 December 2012 December 2013 December 2014

Operational expenditures/total assets 3.7% 3.6% 3.3% 3.2% Net interest margine 6.3% 6.0% 5.7% 5.8%

Source: CBK (2015) The improvement of these two indicators Figure 60. Expenditures to income ratio, in percent was influenced by the increased activity

of the banking sector in 2014 along the 95% slight decrease of the number of 92.5% employees in the banking sector to 3.504 90% 89.6% in December 2014 from 3.549 in the 85% previous year. Another indicator of the 85.0% banking capacity, expressed as the ratio 80% of realized profit per employee, marked 75.4% a high improvement. This came as a 75% result of high profits realized during 2014 and the decrease of the number of 70% December 2011 December 2012 December 2013 December 2014 employees. Whereas the ratio between the total of personnel expenditures and Source: CBK (2015) the number of employees in December 2014, marked an increase compared to the last year, which represents a cost increase of manpower factor for banks in Kosovo. Similar level of

6 The net interest margin represents the ratio between net interest income and the average profitable assets.

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Number 7 Financial Stability Report personnel expenditures along the decrease of the number of employees in the banking sector during this period affected the growth of this indicator.

Table 5. Indicators of the banking sector capacity

Description December 2011 December 2012 December 2013 December 2014

Assets/no. of employees (in thousands of euro) 710.8 759.1 862.0 908.7 Number of loans/no. of employess 103.2 119.7 121.5 135.4 Profit/no. of employees (in thousands of euro) 9.6 5.0 7.3 17.1 Personnel expenditures/no. of employees(in thosuands of 10.9 11.4 11.9 12.1 euro)

Source: CBK (2015)

6.4 Banking Sector Risks

The risks to which the Kosovo banking sector is exposed remain at a low level Figure 61. The map of the banking sector risks (in %) without any significant change during Economic growth in Kosovo 2014. In figure 61, which presents the 25.0 20.0 main indicators of banking risks and the 15.0 Economic growth in NPL performance of the sector, it can be 10.0 euro area noticed that all risk indicators have 5.0 0.0 shown improvements, with the exception -5.0 of economic growth in the country, which declined. This general improvement of CAR Net interest margine influential developments in the banking sector is reflected in the significant increase of performance compared to the ROAE 2013 2014 previous year. The external Source: CBK (2015) macroeconomic environment has improved undergoing positive growth rate compared to 2013 when the euro area economy marked an economic decline.7 Regarding the domestic macroeconomic environment, Kosovo’s economy marked an increase in 2014, but with lower rate compared to 2013. The capital of the banking sector increased during 2014 as a result of increased net income, resulting in enhanced quality of capital as well as the sector's capitalization indicators. Strengthened capital position suggests durability banking sector and satisfactory ability to cope with the potential losses. Credit risk has decreased in 2014, reflecting the lower rate of non- performing loans to total loans and the declining trend in concentration of credit risk compared to the previous year. Also, the coverage of non-performing loans by provisions for loan losses increased, which shows good protection of the sector from possible losses. The liquidity position of the banking system remains at a satisfactory level despite the rapid growth of crediting compared to deposits growth. Deposits marked slowdown in the growth and orientation towards shorter maturity which, together with higher growth in lending in 2014, are reflected in the decline in liquidity reserves and slightly decreased of indicators of liquid assets to short term liabilities. However, both of these liquidity indicators remain well above the minimum levels established by regulatory requirements. Banking system of Kosovo continues to have low exposure to market risk, given the fact that almost all loans and deposits continue to carry fixed

7 The annual growth rate of GDP of Kosovo for 2014 is an estimate of the CBK, while the annual growth rate of euro area GDP is obtained from IMF statistics.

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interest rates and the fact that the balance sheet of the banking sector is almost entirely denominated in euro currency and therefore has low exposure to exchange rate risk.

6.4.1 Liquidity risk The exposure of the banking sector to Figure 62. Loans and deposits of the banking liquidity risk remains low despite the system, in millions of euro slight increase that has been marked in 3000 86% 2014. Deposits marked a slowdown in 84% 2500 the growth and an orientation towards 82% 2000 80% shorter maturities, partly reflecting 78% 1500 increased sensitivity to the declining 76% deposit interest rate. However, deposits 1000 74% 72% 500 are expected to continue to grow given 70% the prospects for higher economic 0 68% Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec growth in Kosovo and the euro area in 2011 2012 2013 2014 2015, and those developments are Loans Deposits Loans to deposits ratio (right axis) expected to be reflected in better performance of the business and high Source: CBK (2015) level of remittances. The highest growth of lending during 2014 as well as the slowdown in deposit growth reflected to a decline in liquidity reserves and a slight decrease in indicators of liquid assets to short-term liabilities, but both these indicators remain above the minimum levels prescribed by regulatory requirements. External funding, although traditionally used in small extent by the banking sector, can be easily accessible in the current period considering quantitative easing program of the European Central Bank which is expected to be reflected in increased liquidity in the foreign market. The loans to deposits ratio recorded a slight increase of 74.2 percent in December 2014 compared with 73.7 percent of the previous year (figure 62). As seen in figure 62, loans to deposits ratio is consistently characterized by seasonal effects. Seasonality is generally more significant for deposits, which almost always tend to decline in the second quarter of the year. On the other hand, lending shows a more significant growth trend in the second quarter. Reason of seasonality in loans and deposits might be increased demand for expenditure in the economy during this period. New loans have higher value in this period, which suggests increased demand for expenditures in the economy, which could mean that the funds available for saving and, consequently deposits, tend to be lower during this period of the year. In 2014, deposits have recorded a more significant slowdown of growth in the last Figure 63. Broad liquid assets ratio to short term liabitlites quarter and this has affected increased 48% ratio of loans to deposits at the end of the 2500 50% 39% 43% year, compared to previous years when 2000 40% the loan to deposit ratio at the end of the 1500 30% year reached the minimum values. However, the loan to deposit ratio 1000 20% remains below the rate of 80 percent, 500 10% which can be considered as high-level 0 0% Dhjetor 2012 Dhjetor 2013 Dhjetor 2014 indicator of liquidity in the sector, Broad liquid assets Short-term liabilities suggesting that there is room for further Broad liquid assets/short-term liabilities lending growth without risking the Source: CBK (2015) liquidity position of the banking sector.

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The increase of the lending activities in 2014 has affected a decrease in short-term liquid assets. In December 2014, short-term assets declined by 3.7 percent, by decreasing the share to total assets at 34.3 percent compared to 37.2 percent in December 2013. On the other hand, short-term liabilities increased by 6.4 percent. Subsequently, overall ratio of liquid assets to short term liabilities declined to 43.3 percent compared with 48 percent in December 2013, but remains well above the 25 percent minimum level required by the Central Bank (figure 63).

In the context of liquid assets, the most significant decline recorded tradable securities of governments and central banks, followed by deposits with banks and other financial institutions and account with CBK. Meanwhile, transferable deposits mainly contributed to short-term increased liabilities. Required reserves of the banking sector Figure 64. Banking system reserves, in millions of have also continued to stay at a higher euro level than the regulatory requirements, 450 but the reserve surplus in 2014 was 400 350 lower compared to the previous year 300 (figure 64). In December 2014, the 250 minimum requirements for mandatory 200 150 reserve were in value of euro 224 100 million, while total reserves of the sector 50 0 were higher by 69 percent. Maintaining 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 high level reserves can be considered Required reserves Balance with the CBK positive because the sector reduces Cash Total reserves exposure to potential risk developments Source: CBK (2015) for liquidity sector. However, this represents an opportunity cost for banks that do not collect interest on excess reserves, which can be transmitted to increase the cost of banking services. Therefore, in this context, the downward trend of excess reserves in 2014 can be considered as a favourable development because it suggests better management of liquid assets in terms of opportunity cost minimization, by placing liquid assets in view of activities such as lending to ensure income for banks and contribute to the economic development.

During the first half of 2014, the Figure 65. Liquidity gap, in millions of euro banking sector of Kosovo was characterized by an increase of 600

'structural liquidity risk', manifested by 300 increased discrepancy between the 0 maturity of assets and liabilities of the -300 same maturity interval (figure 65).8 Liquidity gap has increased -600 considerably in almost all categories. -900 1-7 days 8 - 30 days 31 - 90 days 91 - 180 181 - 365 Over 1 year The most significant growth was ddays ddays December 2011 December 2012 recorded in the category '1-7 days', December 2013 December 2014 where the gap has doubled to euro -878 Source: CBK (2015) million from euro -431.8 in December 2013. This led to the negative gap for the cumulative period "up to 3 months' to increase to euro - 669.3 million from euro -271 million in December 2013. The significant growth of negative gap for the period '1-7 days' also led to significant increase of the negative gap for cumulative period 'of

8 The negative gap means that assets for the determined interval of maturity exceed the liabilities and vice versa.

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up to 1 year', but its negative effect is slightly mitigated by increased positive gap for categories '31-90 days 'and '91 -180 days', and the transition to a positive gap of category '181 to 365 days'. The increase of the negative gap was mainly driven by developments in the main items of the balance sheet, to be exact loans and deposits. Lending growth is reflected in Figure 66. NPL to total loans ratio, in percent

the reduction of short maturity assets 10% 8.5%8.7%8.6% 8.5% and increase of assets with maturities 9% 8.2% 8.3% 7.8% 8% 7.5%7.6% longer than one year. With regard to 7.0% 7% 6.5% liabilities, the increase of deposits 6.2% 6.0% 6.0% 5.9% 5.7% under the maturity category "1-7 days" 6% 5% and the decline of deposits for all other 4% categories of maturity show a shift of 3%

deposits toward short-term maturity. 2% This development coincides with the 1%

decline of interest rates on deposits, 0%

Jun Jun Jun Jun

Mar Mar Mar Mar

Dec Sep Dec Sep Dec Sep Dec which reduced the attractiveness of Sep 2011 2012 2013 2014 time deposit. Source: CBK (2015) Such developments in the deposits structure, stress the need of increasing Figure 67. Annual growth of total loans and NPL deposits with long-term maturity, because such development would 40% reduce the risk of liquidity and would 35.8% 30% create higher possibilities for a growth 18.6% in long-term lending, which is a highly 20% 16.4% desirable development with regard to 13.6% 10% improving the conditions on funding 3.8% 4.2% 2.4% investments. 0% -0.2% December 2011 December 2012 December 2013 December 2014

-10% 6.4.2 Credit risk Growth rate of total loans Growth rate of NPL

Source: CBK (2015) Kosovo banking sector exposure to credit risk showed a downward trend Figure 68. NPL by sectors

during the year 2014. The ratio of non- 18% 16% performing loans (NPL) to total loans 14% decreased to 8.3 percent from 8.7 12% 10% percent in December 2013 (figure 66). 8% 6% The decline of non-performing loans 4% ratio comes as a result of annual NPL 2% 0% value decline and accelerated growth of loan stocks in 2014 (figure 67), whereas one of the factors that may

have contributed in improvement to the December 2012 December 2013 December 2014 quality of the loan portfolio sector is the fact that in recent years banks Source: CBK (2015) have applied tighter lending standards for the economy. Household sector remains with the lowest exposure to credit risk. The NPL ratio remains at a similar level to the previous year, with a slight increase of 2.7 percent compared with 2.6 percent in December 2013.

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The enterprise sector continued to be the most exposed sector to credit risk, Figure 69. Structure of loans by classification within which the exposure was more 100% 3.7% 5.0% pronounced in the energy and real 5.9% 6.6% 95% 2.0% 2.5% estate (figure 68). NPL ratio for these 2.6% 2.8% 1.7% 1.7% 2.5% two sectors has recorded the most 90% 3.6% 3.3% 2.9% 2.2% significant annual growth. In the energy 3.0% 85% sector, the share of non-performing 90.0% 87.1% 86.2% loans to total loans amounted to 17.4 80% 84.7% percent from 14.1 percent marked in the 75% previous year, while for real estate to December 2011 December 2012 December 2013 December 2014

13.7 percent from 12.2 percent in Standard Watch Substandard Doubtful Loss December 2013. The increase of the Source: CBK (2015) NPL rate in both sectors represents an annual growth of the NPL value from Figure 70. Loans movements by credit classification, in 8.1 percent for electricity and 3.5 percent percent for real estates and on the 40% other hand, the stock value decline of 35% total loans for these sectors ( annual 8.7% 30% 8.3% decrease of 12.5 percent for energy 7.5% 25% loans and 8.1 percent decrease in real 5.8% 12.3% 20% 11.6% estate loans). 10.0% 15% 8.3% On the other hand, manufacturing and 10% 15.3% 12.9% 13.8% trade sector have marked an increase of 5%10.0% the total loans value and a decrease of 0% December 2011 December 2012 December 2013 December 2014 the NPL value which resulted in decline Delayed Classified Non-performing of the NPL ratio in both sectors. In the Source: CBK (2015) manufacturing sector, the NPL rate decreased to 12.0 percent from 15.2 Figure 71. NPL and provisions percent in 2013, while in the trade sector, the NPL rate decreased to 11.5 180 122% 121% percent from 12.2 percent as it was in 160 120% 140 118% the previous year. Another sector that 120 116% was characterized by significant 100 114.4% 114% 112.6% improvement of the loan portfolio 80 112% 110.6% quality is the tourism and services 60 110% sector, which despite decline of the total 40 108% loans value, declined its share to non- 20 106% 0 104% performing loans to total loans to 8.7 December 2011 December 2012 December 2013 December 2014 percent from 11.3 percent as it was in NPL (në milionë euro) Provizionet/NPL (boshti i djathtë) the previous year. Source: CBK (2015) The agricultural sector is characterized by improvement of the loans portfolio quality, where NPL rate marked a slight to 7.9 percent from 8.0 percent in December 2013. In terms of the loans structure by its classification, in 2014 has been marked an increase of the share of standard loans and loss loans, while other categories have marked a decline (figure 69). The increase of the share of standard loans reflects a more significant increase of lending that has characterized this period, whereas the increase of loss loans share in one hand and the reduction of the share of doubtful loans, nonstandard and watch loans on the other hand suggests

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that a part of these categories with overdue have deteriorated by migrating towards the latter category.

However, the performance of loans by Figure 72. Concentration of credit risk credit rating, as shown in figure 70 350 140% shows an improvement trend for the 129.7% 99.6% 300 120% three loan classifications: overdue loans, 250 93.4% 100% classified loans and non-performing 200 80% 9 60.4% loans. The decline of the share of non- 150 60%

performing loans to total loans is 100 40% In euro of millions In attributed to the decrease in the share of 50 20% doubtful loans, since loss loans have 0 0% December 2011 December 2012 December 2013 December 2014 increased their share in the structure of Overall large exposures total loans. Total Tier 1 capital Large exposures to total Tier 1 capital (right axis) The banking sector has increased the Source: CBK (2015) level of coverage of non-performing loans by provisions to cover potential loan losses. The coverage ratio of non-performing loans by provisions has increased to 114.4 percent from 110.6 percent in December 2013 (figure 71). Provision coverage ratio of classified loans has marked an increase to 82.0 percent in December 2014 from 78.2 percent in December 2013. Lending to the economy has recovered in 2014 and similar growth trend is expected to continue in 2015. According to the bank lending survey in December 2014, the supply and demand for loans is expected to increase in all sectors. Such expansion in lending may have a positive impact on the enterprise capacity expansion and could reflect positively on their capacity to return the existing and new loans. However, the easing of lending standards, along with the reduction of interest rates on loans, may receive loan applications from clients of a lower financial "classification"; however the further expansion of lending is required to be in accordance with sound lending principles. Figure 73. Banking system capitalisation Concentration of credit risk 20% 17.6% 17.8% Another aspect of credit risk is the 16.7% 14.2% degree of concentration of credit 15% exposures. The year 2014 has marked a decrease of the concentration of the 10% credit risk, unlike previous years when 5% this indicator had marked an increase

(figure 72). The ratio of large credit 0% 10 December 2011 December 2012 December 2013 December 2014 exposures in relation to the Tier 1 CAR capital, 11 as a key indicator of the Tier 1 capital/Risk weighted assets Equity to assets ratio concentration of credit risk, has decreased to 99.6 percent in December Source: CBK (2015) 2014 from 129.7 percent as it was in the previous year. The decrease was attributed to the increase of the Tier1 capital (annual growth of 22.5 percent) and also the decline in the value of

9 According to CBK Regulations on credit risk management, the abovementioned credit ratings are grouped into three categories of credit risk exposure: overdue loans, which include watch, sub-standard, doubtful and loss categories; Classified loans which include categories that include sub-standard, doubtful and loss loans, and nonperforming loans that include doubtful and lost loans. 10 High exposure is considered the sum of all direct and indirect exposure to a single borrower or group of related borrowers whose value exceeds 10% of Tier 1 capital of respective bank. 11 According to the regulation on large exposures, the sum of all large credit exposures against person or group of persons, when each of the exposures exceed ten percent (10%) of Tier 1 capital of the bank, is limited to 300% of Tier 1 capital

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Number 7 Financial Stability Report large exposures which decreased to euro 299.8 million in December 2014 (an annual decline of 6.0 percent). The number of large exposures of the banking sector has decreased as well. From 68 in December 2013, the large exposures number decreased to 56 in December 2014. However, the average value of large exposures was higher than in the previous year, standing at euro 5.4 million in December 2014 (euro 4.7 million in December 2013) by suggesting higher concentration of credit risk in a smaller number of credit exposures.

6.4.3 Solvency risk Kosovo's banking sector strengthened Figure 74. Regulatory capital and RWA capital position during 2014. In 1800 20% December of 2014, the Capital Adequacy 15.9% 1600 17.0% 15% Ratio (CAR), which represents the total 1400 14.1% 14.1% regulatory capital to the risk weighted 1200 9.2% 10% 1000 7.3% 5% assets ratio, amounted to 17.8 percent 800 compared with 16.7 percent in the 600 0% -1.6% 12 400 previous year (figure 73). The increase -7.7% -5% 200 of the capitalization ratio came as result 0 -10% of the increase of the regulatory capital December 2011 December 2012 December 2013 December 2014 Regulatory capital with a rate of 14.1 percent, compared RWA Annual growth rate of regulatory capital (right axis) with the increase of 7.3 percent of the Annual growth rate of RWA (right axis)

Risk Weighted Assets (RWA) (figure 74). Source: CBK (2015) The increase of the capitalization indicator ranks Kosovo above the average level of capitalization in the Figure 75. Structure of the banking system regulatory capital region, which in December 2014 had, on 13 100% average, a CAR of 16.8 percent. The 16.0% 90% 18.1% 23.5% 17.9% increase of the regulatory capital during 80% 70% 2014 is attributed to the increase of Tier 60% 1 capital (increase of 22.5 percent), while 50% 84.0% 40% 81.9% 76.5% 82.1% the Tier 2 capital marked a decrease (a 30% decrease of 13percent). This development 20% 10% has further improved the quality of the 0% banking sector capital, which is reflected December 2011 December 2012 December 2013 December 2014 in the rate of Tier 1 capital to risk Tier 1 capital Tier 2 capital weighted assets, as well as in the increase of the leverage ratio. In Source: CBK (2015) December 2014, the index of Tier 1 capital to risk weighted assets amounted to 14.6 percent compared with 12.8 percent, in December 2013. Leverage ratio, which represents the level of equity to total assets, amounted to 10.8 percent from 9.7 percent in December of the previous year. The increase of the leverage ratio came as result of a more pronounced increase in equity (16.3 percent of annual growth) along with the increase of the sector total assets (16.4 percent of annual growth). The current leverage ratio exceeds the regulatory requirement that requires a minimum ratio of 7 percent. 14 However, the

12 According to CBK regulation on Capital Adequacy, banks are required to maintain at least 12 percent of total regulatory capital to RWA ratio and at least 8 percent of Tier 1 capital to RWA ratio. 13 Average capital adequacy ratio (capital of Tier I and II to Risk Weighted Assets) of the region (Western Balkan countries such as: Bosnia and Herzegovina, Montenegro, Macedonia, Albania and Serbia). The data were obtained from the Global Financial Stability Report of the International Monetary Fund. The reporting period covers December 2014 with the exception of Montenegro, where the data are for the period of March 2014.

14 CBK regulation on Capital Adequacy.

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current level continues to remain below the level of the countries in region, which in December 2014, on average, had leverage ratio of approximately 14.0 percent.15 Regulatory capital value of the banking Figure 76. Structure of Tier 1 capital, in millions of sector amounted to euro 366.6 million in euro December 2014, exceeding the minimum 350 requirement of the regulatory capital (or 4.81 300 4.70 91.86 12 percent of RWA) for euro 119.4 5.06 250 56.93 million. As noted above, the regulatory 63.92 capital quality has marked an 200 improvement in 2014, compared to its 150 221.17 231.26 decreasing trend in the recent years. In 100 200.07

December 2014, the trend of gradual 50

decline of the share of Tier 1 capital and 0 December 2012 December 2013 December 2014 the growth of the financing by sources Investments in equities, deferred tax Lending to bank related persons Intengible assets and Goodwill of the Tier 2 capital ended, where the Retained profit, current year to date, reserve assets share of Tier 1 capital in total Capital (Shareholders capital, surplus, preferred shares) Source: CBK (2015) regulatory capital increased to 82.1 percent from 76.5 percent of in the Figure 77. Structure of Tier 2 capital, in millions of previous year (figure 75). This level of euro the share of the Tier 1 capital to total 80 regulatory capital is close to the regional 70 average, which in June 2014 was around 60 50 85 percent. 16 56.3 45.74 40 31.0 The significant growth of the sector 30 31.0

profit in 2014 is the main factor in the 20 increase of the Tier 1 capital, which 10 16.5 19.1 19.0 19.80 means improvement of the capital 0 quality. Consolidation in conformity December 2011 December 2012 December 2013 December 2014 Debt instruments required as convertible in ordinary shares Subordinated debt with regulatory changes enforced in General provision for loans (Standard and watch) December 2012, which was manifested Source: CBK (2015) by a gradual reduction of the sector's exposure to bank related persons, was another important factor in increasing the level of Tier 1 capital.17 The increase in the share capital by some banks had a significant weight in the increase of the Tier 1 capital, as well. On the other hand, the distribution of the dividend by some banks was almost the only factor that reduced regulatory capital through retained profit reduction. Tier 1 capital structure remains similar with prior time periods. Shareholder capital remains the dominant category, with a slight decline of the share (76.8 percent from 90.0 percent in December 2013) as a result of increased share of the second category by size which consists of the profit (figure 76). Tier 2 capital, on the other hand, decreased as a result of subordinated debt reduction. In December 2014, the value of subordinated debt declined to euro 45.7 million compared to euro 56.3 million in December 2013 when the subordinated debt of the sector had recorded the highest growth (almost doubled in comparison with previous years) (figure 77). The increase of

15 Leverage average ratio for the region (countries of Western Balkans, such as: Bosnia and Herzegovina, Montenegro, Macedonia, Albania and Serbia) calculated by the CBK from the balance sheet reports of respective countries, reported to the relevant Central Banka. The data include period of December 2014. 16 The average Tier 1 capital to the total regulatory capital ratio for countries of the regions, calculated from the reported data within the Financial Soundness Indicators of the International Monetary Fund – IMF, as well as from publications of relevant countries Central Banks. 17 Borrowings to persons associated with the bank deducted in the calculation of Tier 1 capital, thus reducing these exposures has increased the Tier 1 capital level. Within the new positions which are deducted from the calculation of Tier 1 capital, borrowings to related persons have greater weight, whose value represents 5.4 percent of the Tier 1 capital in December 2014 compared to 10.8 percent in December 2013.

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Number 7 Financial Stability Report subordinated debt in 2013 was mainly a result of the need to increase capital for completion of the new regulatory requirements that came into effect in late 2012 and in July 2013. In 2014, the sector had already reached consolidation conform to regulatory requirements. Good quality financial performance of the banking sector in 2014, expressed with a record growth of profits, has served to increase the sector capital by reducing the need of subordinated debt, whereas general loan provisions increased in 2014, reaching euro 19.8 million compared to euro 19.0 million in December 2013.18 Unlike previous years where banks, although in very small percentages, used debt instruments compulsorily convertible into shares for capital completion, in the previous two years these instruments were not applicable. Risk-weighted assets

The value of Risk-Weighted Assets Figure 78. Structure of RWA by risk weight (RWA) in December 2014 amounted to euro 2.06 billion from euro 1.92 billion in 100% the previous year. The increase of RWA 1.6% 0.1% 0.1% 80% was mainly a result of growth risk 60% 76.9% weight with operational risk of 100 70.4% 72.4% 78.1% percent, which include loans and off- 40% balance sheet items. The value of these 20% assets amounted to euro 1.6 billion from 1.1% 0% 2.6% 0.4% 1.2% euro 1.4 billion in the previous year, December 2011 December 2012 December 2013 December 2014 increasing their share in total RWA to Weight 20% Weight 50 % Weight 75% 78.1 percent from 72.4 percent in Weight 100 % Weight 150 % Operational risk

December 2014 (figure 78). Sourcei: CBK (2015) On the other hand, assets with risk weight of 75 percent have marked a Figure 79. RWA to toal sector assets ratio significant decline, reducing the effect of 62% increase of the total RWA from the 60.8% 60% 58.2% 58.2% 58.6% significant increase of assets with risk 58% 58.2% 58.2% weight of 100 percent. These assets, 56% 55.3% which include loans covered with 54% 19 53.2% collateral of the first order decreased to 52% euro 187 million from euro 292 million 50% in the previous year, while their share in 48% total RWA decreased to 9.1 percent from December 2011 December 2012 December 2013 December 2014 15.2 percent. RWA to total assets ratio RWA to total assets ratio (excluding operational risk assets) Other categories of RWA did not experience any significant change. Of Source: CBK (2015) the total assets of the sector, 20 the value of assets which do not carry risk, or that weigh 0 percent of risk, decreased to nearly 60 percent of the value of RWA compared to 65 percent in December 2013. This may suggest an increasing trend of the risk of the banking sector in Kosovo. The trend of higher risk can also be based on the analysis of the RWA to total assets ratio, which has marked an increase (figure 79). In December 2014, the share of risk weight assets to total assets of the banking sector reached 60.8 percent from 58.6 percent in December 2013.21

18 Value of provisions allocated by banks on loans with standard and watch rating is calculated as shear of Tier 2 capital, limited to 1.25% of risk- weighted assets. 19 Specifically, the assets weighted by 75 percentage points of risk include loans or parts thereof covered by collateral of the first order in the form of residential mortgages and loans for the builders to finance immovable property construction, where the financed property has been sold or rented. 20 Off-balance assets are included in the calculation due to their involvement to the calculation of total RWA. 21 Inclusion of assets in operational risk to RWA became effective in July 2013, therefore, RWA of the period December 2011 and 2012 do not include these assets.

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6.4.4 Market risk Banking sector exposure to the market risk, which implies the risk of the movements in exchange rates and changes in interest rates, continue to be at low level. Net open position in foreign currency against Tier 1 capital has marked a decline, thus further decreasing the low sensitivity of the sector to changes in exchange rates. Loans in foreign currency, which also currently have a very low share to total loans portfolio (0.3 percent in December 2014), have recorded a decrease, and thus do not pose risk to the banking sector. Exposure to interest rate risk continues to remain low. The main items of the balance sheet of the banking sector, being comprised of loans and deposits, mainly carry fixed interest rates and are not affected by movements in interest rates in the short term. However, there is interest rate risk in terms of refinancing and reinvestment of assets, where possible changes in interest rates are quickly reflected on the liability side of the sector due to the shorter maturity interest-bearing liabilities in relation to assets. Since assets and the interest-bearing liabilities ratio to total assets remain low, it suggests that changes in interest rates Figure 80. Opened positions in foreign currencies may have little impact on the against Tier 1 capital sustainability of the sector. 3.5%

Exchange rates risk 2.5% The aggregated net open position in 1.5% foreign currency slightly extended 0.5%

during 2014. Foreign currency assets -0.5% marked a decline to euro 123.1 million -1.5% (equivalent value) from euro 145.3 December 2011 December 2012 December 2013 December 2014 million in December 2013. The foreign US$ UK£ CHF Other Opened net aggregated positions/Tier 1 capital currency liabilities marked a lower decline from euro 145.4 million to euro Source: CBK (2015) 126.9 million equivalent value, making the net open position expand to equivalent value of euro -3.7 million Figure 81. Loans and deposits in foreign currency (euro -0.03 million in the equivalent 6.0% 5.5% 5.7% value in December 2013). On the other 4.5% 5.3% 5.0% hand, the aggregate net open position to 5.0% 4.4% 4.0% all currencies22 recorded a decline of euro 4.4% 3.6% 5.7 million equivalent values in 3.0% December 2014 compared to euro 6.4 2.0%

1.0% 0.43% million equivalent values in the previous 0.39% 0.34% 0.32% year. This decrease, along with the 0.0% December 2011 December 2012 December 2013 December 2014 increase of the level of the Tier 1 capital The share of loans in foreign currency in total loan portfolio of the banking sector during this period The share of liabilities in foreign currency in total liabilities Loans in foreign currency against deposits in foreing currency had an impact in decreasing the aggregated net open position in foreign Source: CBK (2015) currency to Tier 1 capital ratio to 1.9 percent compared to 2.6 percent in December 2013 (figure 80). In terms of the currency disaggregation, higher net open position to Tier 1 capital was reached by US dollar, unlike Swiss franc in the previous year. In December 2014, this ratio for the US dollar reached -0.8% (-0.4% in December 2013), while for Swiss franc the ratio changed direction and

22 Aggregated net open position means the amount of long and short positions in all currencies. For example, a short net position (-) in dollars equivalent to 1 million euro, and a net long position (+) in Swiss francs worth of 1 million euro equivalent resulting in aggregated net position of euro 2 million, whereas net open position would be 0.

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Number 7 Financial Stability Report decreased to -0.2% (from 0.5% in December 2013). The net opened position ratio for individual currency to the Tier 1 capital continues to be under the maximum of 15 percent allowed by the CBK. Based on these data, it may be suggested that the banking sector remains well protected from the movements in exchange rates. Kosovo’s banking sector has a quite low level of lending in foreign currency. In December 2014, the loans issued in foreign currency decreased to euro 5.9 million from euro 6.1 million equivalent value in the previous year. Their ratio to total lending portfolio also decreased to 0.32 from 0.34 percent in December 2013. Foreign currency deposits, on the other hand, have higher share. In 2014, their value decreased from euro 113.1 million to euro 136.9 million in 2013 equivalent value and their share to total deposits decreased to 4.5 percent from 5.6 percent as it was in the previous. The higher decline of deposits compared to loans in foreign currency led to the loans to deposits ratio in foreign currency increase to 5.3 percent from 4.4 percent in December 2013 (figure 81).

Interest rates risk

Kosovo's banking sector is relatively well Figure 82. Loans and deposits sensitity to interest protected against changes in interest rates, by interest rate type rates, due to the fact that loans and deposits have mainly fixed interest rates 100% 9.0% 9.2% and interest income and expenses from 90% these items are not affected by 80% 100.0% 100.0% movements in interest rates until 70% 91.0% 90.8% maturity. Almost 91 percent of total 60% loans had fixed interest rates in 50% December 2014, while deposits with December 2013 December 2014 December 2013 December 2014 Loans sensitivity to interest rate Deposits sensitivity to interest rate fixed interest rates accounted for 100 percent of total deposits (figure 82). Fixed interest rate Changeable interest rate However, changes in interest rates can Source: CBK (2015) have an impact in terms of refinancing Figure 83. The gap of assets and liabilities sensitivity and reinvestment of assets depending on to interest rate, in millions of euro the composition of the maturity period of 800 assets and deposits which are sensitive 600 to interest rates (figure 83), and interest 400 rate movement direction . The difference 200 between assets and liabilities which are 0 sensitive to interests rates is almost the -200 -400 highest in the category of maturity up to -600 30 days, where liabilities which are 1-30 days 31-90 days 91-180 days 181-365 1-5 years Over 5 years days sensitive to interest exceed assets. December 2012 December 2013 December 2014 During 2014, this gap has increased to euro -416.7 from euro -384.8 million in Source: CBK (2015) December 2013. Given that the gap is negative for this category of maturity (the volume of the liabilities which are sensitive to interest rates is higher than the volume of assets), potential changes in short-term interest rates are more reflected in expenditures compared to the income of the sector. The dominant share of liabilities which are sensitive to interest rate are comprised of deposits, thus the banking sector is exposed to any possible increases in interest rates in the short term as the refinancing cost of deposits increases faster than income from the higher interest rates for investments as the maturity of assets is longer.

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However, within a year, the cumulative gap has gone in positive gap mainly due to lower liabilities which are sensitive to interest rates. In December 2014, the gap of assets and liabilities which are sensitive to interest rates for the period of maturity up to one year amounted to euro 151.2 million as opposed to euro-239.0 million euro gap in December 2013. In this situation of a positive gap, the difference in interest rates in the period of one year more affects more on revenues than on the sector expenditures, thus the overall sector exposure to increasing interest rates is almost neutralized.

Box 4. Identification of systemically important Banks in Kosovo

The model for identification of banks with systemic importance represents an important tool for continuous assessment of the degree of systemic importance of commercial banks in the country. Generally, a bank is considered to be of systemic importance if it is expected that its potential failure would be manifested with significant negative consequences for the functioning and stability of the entire sector and for the economy in general. Therefore, continuous monitoring of the degree of systemic importance is considered to be of particular importance for financial stability since it enables the identification of banks whose potential failure would be manifested with significant negative consequences for the functioning and stability of financial sector and economy in general. In addition this model enables drafting of recommendations to compile policies and necessary measures to ensure the loss absorbing capacity of banks in compliance with the degree of their systemic importance.

This article presents an assessment of the degree of systemic importance for all the banks and their branches operating in the Kosovo’s market, based on the balance sheets data of December 2014 of the appropriate banks. To assess the systemic importance of banks, the model is based on four basic criteria: size, substitutability, interconnectedness and complexity. The first two criteria suggested by base model (size and substitutability) are considered as fundamental criteria for the determination of systemic importance in the case of Kosovo, therefore, their weight in the model is dominant with 40 percent each.

Table 6. The Indicators used to identify systemic importance of the banks in Kosovo

Criteria Indikatorët

The share of cash and balance w ith the CBK The share of sector assets The share in the market of the sector deposits Size Ow n capital of the bank to total sector capital ratio (weight 40%) The share of the sector securities The number of depositors to total depositors The share of liquid sector assets The share of agricultural loans of the sector The share of consumer loans of households The share of loans to industry, manufacturing, energy and construction Replacement The share of trade loans (weight 40%) The number of transactions to total transactions throught payment system The share of Kosovo's Government securities The share of total market loans The share of deposits and borrow ings from other financial corporations and other banks Interconnection The share of loans for other financial corporations (weight 10%) The share of placements in other banks (not including parent bank) Complexity Off-balance items share (weight 10%)

Source: CBK (2015)

While the two other criteria (interconnectedness and complexity) are weighted with 10 percent each, based on the fact that Kosovo’s banking sector has low degree of interconnectedness of institutions in terms of cross lending and borrowing and it is based on traditional banking activities where with a low degree of complexity as funding is based primarily on deposits and loans are the main product.

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For each of these criteria, respective indicators have been identified through which the systemic importance of each bank is assessed. The indicators used are shown in table 6, and each of the indicators within a particular criterion is given equal weight. The selection of indicators is done according to the subject matter theory and suggestions of framework based on which this model was developed. The general assumption in relation to size criteria, considered as the main criteria for measuring systemic importance of an institution, is that the larger the share of the bank is to the total sector the more significant it is its systemic importance as the affected parties from possible shocks in this bank are more numerous and the costs for the entire sector and the economy are larger. The size of the institutions is intended to be measured both in terms of the total share of the assets to total sector assets, as well as in specific aspects of the balance sheet such as the share of deposits to total sector deposits, the number of depositors, the share of the cash and reserves, etc. in order to reflect the importance of the respective bank in the specific aspects/ segments of the banking activity, for instance, the number of depositors who might be affected in case of problems or potential bankruptcy of a particular bank.

Substitutability criteria aims to measure the extent of substitutability of products and services offered from the respective bank by other banks in the market, in case of the failure of the respective bank. Key assumption for the substitutability criteria is that the larger the share of a bank in a particular market segment or in a certain type of service the higher is its technical capacity and knowledge for effective functioning in the relevant segment (e.g. assessing credit risk for the agricultural sector), which makes it more difficult the replacement of its role in that respective segment by existing or new banks in the market. Therefore, the systemic importance of an institution increases when the difficulties in substituting its services and products are larger.

Interconnectedness criterion is intended to measure the degree of interconnectivity of the banking institutions among themselves and with other financial institutions in the country in order to identify the risk of the spill-over effect of the crises to the other financial institutions and to the real sector. This criterion is of particular importance in measuring systemic risk in the countries with developed financial sectors where interconnection between institutions are numerous and complex. In Kosovo, the inter-bank market is almost non-existent and interconnections between financial institutions are limited to deposits and loans that other financial institutions as insurance companies, microfinance institutions and other financial auxiliaries have at commercial banks in the country. Consequently, the interconnection between financial institutions will be attempted to be measured by the share of placements with other banks and credit exposure to other financial corporations, as well as the share of deposits and borrowings from other financial corporations.

Regarding the complexity criteria, it should be noted that its aim is to measure the degree of complexity of the business model and operations of a bank under the assumption that the more complex the activity of a bank is, the higher the interconnections and agreements with third parties are, which increase the costs and time of addressing the problems in case of bankruptcy. In the case of Kosovo, a proxy for measuring the complexity of a bank has been suggested to be the share of the off-balance sheet items in the total portfolio of the assets of that bank.

To identify the systemic importance of a bank, the value of every indicator has been compared with the average value of the corresponding indicator for the entire sector. In cases where the value of the indicator of an institution has exceeded the average value of the sector, then that institution was considered to have systemic importance for that specific indicator. When the indicator was above the average of the sector (thus it is of the systemic importance), it was given the value of 1, while on the contrary its value was set to 0. Afterwards, these values were multiplied by the respective indicator weight, and when a bank resulted to have systemic importance in half or more than half of the indicators of a single criterion, then this bank was considered to be systemically important for that criteria. At the end, banks which had a sum of the weighted average of each of the criteria equal to or higher than 50%, then those banks were considered to have systemic importance. The higher the weighted average is, the higher the systemic importance of that institution is.

Results

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General results of the model with the data of December 2014 have been presented in the table 7. The results remain similar to the previous year in the sense that the four largest banks operating in Kosovo continue to be considered of an overall systemic importance. However, interval of the level of systemic importance has increased and extended by 65% for systemic bank with the lowest level of systemic importance, up to 100% for systemic bank with the highest degree, compared to 2013 when the interval was 53-89%. Two of the banks with overall systemic importance, similar to the previous year, resulted in systemic importance in all the criteria. While the other two, despite the overall systemic importance, have not resulted in the systemic importance of interconnectedness criteria (in December 2013 one of these banks did not result to be of a systemic importance nor the in the criterion of substitutability).

Table 7.Results of systemic importance of the Kosovo banks, according to criteria

Banks/Criteria Size Replacement Interconnection Complexity TOTAL

Bank 1 Bank 2 Bank 3 √ √ Bank 4 Bank 5 √ √ √ √ √ Bank 6 √ √ √ √ Bank 7 √ √ √ √ √ Bank 8 √ √ √ √ Bank 9 Source: CBK(2015)

Results also suggest that one of the smallest banks, which did not result with overall systemic importance due to lower share in the market, nevertheless, resulted to be of systemic importance in two of the criteria which is that of interconnectedness and complexity (in December 2013 this bank had a systemic importance only in the criteria of complexity). Also, it is worth mentioning that some of the banks, although did not result to have systemic importance for the entire criteria of substitutability and interconnectedness, resulted to have important share in several indicators as the number of transactions compared to the total transactions through the payment system, the share of securities of the Kosovo’s Government, and the share of deposits and borrowings from other financial corporations and placements in other banks excluding parent banks. Such a result, where banks have systemic importance in some certain indicators and criteria, but not overall systemic importance, suggests that the effect of their potential failures however can be high for certain sectors and aspects of the financial and real sector.

6.5. Stress-Test Analysis

Stress-test analysis represents an important tool to assess the sustainability of the sector against potential shocks in the credit portfolio as well as the liquidity position, which may result from unfavourable economic developments and changes in the market conditions. This analysis assesses the impact of these shocks in the quality of credit portfolio, the bank's income, liquidity position as well as its general financial position – the capital level. The analysis presented below is based on the banking sector data of December 2014 which were used for testing the sustainability of the sector to credit risk combined with the risk of interest rate and exchange rate risk (market risk).In the analysis was also tested the sector ability to maintain liquidity under hypothetical assumptions of significant withdrawal of deposits (liquidity risk).

The results of the stress tests analysis continuously suggest satisfactory abilities of the sector to handle extreme situations' of exposure to these risks.

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Credit Risk

Methodology Baseline scenario: The analysis is based on the hypothetic scenario when the economic situation in the euro area and in the region would deteriorate, and this would reflect the Kosovo’s economy mainly through a reduction in remittances and exports, thus discouraging overall demand in the country. As a result, the economic growth in the country is supposed to deteriorate by expanding the output gap and negatively impacting on the quality of credit portfolio. In this scenario it is considered the average rate of economic growth in Kosovo of around 3.5 percent in the past five years and it is supposed an economic decline of 2.5 percent for 2014, which would make the output gap to stand at 6.0 percent, whereas the impact on the credit portfolio quality, respectively in non-performing loans (NPL), it is estimated by considering a coefficient of elasticity of the NPL to the output gap of 0.8,23 where the share of NPL to total loans of the banking sector would grow by 4.8 pp. As a result of the shocks to the real sector, it is considered that next year will not be marked an increase in lending.

In an addition to the baseline scenario, beside the credit risk were also considered the effects of market risk in the sector revenues. So, the credit risk is combined with interest rate risk and exchange rate. Interest rates for the assets are assumed to decease by 3.0 pp, while for the liability part to 0.8pp because their base level is already quite low. Depreciation of euro against other currencies is assumed to be 20 percent, with the exception of the Swiss franc against which the depreciation is assumed to be at a higher level, reaching 30%.24

The effects of the abovementioned assumptions on the banking sector reflect as follows: the increase of the share of NPL to total loans has an impact on the provision increase; depreciation of euro has an impact on the revaluation of loss/profit from net open positions, and the reduction of interest rates affects the losses/profits of net interest income considering the maturity gap of assets and liabilities and their reinvestment/refinancing.

In addition to these assumptions, it is considered the expected profit as loss absorption from these shocks. In this context, it is assumed that the profit will also be affected by the abovementioned shocks, mainly through the decline of the ability of generating interest income as a result of the failure of loans (NPL growth). Therefore, the expected profit of banks is calculated based on the net profit after the tax of the year 2014, by initially applying first shock of 40 percent to reflect the effect of no lending growth, and then were deducted the revenues that would be realized if NPL would not increase.25

The assumed increase of NPL is expressed through the migration of loans from performing categories (standard, watch, substandard) towards nonperforming categories (doubtful and loss). NPL growth is proportionally distributed within the category of doubtful loans and loss loans, taking into account the initial share of these categories to total NPL. The NPL growth is reflected in the level of provisions based on the regulation of CBK for loan provisioning according to the classification. The assumption of increasing the NPL applies also to off-balance sheet items that include unused commitments, guarantees, available credit notes and commercial credit notes.

23 IMF unpublished note "CESE Bank Loss Projection and Stress Testing Exercise", July 2009. 24 Higher depreciation of the Euro against the franc is considered due to higher depreciation in January 2015 that came as a result of the termination of interconnectedness (eng: unpeg) of the value of these currencies.

25 Assessment of 'loss' revenues as a result of rising NPL was originally made by calculating ex post of the interest rate on loans for each bank, which is then multiplied by the value added to NPL.

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Despite the fact that in the analyzed scenario it is considered the depreciation of the euro against foreign currencies to assess the risk of the currency exchange rate, it is important to note that the impact of this risk on the balance sheet of the banking sector continues to be very low because of the low value of the net open positions in foreign currency. The scenario on interest rate risk implies the reduction of the interest rates for 3pp for assets and for 0.8pp for liabilities in the balance sheet. The reduction of the interest rates may affect net interest margin (NIM), mainly taking into account loans and deposits maturity since the majority of loans and deposits in the banking sector of Kosovo have fixed interest rates and interest rate changes are reflected until maturity. The negative effect on revenues from the interest rate decline on the asset side is neutralized to some extent by positive impact of interest rate decrease on liabilities, but the effect remains negative due to a more significant decline in the interest rate on assets.

Additional scenarios: besides the aforementioned scenarios, additional scenarios on credit risk analysis are considered also the failure of the largest borrowers in each of the banks, as well as the capable level of NPL for each bank prior to the occurrence of capitalization problems.

Finally, the stability of the banking sector in this analysis is assessed in terms of the impact of hypothetical scenarios in the level of regulatory capital of the banking sector, risk-weighted assets, and consequently, the capital adequacy ratio (CAR).

Results The state of the banking sector in Kosovo, in terms of capitalization of banks, in December 2014, was very favourable, with the capital adequacy ratio (CAR) standing at 17.8 percent (table 8). The banking sector continued to remain stable also in terms of the level of non-performing loans ratio to total loans, which stood at 8.3 percent, and their coverage by loan loss provisions which stood at the level of 114.4 percent, in December 2014. Hence, based on the good initial position and the highest profitability since the beginning of its operation, Kosovo's banking sector has shown high level of sustainability against the credit risk even under the terms of the hypothetical scenarios as described above.

Under the baseline assumptions for assessing credit risk (balance sheet and off balance sheet) - in which the NPL share to loan portfolio would increase by 4.8pp, whereas the expected profit for the year would be used to absorb losses - capital adequacy ratio (CAR) of the banking sector would decrease at the rate of 15.6 percent,26 which is above the minimum of 12 percent as required by the CBK. However, at the level of individual banks, CAR of the three banks would decline below 12 percent. Funds needed to restore capitalization to the required level would reach euro 8.6 million (equivalent to 0.16 percent of the value of the projected GDP for 2014). In these circumstances, the share of NPL to total loans of the banking sector would amount to 13.1 percent, while at the level of individual banks the highest level of NPL rate would be 15.8 percent.

Based on the shocks of the above assumptions, total loss of the banking sector would reach a value of euro 72.3 million (1.3 percent of GDP). However, this value cannot be considered fully as possible loss of the sector as it should be taken into account that a large part of this loss would be

26 It is worth mentioning that in this edition there is methodical change, the same as in Stability Report no. 6, in credit risk assessment, where the estimated annual losses henceforth are not deducted from risk-weighted assets for purposes of calculating the capitalization rate (CAR) after the shocks. This change is in accordance with practice that loans classified as loss do not happen to be deleted from the balance sheet before passing a year, and since time horizon of stress test analysis is one year, it is suggested that such losses remain within risk-weighted assets by a factor (weight) of the same risk. This methodological change represents a conservative approach to assessing credit risk in comparison with previous editions.

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Number 7 Financial Stability Report absorbed by the expected profit for the considered period. Also, a part of loss is returned through collateral or by reprogramming, but this aspect is not considered in this analysis.

Table 8.Summary of stress-test results: credit risk

Number of banks 1/ CAR % NPL % Ricapitalisation Description CAR CAR CAR Low er Higher No. of the Low er Higher No. of the In mln. of As % to <0 0-8% 8-12% number number sector number number sector euro GDP Levels prior to the shocks 0 0 1 11.2 20.4 17.8 6.3 11.0 8.3 Macroscenario shocks Base scenario 0 0 3 7.2 18.3 15.6 4.8 15.8 13.1 8.6 0.16 Combination with trade risk 0 0 3 6.2 17.2 14.5 4.8 15.8 13.1 11.6 0.21 Failure of three borrowers 2 0 2 -14.6 17.5 12.9 8.5 60.9 17.1 25.3 0.46 Failure of five borrowers 2 1 3 -30.5 17.5 9.8 8.5 80.2 20.6 79.9 1.46

Note: 1 / Out of nine banks considered in the stress test analysis, the number of banks that fall below the required regulatory, is divided by categories. Note: 2 / In reporting the minimum and maximum values of indicators at the level of banks, in some cases excluding the high values of CAR and the NPL value of 0 percent, which characterize banks in the beginning of their activity.

Source: CBK (2015)

Results of the additional scenario in which credit risk is combined with market risk - in which case along with the increased NPL rate by 4.8 pp, is included also the depreciation of the euro and the decline of interest rates on the levels as mentioned above - capital adequacy ratio (CAR) of the banking sector would drop to 14.5 percent. Three banks would decline their CAR under the below minimum regulatory of 12 percent, and the needs for recapitalization would be euro 11.6 million (0.21 percent of GDP). In this scenario, the effect of the depreciation of the euro would be lower as a result of net open position low value, while the effect of the decline in interest rates would be more significant. An additional scenario assumes the failure of large exposures. The results of the scenario in which it is supposed the failure of the three largest borrowers in each of the banks suggest that CAR of the sector would decrease to 12.9 percent. In these circumstances, in four banks, CAR would drop below the minimum required level of 12 percent and additional tools necessary to increase the minimum level of capital required would be euro 25.3 million (a value equivalent to 0.46 percent of GDP estimated for 2014). Assuming the failure of the five largest borrowers in each bank, the CAR of the sector would decline to 9.8 percent, while the number of sub- capitalized banks would reach six of them. The value needed for the recapitalization of the banking sector would amount to euro 79.9 million (an equivalent value of 1.46 percent of GDP estimated for 2014). The capable NPL levels of each bank before problems with capitalization would arise (before CAR would decrease below 12 percent) seem to be quite high for the most of the banks. In one of the banks, the NPL could increase up to 22.5 percent of the total loan portfolio of that bank before needing additional capital. In some banks, the capable levels of NPL rates seem to be lower, where the lowest level of NPL, which would cause no problems for one of the banks, is 11.9 percent (only 2.8pp more than the NPL level prior to the shock). One of the banks can withstand with the increase of NPL rate for only 1.7pp before needs arise for additional capitalization. However, the banking sector is able to withstand an NPL rate up to 18.1 percent without needing capital injection to maintain CAR at regulatory level of 12 percent.

6.5.2. Liquidity risk

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Methodology27 Baseline scenario: Analysis of liquidity risk is based on the baseline scenario of withdrawing a significant value of deposits from the banking sector, thus assessing the ability of the sector to withstand such shock. More specifically, it is considered the withdrawal of 8 percent of deposits on a daily basis, over a period of five consecutive days, by allocating liquid assets in the value of 5 percent of remaining deposits after each day due to operational purposes of the bank in the following day. Allocation of liquid assets in the value of 5% of the deposits means that, under these conditions, it is assumed that the required reserve of 10% would be halved, to 5 percent. The scenario is also built on the assumption that during this period the possibility of converting the remaining liquid assets into cash would be 80 percent, while the possibility of converting non- liquid assets into cash would be only 1 percent of these assets within a day. Also, this scenario assumes that banks are unable to be financed through external funding sources.

Additional scenarios: Besides the aforementioned scenario, as an additional scenario on credit risk analysis, were considered also the failure of the largest depositors in each bank, as well as the capable level of withdrawals of deposits for each bank have been considered, before the need for additional liquidity arises. Finally, the stability of the banking sector in this analysis is tested in terms of assessing the adequacy of banks’ liquid assets to cope with quite high withdrawal of deposits level, as well as the adequacy of liquid assets to cope with potential risk of deposits concentration.

Results The banking sector of Kosovo was characterized with high liquidity in December 2014, where the key indicator of liquidity (liquid assets to short term liabilities ratio) stood at 43.3 percent. Thus, due to well liquidity position, banking sector showed satisfactory level of stability to cope with assumed conservative scenarios of deposits withdrawals.

Table 9. Summary of stress-test results: liquidity risk

Additional liquid needed assets (in mln. of Description Number of banks 1/ euro) After the first day 1 0.9 After the second day 1 3.3 After the third day 1 5.8 After the fourth day 3 24.4 After the fifth day 5 51.2

Note:1/ Number of banks which would need additional liquid assets. Source: CBK (2015)

Results of the baseline scenario of withdrawals of 8 percent of deposits per day, in five consecutive days, suggest that Kosovo’s banking sector would start to have needs for additional liquidity on the first day, where only one of the banks would have lack of liquid assets of euro 0.9 million (table 9). At the end of day three, only one of the bank would start to have problems with adequacy of liquid assets and total need for liquidity injections would reach euro 5.8 million. At the end of day four, two other banks would start to have problems with adequacy of liquid assets and total needs for liquidity injections would reach euro 24.4 million. After day five, total of five banks would have lack of liquidity funds to cope with the assumed withdrawals of deposits. The rate of the total withdrawal of deposits on day five would reach 34 percent, and the amount of

27 Methodology of calculation of liquid assets has been changed in order to be in compliance with the CBK Regulation on liquidity risk management. Previously liquid assets with aim of stress-test analysis were calculated according to the methodology of IMF Financial Soundness Indicators.

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Number 7 Financial Stability Report additional liquid assets needed to overcome liquidity problems would amount to euro 51.2 million (0.93 percent of GDP projected for 2014). The assumption of the largest depositors’ failure in each bank results to be not significant for the liquidity level in general in the banking sector. Results of this scenario suggest that Kosovo’s banking sector does not have significant concentration of funding sources (deposits as the main components of liabilities); therefore the immediate withdrawal of deposits from individuals or companies with larger amounts of deposits does not pose serious risk for the sector. The endurable levels of deposit withdrawals for each of the banks before liquidity problems would appear are considered to be quite high. The bank with the lowest threshold stands with 10.3 percent, whereas the one with the highest threshold reaches 45.7 percent. At the sector level, the threshold of total withdrawal of deposits was close to 33.2 percent, which means that the banking sector may be able to cope with the withdrawal of one-thirds (1/3) of the total deposits without needing additional liquid assets. In this case, under the assumption that the loans value would remain unchanged, loans to deposit ratio for the banking sector would reach 110.5 percent.

6.6. Financial Infrastructure in Kosovo

6.6.1. Payment System Payment systems have an important role in the financial system and the economy of a country. Efficient and safe operation of payment systems presents an important factor in maintaining and promoting financial stability. In Kosovo there is a single system for interbank payments Electronic Interbank Clearing System (EICS) which is operated and supervised by the Central Bank of the Republic of Kosovo (CBK). EICS is a hybrid system of payments, whereby payments of low and high value are processed, as well as urgent payments. The number of transactions that EICS processed, in December 2014, amounted to euro 9.1 million (euro 6.8 million in December 2013), thus marking an annual increase of 33.2 percent. Whereas, the value of total transactions until December 2014 amounted to euro 6.8 billion (euro 6.4 billion in December 2013), representing an annual growth of 6.1 percent. The daily average of EICS transactions reached 36.4 thousand, amounting to euro 27.4 million.

Table 10. The share of payment instruments to total EICS transactions, in percentage

Number of total transactions Value of total transactions Description December 2013 December 2014 December 2013 December 2014 Regular 14.3% 11.4% 51.6% 48.8% Priority 0.4% 0.3% 11.9% 9.8% Regular - massive 48.5% 41.2% 8.3% 7.9% Prioritary - massive 26.5% 35.7% 5.8% 9.4% Giro payments 10.2% 11.2% 14.0% 13.9% Securities 0.0% 0.0% 8.3% 10.2%

Direct debit 0.2% 0.2% 0.1% 0.1%

Source: CBK (2015)

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In relation to the number of transactions, the regular massive payments continued to have the highest share within the payment instruments, 41.2 percent of the number of total payments, (table 10). These payments are primarily carried from or for governmental institutions, followed by the massive priority payments with a share of 35.7 percent mainly generated by governmental institutions (execution of salaries and pensions) and the regular payments with a share of 11.4 percent. The massive priority payments are payments which have recorded the fastest growth in number (3,233,049 in December 2014 from 1,797,330 in December 2013) mainly as a result of the commencement of processing salaries of administration and pensions of MLSW through EICS since April 2013. In relation to the value of transactions, regular payments continue to lead the payment structure (48.8 percent of the total value of transactions). Kos-GIRO payments despite of the decline that marked in their share to the total value of payments (13.9 percent in December 2014 compared with 14.0 percent December 2013) continue to remain in the second place. During this period, massive priority payments and securities were characterized by a more significant increase in value, which was also reflected in their substantial increase of their share in the payment structure. Priority massive payments processed through EICS increased their share to 9.4 percent in December 2014 from 5.8 percent in December 2013, mainly as a result of their significant increase in value (euro 645.3 million in December 2014, from euro 374.5 million in December 2013). As mentioned above, processing the salaries of administration and pensions of MLSW through EICS, from April 2013, is the main factor of the significant growth of this instrument. Also payment of securities through EICS marked a significant growth (euro 695.4 million in December 2014 from euro 534.0 million in December 2013) which resulted in the increase of their share in the structure with 10.2 percent in December 2014 (8.3 percent in December 2013). Total number of valid bank accounts reached 1.92 million accounts in December 2014, implying that on average almost every citizen in Kosovo is equipped with a bank account.28 If we compare the number of bank accounts in the country in December 2014 with the same period of the previous year we have an increase of total bank accounts for 3.3 percent.29 E-banking accounts through which users access banking services online have continued to grow. Until December 2014, the total number of e-banking accounts reached 157,761, representing an annual increase of 20.1 percent. Consequently, the number and the volume of transactions through e-banking service has increased. Total number of transactions executed through e- banking accounts reached 1,579,838 until December 2014 (1,056,655 in December 2013). Total value of transactions executed through e-banking accounts until December 2014 amounted to euro 4.2 billion (euro 2.7 billion in December 2013). The structure of e-banking accounts continues to be dominated by resident accounts with a share of 97.2 percent in December 2014. Within the accounts of residents, individual bank accounts constitute around 79.7 percent of the total accounts of residents and the remainder of 20.3 percent is comprised of business accounts. Similarly, the structure of the accounts of non- residents is dominated by individual accounts (92.0 percent in December 2014), while business accounts have a share of 8.0 percent. The total number of cards (debit and credit cards) that provide services for cash withdrawals and various payments marked an annual growth of 6.0 percent in December 2014. The number of cards with a debit function, in December 2014, reached 678,090, while the credit cards reached 121,652. Despite the lower level of use, the number of credit cards was characterized by a more

28 According to the Kosovo Agency of Statistics, in December 2013 the total resident population was 1,820,631. 29 The total number of bank accounts includes: number of current accounts, savings and other bank accounts.

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Number 7 Financial Stability Report rapid growth (11.3 percent) compared to the growth of debit cards (5.1 percent). The highest share in both credit and debit cards was marked by Visa cards until December 2014 (90.9 percent and 73.2 percent, respectively), followed by Master Card (9.1 percent 26.8 percent, respectively). Banking Infrastructure in terms of Automated Teller Machine (ATM) networks and POS (Point- of-Sale) devices has marked an increase. The number of ATMs and POSs (enabling payments at the point of sales) marked an annual increase of 0.4 percent, and 3.1 percent increase, respectively, until December 2014. Total number of ATMs installed by commercial banks, until December 2014, was 498, while the number of POSs reached 9,349 (Table 11).

Table 11. Banking Sector Network

Description December 2011 December 2012 December 2013 December 2014

Number of ATM 460 483 496 498 Number of POS 7,534 8,592 9,071 9,349

Number of e-banking accounts 68,990 97,089 131,365 157,761

Source: CBK (2015)

Until December 2014, the number of withdrawals through ATMs reached to 9.9 million (9.3 million until December 2013), with a total amount of euro 996.2 million (euro 936.2 million until December 2013). The number of payments through POS terminals, until December 2014, reached 4.7 million, amounting to euro 238.1 million. The value of cash withdrawals through ATMs to total card transactions reached 78.9 percent until December 2014, indicating the high level of cash use. While the value of payments through POSs to total card transactions reached 18.9 percent until December 2014. Despite the high share of cash withdrawals to the total value of card transactions, from Table 12 it can be noted that compared to the previous years has decreased the share of cash withdrawals to the total value card transactions. While cash withdrawals at ATM terminals in 2013 amounted to 81.0 percent of the total value of card transactions, in 2014, cash withdrawals constitute 78.9 percent of the total value, declining their share by 2.1 pp.

Table 12. Participation of the value of card transactions by terminals in the total value of card transactions, in percent

Description December 2011 December 2012 December 2013 December 2014

ATM cash w ithdraw als 81.8% 81.1% 81.0% 78.9% ATM depositing 0.0% 0.0% 0.2% 1.1% Credit transfers thorough ATM 0.1% 0.1% 0.1% 0.0% Cash w ithdraw als through POS 3.3% 2.3% 2.1% 1.1% Payments through POS terminals 14.8% 16.5% 16.6% 18.9%

Source: CBK (2015)

At the same time, the share of card payments to the total value of card transactions has increased in the recent years. While in 2013 the card payments constituted 16.6 percent of the total value of card transactions, in 2014 card payments constitute 18.9 percent of the total value, increasing their share by 2.3 pp.

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7. Pension Sector

7.1 The structure of pension sector

Within the financial system, the pension sector continues to be characterized with the highest growth rate of assets. Assets value of the pension sector, until December 2014, amounted to euro 1.1 billion, thus, marking an annual increase of 19.1 percent. Kosovo Pension Sector consists of Kosovo Pension Savings Fund (KPSF) and Slovenian-Kosovo Pension Fund (SKPF). The majority of the shares of pension savings in Kosovo are still managed by KPSF, which manages 99.5 percent of total assets of the pension sector, which were characterized with an annual increase of 19.1 percent, whereas, SKPF manages a smaller share of pension savings, which marked an annual increase of 9.2 percent.

Table 13. Pension Funds Structure by Ownership

Description December 2011 December 2012 December 2013 December 2014

Kosovo 99.2% 99.3% 99.4% 99.5% Slovenia-Kosovo 0.8% 0.7% 0.6% 0.5%

Source: CBK (2015) Figure 84. Structure of pension fund investments, in Regarding the KPSF, the structure of percent assets, until December 2014, was 100% dominated by foreign market 90% 80% investments with a share of 94.1 70% 60% percent (figure 84). The remainder of 50% assets is comprised of investments in 40% 30% treasury bills of the Government of 20% 10% Kosovo (5.0 percent) and deposits held 0% at the CBK (0.9 percent). Compared to In the country Abroad In the country Abroad FKPK FSKP the previous year, KPSF withdrawn December 2011 December 2012 December 2013 December 2014 most of deposits held at CBK, and has

invested in investment funds in the FigureSource: 85.CBK Assets (2015) under KPSF management external sector mainly as a result of

higher return rate. The majority of 1,200 1.4 1.29 1.21 1.3 these investments abroad are in the 1,000 form of shares and treasury bills of 1.12 1.2 800 1.03 1.1 foreign governments. 1.0 600 1088.3 0.9 Investments abroad also dominate the 913.6 400 740.1 0.8

structure of SKPF assets. Until euro of millions In 588.4 0.7 200 December 2014, 79.6 percent of SKPF 0.6 assets were invested abroad, whereas 0 0.5 Dhjetor 2011 Dhjetor 2012 Dhjetor 2013 Dhjetor 2014 the remainder of 20.4 percent represents the investment in Kosovo. Assets under management Share price, in euro (right axis) Figure 84 shows a continuous growth Source: CBK (2015) trend of SKPF investments in the external sector.

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7.2. Pension Sector Performance

Pension sector during 2014 was Figure 86. Assets under SKPF management characterized by a positive financial performance. Both funds marked an 6.0 150.0 145.16 increase of the share price and an 5.8 145.0 increase in return on investments (figure 5.6 138.56 140.0 85 and 86). The value of the share30 price 5.4 5.2 135.0 of KPSF, in December 2014, reached 129.97 5.0 5.8 130.0 euro 1.29, thus marking an annual 125.66 4.8 5.3

In euro of millions In 125.0 increase of 6.5 percent. It is worth 4.6 4.9 4.9 120.0 mentioning that KPSF share price has 4.4 reached the highest value ever in 4.2 115.0 December 2011 December 2012 December 2013 December 2014 comparison with previous periods, thus Assets under management Share price, in euro (right axis) recovering from significant decline in Source: CBK (2015) 2008 as a result of the global financial crisis. Also the share price of SKPF continued with an upward trend, thus, reaching euro 145.16 in December 2014, representing an annual increase of 4.8 percent. The positive performance of investments reflects the improvement of the conditions in the international stock markets, where the major share of Kosovo Pension sector assets is invested. As a result, during 2014, KPSF generated euro 66.7 million of gross return from investments, whereas, until December 2014, SKPF investment gross return amounted to euro 371.9 thousand.

30 Base value of the share price for the KPSF is = 1, whereas the base value of SKPF is = 100

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8. Insurance Sector

8.1 The Structure of the Insurance Sector

The structure of the insurance sector continues to be dominated by “non-life” Figure 87. Structure of insurance companies insurance, which represents 89.9 percent assets, in percent 100% of total sector assets, while the remainder 8.6% 7.9% 8.2% 8.2% 90% 10.0% 7.0% 6.1% 8.0% of 10.1 percent includes “life” insurance. 6.0% 5.5% 7.1% 80% 6.3% 15.4% 16.0% From total of 14 insurance companies 70% 15.3% 14.3% operating in Kosovo, 11 companies offer 60% 50% 32.6% 35.3% 32.6% “non-life” insurance products, while 3 40% 33.3% companies offer “life” insurance products. 30% 20% The insurance sector in Kosovo continues 31.1% 28.8% 29.8% 10% 26.6% to be dominated by foreign owned 0% December 2011 December 2012 December 2013 December 2014 companies, which in December 2014

managed 67.4 percent of total assets of Austria-Albania Kosovo Slovenia Croatia Albania Turkey insurance sector. Source: CBK (2014) Austria and Albania are represented with 5 companies, which comprise 37.8 percent of total assets of the insurance sector. Domestic capital is represented by 4 companies, which all together represent 32.6 percent of total assets of the sector. Slovenia is represented by 2 companies which manage 14.3 percent of the sector assets. Meanwhile, Turkey is represented by one company which manages 8.2 percent of total assets of the insurance sector (figure 87).

The degree of the market concentration in the insurance sector it can be considered low, especially if compared to the market concentration of the banking sector. Herfindahl Hirschman index calculated for the assets of the insurance companies indicates 884.5 points in December 2014. However, the degree of premiums concentration was higher in comparison to assets, where in December 2014 the Herfindahl-Hirschman index for premiums was 1077.1 points. A same difference is noticed if it is compared the share of the three largest companies to total assets and premiums of the sector, where in December 2014 the share of total assets was 34.0 percent, while to total premiums was 41.3 percent.

Table 14. Penetration and density of the insurance sector of regional countries31

Premiums/GDP Premiums/Number of Population Description December 2013 December 2013 Macedonia 2.0% 56.6 euro Albania 0.6% 28.7 euro Montenegro 2.2% 56.8 euro Serbia 1.8% 78.0 euro Kosovo (2014) 1.5% 45.1 euro Croatia 2.8% 279 euro Slovenia 5.5% 941 euro

Source: Official statistics of the respective countries (2015)

The degree of penetration of the insurance services in Kosovo economy, which is calculated as a ratio of gross premiums received to GDP and measures the development of the insurance market,

31 Updated data of respective countries are used in order to have more accurate comparison of insurance penetration and density of Kosovo with the countries of the region.

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Number 7 Financial Stability Report shows low representation of 1.5 percent, in December 2014 (Table 14). In the context of the regional countries, the highest ratio of premiums to GDP was marked in Slovenia, whereas the lowest ratio was marked by Albania. The insurance service density in Kosovo, which is calculated as a ratio of gross premiums received to the number of population, have also remained relatively low, reaching the value of euro 45.09 per capita. In comparison with regional countries, Kosovo, following Albania, has the lowest ratio of premiums/population, whereas Slovenia has the highest level of this indicator.

8.2. Insurance Sector Activities

In December 2014, the assets value of Figure 88. Structure of insurance companies assets, the insurance companies amounted to December 2014, in percent euro 140.4 million, marking an annual 2.5% 0.0% 6.1% 8.3% increase of 5.8 percent, representing an 12.1% 0.5% fostered increase in comparison to 1.6% annual growth of 1.5 percent in 8.7% December 2013. The asset structure of 60.2% companies continued to be dominated by deposits, thus comprising 60.2 percent of total assets, followed by fixed assets, Cash Deposits Other financial assets Shares and other securities by the value of trade cash, technical assets, etc. (figure 88). Premiums debits Technical assets Fixed assets (net value) Intangible assets Within the total assets of insurance Other sector, categories that marked a more Source: CBK (2015) significant growth was marked by intangible assets (61.5 percent), followed by cash (36.4 percent), premium debtors (11.9 percent) and Deposits (9.5 percent). However, shares, securities and other financial assets declined. In December 2014, other financial assets marked an annual decline of 27.2 percent, whereas the decline in securities, during 2014 was as a result of the maturity of securities invested during previous years. Within liabilities, technical reserves lead Figure 89. Liabilities and equity of insurance with 56.7 percent of total liabilities, companies, December 2014, in percent while the remainder is comprised of own capital resources, other liabilities and 56.7% loans (figure 89). In December 2014, own 7.0% capital marked an annual increase of 4.1 2.3% percent. To the increase of own capital 33.9% major contribution is attributed to the general and special reserves, as well as to the reduction of losses during 2014 in comparison to losses in the previous year. On the other hand, the capital Loans Own capital Technical reserves Other liabilities level of insurance companies was Source: CBK (2015) negatively affected by the withdrawal of a retained profit, held over the previous years. By December 2014, the value of gross written premiums amounted to euro 80.2 million, marking an annual decline of 3.7 percent (table 15). Within them, the value of gross written premiums of 'non-life' insurance amounted to euro 79.6 million and marked an annual decline of 3.3 percent. Within "non-life" insurance, the insurance premiums received from 'third party liability' (TPL) amounted to euro 42.3 million in December 2014, representing an annual decline of 3.6 percent. Whereas, premiums received from 'border policies' and 'voluntary policies' marked an annual

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growth of 11.4 percent, and 13.7 percent, respectively, until December 2014. The value of written premiums in the "life" insurance marked an annual growth of 18.9 percent, amounting to euro 2.4 million in December 2014.

Table 15. Collected gross premiums, in millions of euro

Description December 2013 December 2014

Non-life gross premiums 77.1 79.6 Life gross premiums 2.1 2.4

Source: CBK (2015)

The value of claims paid by insurance companies and the Kosovo Insurance Bureau (KIB), until December 2014, amounted to euro 32.4 million, marking an annual decline of 16.6 percent, mainly as a result of reduced claims paid to 'non-life' insurance, (Table 15). In the context of "non-life' insurance, the decline is attributed mainly to the reduction of claims paid to "non-third- party liability", amounting to euro 10.8 million euro, representing an annual decline of 31.4 percent. Claims paid by "life" insurance, up to December 2014, amounted to euro 0.2 million, while the claims paid by the KIB, until December 2014, amounted to euro 4.2 million (euro 5.2 million in December 2013).

Table 16. Claims paid, in millions of euro

Description December 2013 December 2014

Claims non-life 33.4 28.0 Claims life 0.2 0.2 Claims KIB 5.2 4.2

Source: CBK (2015)

The ratio of claims paid to written premiums, shows that the sector Figure 90. Premiums received and claims paid, in performance has improved compared to millions of euro the previous year. This ratio in 2014 90 60% 49.1% 80 declined to 39.5 percent compared to 50% 70 43.8% 39.0% 49.1 percent in December 2013 as a 60 39.5% 40% 68.6 70.8 79.1 82.0 result of the decrease of claims paid by 50 38.9 30% 40 insurance companies (figure 90). 31.0 32.4 30 27.1 20% 20 10% 8.3. Insurance sector Performance 10 0 0% In 2014, key performance indicators and December 2011 December 2012 December 2013 December 2014 Premiums received Claims paid Claims/Premiums (right axis) stability of insurance sector marked a slight improvement compared to 2013. Source: CBK (2014) Profitability remains as main concern as regards to performance of this sector. Up to December 2014, the insurance sector recorded a loss, amounting to euro 318.8 thousand, which is lower in comparison to the loss of euro 754.6 thousand recorded in 2013. The "non-life" insurance continues to be characterized with loss compared to "life" insurance which resulted profitable. In 2014, "non-life" insurance managed to

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Number 7 Financial Stability Report reduce the loss up to 22.6 percent, whereas the "life" insurance marked an increase up to 69.6 percent compared to the end of December 2013. The improvement of the financial position was mainly a result of better management of expenditures compared to the previous year. Return on Average Assets (ROAA), in December 2014, was -0.23 percent compared to -0.26 percent as it was in December 2013. Whereas, Return on Average Equity (ROAE) was -0.68 percent compared to -0.74 percent as it was in December 2013. In context of capitalization, the situation in insurance sector is better. The sector remains well capitalized, with capitalization rate of 33.9 percent, meaning that the market was in good condition to cope with possible shocks. Furthermore, during this period, the insurance companies had a satisfactory liquidity position. Cash and its equivalents to technical reserves ratio stood at 121.4 percent in December 2014, (123.3 percent in December 2013), while cash and cash equivalents to total liabilities ratio stood at 104.3 percent (99.0percent in December 2013).

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9. Microfinance Sector and Financial Auxiliaries

9.1. Activity of Microfinance Sector

Microfinance sector during 2014 has Figure 91. Assets of microfinance institutions, annual stopped the trend of contraction of its growth activity followed over the recent years. 130 8% In December 2014, the value of total 125 5% assets of microfinance institutions was 120 2% euro 112.9 million which represents a 0.0% -1% 115 -2.5% similar level to 2013 (figure 91). 127.2 -4% Loans, which represent 65.9% of total 110 In euro of millions In -9.0% 115.8 -7% sector assets, were characterized with -9.0% 112.9 112.9 105 an annual growth of 2.9 percent, and -10% 100 -13% reached the amount of euro 74.4 million December 2011 December 2012 December 2013 December 2014 in December 2014. Within total loans, Total assets Annual growth (right axis)

34.1 percent are designated for Source: CBK (2015) enterprises whereas 65.9 percent for households (figure 92). Loans designated Figure 92. Structure of MFI loans by sectors, in for enterprises marked an annual percent growth of 10.0 percent and were the December 2013 December 2014 main contributors in expanding the lending activity of MFIs, whereas household loans were characterized with 31.9% 34.1% 65.9% an annual decline of 0.4 percent. The 68.1% decline of household lending might have been impacted by competition of the banking sector by considering that the household lending from this sector over Households Enterprises Households Enterprises the same period was characterized with accelerated growth. Nevertheless, Source: CBK (2015) despite the competition from the Figure 93. Structure of MFI loans by economic banking sector that facilitated the sectors, in percent standards and conditions for enterprise December 2013 December 2014 lending, MFIs marked a growth of enterprise lending that might have been 25.4% impacted from the growth of 27.0% 46.5% 46.3% requirements for loans. 26.8% 26.8% Structure of loans by economic sectors remains similar with the previous year. Lending to the services sector leads the Agriculture Agriculture structure of loans designated for Industry, energy, and construction Industry, energy, and construction enterprises with a share of 46.5 percent. Services Services Unlike the banking sector, the Source: CBK (2015) microfinance sector is characterized with higher lending of agriculture sector. In December 2014, loans issued to the agriculture sector had a share of 25.4 percent of total loans issued to enterprises. The remainder of loans is designated to construction, industry and energy (figure 93). Structure of loans by maturity remains similar to the previous year, being dominated by mid- term loans with maturity 'of 1 to 5 years' which represent 86.3 percent of total loans. Short-term

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Number 7 Financial Stability Report loans ‘up to 1 year’ constitute 13.4 percent of the loans, and the remainder Figure 94. Structure of loans by maturity, December is represented by long-term loans (figure 2014, in percent 94).

86.3% Microfinance institutions continue to be 0.4% characterized by good credit portfolio 13.4% quality. In December 2014, the ratio of non-performing loans (NPL) to total loans was 4.8 percent (5.2 percent in December 2013). Also, the coverage of non-performing loans with provisions continues to be at satisfactory level by Up to 1 year Over 1 year up to 5 years Over 5 years improving to 113.1 percent in December Source: CBK (2015) 2014 compared to the level of 107.0 percent in December 2013. Increase of Figure 95. Structure of MFI leasings by sectors, in salaries of the public sector may have percent contributed to the decline of non- December 2013 December 2014 performing loans since the largest part of the loans issued by MFIs are designated for households. 27.5% 46.5% Leasing represents the second most 53.5% 72.5% important category of MFIs assets with a share of 19.8 percent to total assets. By December 2014, leasing reached the value of euro 22.4 million, marking an annual growth of 1.4 percent. Unlike Households Enterprises Households Enterprises previous periods, in December 2014, the Source: CBK (2015) leasing structure is dominated by leasing designated for households, Figure 96. Interest rate on MFI loans, in percent which constituted 53.5 percent of total 26% 25.2% activity (figure 95). Household leasing 24.8% 25% doubled the value compared to the 25% 24.1% 24.1% 23.8% previous year as a result of significant 24% 23.5% 24.0% 24% 23.4% growth of mortgage lease. Whereas, the 22.5% 23% 23.3% 22.6% annual decline of 35.0 percent for the 23% enterprise leasing, in December 2014, 22% 22.4% 22% came as a result of the significant 21% decline of financial leasing in the form of 21% Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec mortgage loans and leasing for 2012 2013 2014 equipment designated for businesses.

Since MFIs have no legal right to be Source: CBK (2015) financed by customer deposits, the main part of the liabilities of these institutions consists of external credit lines. Therefore, the exposure of microfinance sector in the context of obligations is high. In December 2014, the ratio of external liabilities to total assets of MFIs amounted to 54.7 percent (55.5 percent in December 2013). The average interest rates on MFI loans continue to be significantly higher compared to the rates applied by the banking sector. The average interest rate on MFI loans, in December 2014, was

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23.3 percent (22.6 percent in December 2013) (figure 96). Interest rates for household loans amounted to 23.8 percent from 23.7 percent, as it was in December 2013. Whereas, the interest rate on enterprise loans is 22.6 percent compared to 19.8, as it was in December 2013 (figure 97). The average interest rate for the agricultural sector, in December 2014, Figure 97. Interest rates on MFI loans by sectors, in percent reached 25.5 percent (25.0 in December 29% 2013), while for the services sector 27% reached 21.7 percent (20.4 percent in 25% December 2013). On the other hand, 23% interest rates on Industry Sector 21% declined to 23.8 percent from 25.3 19% 17% percent in December 2013. It is noticed 15% that the interest rates of financial sector Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2012 2013 2014 are characterized by seasonality effects, where during the first half of the year Enterprises Households tend to increase compared to the Source: CBK (2015) downward trend during the second half of the year (figure 97).

9.2. The Performance of the Microfinance Sector

Microfinance institutions in 2014, had a profit of euro 1.3 million, compared to the loss of euro 324.4 thousand from the previous year. Profitable operation was mainly a result of the significant decline of expenditures along with the slight increase of income. The income of the sector, until December 2014, amounted to euro 19.3 million, representing an annual increase of 0.6 percent. The income structure continues to be dominated by interest income, with a share of 83.1 percent. On the other hand, expenditures declined by 7.7 percent, within which, the main contributors were expenditures for loan-loss provisions (marked a decrease of 60.0 percent) and personnel expenditures which marked a decrease of 3.9 percent. The overall efficiency indicator, which is expressed through the expenditures to income ratio, has improved to 93.3 percent from 101.7 percent as it was in the previous year.

The improvement of the financial performance was reflected in the improvement of profitability indicators as well. The return on average assets (ROAA) improved to1.1 percent from -0.3 percent as it was in 2013. Also, return on average equity (ROAE) reached 4.3 percent from -1.1 percent in 2013.

Key efficiency indicators of the sector presented in table 17 are not aligned among themselves. The number of employees in the microfinance sector increased to 776 at the end of 2014 compared to 765 as they were in the same period of the previous year, whereas the number of approved loans decreased to 34,564 in 2014 compared to 36,805 in the previous year. This impacted on the indicator that measures the ratio of the loan number per employee to decrease compared to the previous year (Table 17). Moreover, the indicator that measures the average assets managed per employee decreased compared to the previous year as a result of non- expansion of the sector's activity, despite the increase of the number of employees. On the other hand, the realized profit per employee and personnel expenditures per employee marked an improvement compared to the previous year. The ratio of the realized profit per employee marked an increase in 2014, as a result of profitable sector operation compared to operation loss in 2013. Whereas, the ratio of personnel expenditures to the number of employees decreased by reducing the average cost of expenditures per employee, as a result of better management of expenditures.

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Therefore, despite the fact that MFIs have made progress in several key efficiency indicators, the expansion of activities and more efficient management of employees are some of the challenges of this financial sector.

Table 17.Additional efficiency indicators of the sector

Description December 2012 December 2013 December 2014

Assets/no. of employess (in thousands of euro) 128.1 147.6 145.5 Profit/no. of employees (in thousands of euro) -5.0 -0.4 1.7 Number of loans /no. of employees 44.5 48.1 44.5 Personnel expenditures /no. of employees (in thousands of euro) 13.8 14.8 14.0

Source: CBK (2015)

9.3 Financial Auxiliaries

The structure of the financial auxiliaries consists of the exchange bureaus and money transferring agencies (MTA). This sector constitutes the largest number of financial institutions in the country, but manages the smallest share of financial sector assets (0.2 percent in December 2014). The value of total assets of financial auxiliaries in December 2014 amounted to euro 9.0 million, representing an annual decline of 18.6 percent. Until December 2014, the income of the financial auxiliaries amounted to euro 6.6 million, representing an increase of 17.0 percent compared to the same period of the previous year. The income structure of financial auxiliaries is dominated by the category of the transfer income, with a share of 73.4 percent, which was characterized with an annual increase of 5.8 percent. On the other hand, expenditures amounted to euro 3.4 million, representing an annual increase of 26.8 percent. Net income of financial auxiliaries sector amounted to euro 3.2 million until December 2014, representing an annual increase of 7.6 percent.

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10. Statistical appendix

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Table 1. Financial soundness indicators, in percentage

Banking system Core set December 2011 December 2012 December 2013 December 2014

17.6 14.2 16.7 17.8 Regulatory capital to risk-w eighted assets Capital adequacy 14.8 11.6 12.8 14.6 Regulatory Tier I capital to risk-w eighted assets 4.4 7.4 7.8 4.7 Net non-performing loans to capital Assets quality Non-performing loans to toal loans 5.8 7.5 8.7 8.3

Other financial corporations 0.5 1.1 1.1 0.4 0.09 0.08 0.01 0.03 Net opened position in foreign currency to capital 69.2 66.7 66.4 65.7 Other nonfinancial corporations 30.1 30.8 31.3 33.9 Sectorial distribution of loans to total loans Households 0.09 0.02 0.05 0.01 NPISH 0.00 1.28 1.10 0.02 Non-resident 100.0 100.0 100.0 100.0 Total 1.7 0.8 1.0 2.2 Return on Assets (ROA)* 17.4 8.6 10.6 22.5 Return on Equity (ROE)* Profitability 75.2 74.7 73.1 75.9 Interest margine to gross income 76.8 87.8 84.8 66.6 Non-interest expenditures to gross income 26.6 25.3 27.7 25.9 Liquid assest (core) to toal assets 31.3 32.6 36.6 32.8 Liqud assets (broad) to total assets Liquidity 33.7 31.7 35.7 32.4 Liquid assets (core) to short-term liabilities 39.6 40.8 47.1 41.0 Liquid assets (broad) to short-term liabilities Sensitivity to market risk Net open position in foreign exchange to capital 2.5 0.7 2.3 1.8

Encouraged set

10.2 10.0 9.7 10.8 Capital to assets 77.8 80.4 107.4 97.1 Credit exposure to capital 38.7 38.1 38.5 41.7 Personnel expenses to noninterest expenses 10.2 9.1 8.7 8.1 Interest rate spread in loans and deposits 117.5 122.6 131.6 129.3 Customer deposits to toal loans (non-interbank ) 4.9 4.3 4.6 0.0 Foreign-currency-denominated liabilities to total liabilities

* Net income before tax is considered. Guide: Financial Soundness Indicators, Compilation Guide, IMF (2006)

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Table 2.Balance sheets of commercial banks, December 2014, in millions of euro Procredit Bank (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 159.76 Balance from other banks 0.30

Balance w ith commercial banks 112.42 Deposits 678.31

Securities 94.51 Other borrow ings 0.0

Loans 443.74 Other liabilities 47.78

Fixed assets 15.26 Subordinated debt 14.55

Other assets 7.52 Ow n resources 92.26

TOTAL ASSETS 833.2 TOTAL LIABILITIES 833.2

Source: CBK (2015)

Raiffeisen Bank (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 76.0 Balance from other banks 6.2

Balance w ith commercial banks 85.0 Deposits 603.1

Securities 142.8 Other borrow ings 0.5

Loans 471.8 Other liabilities 66.1

Fixed assets 6.9 Subordinated debt 19.0

Other assets 5.6 Ow n resources 93.2

TOTAL ASSETS 788.0 TOTAL LIABILITIES 788.0

Source: CBK (2015)

Banka për Biznes (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 26.3 Balance from other banks 0.0

Balance w ith commercial banks 4.3 Deposits 103.0

Securities 7.2 Other borrow ings 0.0

Loans 80.0 Other liabilities 7.3

Fixed assets 0.8 Subordinated debt 1.8

Other assets 2.2 Ow n resources 8.8

TOTAL ASSETS 120.9 TOTAL LIABILITIES 120.9

Source: CBK (2015)

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Banka Ekonomike (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 18.7 Balance from other banks 0.5

Balance w ith commercial banks 7.6 Deposits 154.5

Securities 28.0 Other borrow ings 0.0

Loans 120.8 Other liabilities 13.8

Fixed assets 6.7 Subordinated debt 1.0

Other assets 1.6 Ow n resources 13.6

TOTAL ASSETS 183.4 TOTAL LIABILITIES 183.4

Source: CBK (2015)

Banka Kombëtare Tregtare (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 37.0 Balance from other banks 0.0

Balance w ith commercial banks 32.5 Deposits 211.0

Securities 49.2 Other borrow ings 10.0

Loans 127.5 Other liabilities 18.4

Fixed assets 3.6 Subordinated debt 0.0

Other assets 2.7 Ow n resources 13.0

TOTAL ASSETS 252.5 TOTAL LIABILITIES 252.5

Source: CBK (2015)

NLB Prishtina (In millions of euro) Assets Liabilities

Cash and balances w ith CBK 54.5 Balance from other banks 1.0

Balance w ith commercial banks 93.6 Deposits 401.7

Securities 49.2 Other borrow ings 3

Loans 280.9 Other liabilities 36.7

Fixed assets 12.6 Subordinated debt -

Other assets Ow n resources 2.5 51.4

TOTAL ASSETS 493.3 TOTAL LIABILITIES 493.3

Source: CBK (2015)

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TEB Bank (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 60.5 Balance from other banks 5.0

Balance w ith commercial banks 7.4 Deposits 312.0

Securities 7.3 Other borrow ings -

Loans 311.9 Other liabilities 30.3

Fixed assets 5.1 Subordinated debt 11

Other assets Ow n resources 2.8 36.6

TOTAL ASSETS 394.9 TOTAL LIABILITIES 394.9

Source: CBK (2015)

Komercijalna Banka (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 5.5 Balance from other banks 0.0

Balance w ith commercial banks 47.6 Deposits 48.5

Securities 0.0 Other borrow ings 1

Loans 3.6 Other liabilities 1.2

Fixed assets 0.0 Subordinated debt -

Other assets Ow n resources 1.0 7.1

TOTAL ASSETS 57.8 TOTAL LIABILITIES 57.8

Source: CBK (2015)

Türkiye İş Bankası (In millions of euro)

Assets Liabilities

Cash and balances w ith CBK 8.9 Balance from other banks 18.1

Balance w ith commercial banks 0.3 Deposits 11.1

Securities 5.6 Other borrow ings -

Loans 20.7 Other liabilities 0.4

Fixed assets 0.9 Subordinated debt -

Other assets 0.3 Ow n resources 7.1

TOTAL ASSETS 36.6 TOTAL LIABILITIES 36.6

Source: CBK (2015)

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Table 3.1.FC survey – net foreign assets and domestic claims

(Cumulative data, end of period, in millions of euro)

Net foreign assets Domestic claims

Claims on of which: Less: Net claims on central government Claims on of which: non liabilities other Description residents M onetary Deposits Securities IM F Shares to Claims on Less: Liabilities to sectors Loans of which: gold and other than Quota and other nonreside central central government SDR shares equities nts governme Deposits Other non Househol holdings nt financial ds corporati ons 2005 December 827.3 890.9 __ 422.6 242.4 __ 145.3 63.6 348.9 -225.7 __ 225.7 225.7 574.6 565.6 439.6 126.0

2006 December 1,173.6 1,245.7 __ 660.0 341.3 __ 170.8 72.1 231.7 -475.0 __ 475.0 475.0 706.6 694.3 548.2 146.1

2007 December 1,622.4 1,704.6 __ 955.0 408.9 __ 175.4 82.3 124.5 -853.3 __ 853.3 853.3 977.8 965.9 765.1 200.6

2008 December 1,593.1 1,726.7 __ 795.1 661.6 __ 128.2 133.6 419.6 -871.8 __ 871.8 871.8 1,291.5 1,276.8 995.7 281.0

2009 December 1,700.5 2,036.2 60.3 910.1 724.5 64.3 144.3 335.7 571.5 -846.3 __ 846.3 846.3 1,417.8 1,396.1 1,052.3 343.5

2010 December 1,957.5 2,387.7 64.0 1,257.8 525.2 68.5 269.3 430.2 766.8 -824.8 __ 824.8 824.8 1,591.6 1,568.3 1,127.7 434.2

M arch 2,027.1 2,456.6 61.8 1,250.7 586.5 66.2 294.0 429.5 734.3 -913.5 __ 913.5 913.5 1,569.9 1,542.6 1,181.2 438.8

June 1,988.0 2,421.3 60.9 1,171.3 640.0 65.4 293.9 433.3 840.1 -905.2 __ 905.2 905.2 1,745.3 1,716.2 1,233.3 482.1

September 2,108.2 2,511.5 63.3 1,297.5 539.1 68.0 332.7 403.3 862.2 -905.5 __ 905.5 905.5 1,767.7 1,740.8 1,235.1 504.2

2011 December 2,067.8 2,446.0 65.1 1,359.4 230.0 70.1 533.1 378.2 987.5 -798.4 __ 798.4 798.4 1,785.8 1,785.8 1,242.1 514.6

M arch 2,087.9 2,449.5 63.8 1,179.7 346.9 68.8 580.9 361.6 1,000.8 -788.9 29.9 818.8 818.8 1,789.7 1,762.0 1,238.7 521.1

2012 June 2,081.2 2,445.1 66.4 1,257.2 239.1 71.9 598.7 363.9 1,057.1 -801.1 29.9 831.0 831.0 1,858.3 1,832.9 1,281.9 548.6

September 2,301.6 2,716.8 65.0 1,129.0 598.8 70.7 622.1 415.1 985.7 -848.8 73.6 922.3 922.3 1,834.5 1,809.6 1,260.9 546.3

2012 December 2,337.1 2,773.4 63.3 1,260.7 486.0 68.8 666.5 436.3 1,079.9 -764.7 73.8 838.5 838.5 1,847.2 1,819.4 1,271.3 546.3

M arch 2,376.5 2,821.3 63.3 1,189.5 515.7 69.0 734.5 444.8 1,112.0 -751.8 73.9 825.7 825.7 1,863.8 1,838.7 1,287.5 549.8

June 2,352.5 2,793.0 61.9 1,008.6 646.2 67.8 777.9 440.4 1,110.8 -798.6 110.9 909.5 909.5 1,909.4 1,882.0 1,314.8 566.1

September 2,541.1 3,003.2 60.7 982.4 826.8 66.8 816.9 462.1 1,095.2 -783.8 130.8 914.6 914.6 1,879.0 1,853.2 1,291.5 560.6

2013 December 2,558.5 3,014.1 59.6 1,143.6 818.7 65.9 651.2 455.6 1,263.4 -620.8 153.2 774.0 774.0 1,884.2 1,859.9 1,291.1 567.7

M arch 2,592.4 3,060.7 59.5 1,104.0 899.8 66.2 660.9 468.2 1,286.9 -620.7 190.1 810.8 810.8 1,907.7 1,883.2 1,313.4 568.5

June 2,589.6 3,001.1 59.9 1,045.1 803.3 66.9 752.4 411.5 1,294.6 -580.4 230.4 810.8 810.8 1,973.4 1,949.3 1,351.3 597.0

September 2,700.7 3,158.9 61.6 1,243.8 574.9 69.1 967.4 458.2 1,373.8 -589.1 227.0 816.1 816.1 1,962.9 1,939.2 1,325.5 613.4 2014 December 2,648.4 3,113.3 62.5 1,414.7 315.7 70.4 1,024.4 464.9 1,507.4 -488.5 247.4 735.9 735.9 1,995.8 1,971.5 1,331.8 639.0

Source: CBK (2015)

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Table 3.2. FC survey - liabilities

(Cumulative data, end of period, in millions of euro)

Deposits Loans Insurance technical reserves Shares Other and other items Transfera of which: Other of which: equity (net) ble deposits deposits Public Other non Househol Public Other Household Net equity Pre Description non financial ds nonfinanc nonfinanc s of payment of financial corporati ial ial household premiums corporati ons corporati corporati s in and ons ons ons pension reserves funds against outstandin 2005 December 830.6 315.0 67.6 76.8 155.5 515.6 181.3 33.7 298.9 3.0 174.5 152.4 22.1 165.8 2.2

2006 December 886.4 300.5 34.8 96.4 156.2 586.0 193.3 27.6 359.5 3.4 251.4 223.9 27.5 209.3 54.7

2007 December 1,110.9 386.1 49.6 133.5 187.5 724.8 188.4 43.8 489.3 … 316.1 286.2 29.9 273.8 46.0

2008 December 1,351.9 390.9 15.4 176.0 186.2 961.0 250.1 51.4 656.7 … 288.6 256.3 32.3 311.1 61.1

2009 December 1,444.3 483.2 50.1 184.0 237.7 961.0 73.9 82.9 801.9 … 422.3 380.8 41.5 326.1 79.3

2010 December 1,744.2 621.2 83.8 218.6 303.5 1,123.1 42.8 83.4 995.9 … 540.5 493.7 46.8 361.0 78.6

M arch 1,737.8 596.2 107.5 178.2 295.9 1,141.6 34.7 80.0 1,025.9 … 572.6 524.2 48.3 364.9 86.2

June 1,757.4 591.4 72.0 185.9 315.2 1,166.0 48.0 75.0 1,039.9 … 602.7 551.5 51.1 373.1 94.7

September 1,900.9 662.1 99.1 205.0 336.9 1,238.8 51.7 81.0 1,102.9 … 598.5 545.9 52.6 377.3 93.7

2011 December 1,942.7 667.5 77.2 208.1 360.9 1,275.1 60.8 79.7 1,129.6 … 647.8 593.3 54.5 389.7 75.0

M arch 1,905.7 626.7 32.2 212.4 363.2 1,279.0 46.2 73.1 1,154.6 … 698.6 642.9 55.7 405.1 79.7

2012 June 1,931.6 651.7 24.7 223.2 379.6 1,279.9 59.5 75.8 1,141.1 … 717.3 659.1 58.3 389.0 100.3

September 2,018.4 681.1 30.0 245.0 384.1 1,337.3 63.3 74.1 1,195.7 … 767.8 708.1 59.7 397.2 103.9

2012 December 2,094.0 717.5 31.2 257.5 407.2 1,376.5 61.8 78.2 1,232.9 … 814.9 745.1 69.8 399.2 111.5

M arch 2,095.8 710.2 37.0 234.4 415.8 1,385.5 50.9 74.2 1,255.5 … 866.8 800.3 66.5 403.6 122.3

June 2,068.8 718.8 35.9 231.8 425.2 1,350.1 48.8 75.4 1,221.3 … 880.0 808.8 71.2 398.0 116.6

September 2,191.3 784.2 36.7 270.8 450.9 1,407.2 72.9 73.6 1,255.6 … 932.2 859.5 72.7 397.5 115.3

2013 December 2,298.0 870.6 39.1 299.6 506.6 1,427.3 55.7 98.2 1,268.4 … 990.3 919.0 71.3 403.9 129.7

M arch 2,278.5 896.3 63.1 260.9 536.1 1,382.2 42.5 79.2 1,255.6 … 1,026.9 954.3 72.6 415.8 157.5

June 2,267.0 941.7 57.0 256.3 602.7 1,325.3 58.2 67.7 1,194.3 … 1,075.2 1,002.6 72.6 388.3 161.2

September 2,329.2 1,047.3 32.5 300.9 683.8 1,281.9 53.9 75.3 1,150.2 … 1,123.4 1,044.6 78.8 441.4 180.5

2014 December 2,354.4 1,134.6 21.1 338.4 743.5 1,219.8 51.6 58.0 1,104.8 … 1,173.8 1,094.1 79.7 453.2 174.3

Source: CBK (2015)

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Table 4.1. ODC balance sheet – assets

(Cumulative data, end of period, in millions of euro)

Total assets

Cash and Balances with commercial banks Securities Gross of which in euro: Gross Fixed Other balances loans and loans in assets assets with CBK In euro In non lease Other Public Other non House non euro Description currency euro financing financial non financial holds currency currencie corpora financi corporati s tions al ons corpo ration s 2001 December 519.8 265.1 212.8 212.8 . 7.5 25.9 __ __ 25.9 __ __ 4.5 3.9

2002 December 473.7 81.3 292.7 292.7 . … 86.5 __ __ 80.8 5.7 __ 9.5 3.7

2003 December 589.2 106.2 106.2 106.2 . 119.6 232.8 __ 0.2 193.5 39.0 __ 12.3 12.2

2004 December 816.5 116.5 186.0 169.2 16.8 112.3 373.7 __ … 289.9 83.7 __ 15.9 12.2

2005 December 984.4 131.7 221.9 201.0 21.0 82.9 513.9 __ … 387.9 126.0 __ 16.9 17.0

2006 December 1,161.2 141.1 243.3 218.8 24.5 99.4 636.6 __ … 490.5 146.1 __ 23.0 17.9

2007 December 1,435.0 189.0 208.1 173.4 34.7 78.9 892.1 __ 0.2 691.3 200.6 __ 27.2 39.7

2008 December 1,808.3 218.2 283.9 236.3 47.6 39.7 1,183.4 0.6 0.1 901.7 281.0 __ 39.0 43.1

2009 December 2,204.6 322.2 405.6 326.7 78.8 97.0 1,289.0 2.3 0.3 942.9 343.5 __ 43.1 47.7

2010 December 2,455.1 307.0 439.1 367.3 71.8 173.4 1,458.7 9.9 6.3 1,004.1 434.2 2.5 44.0 32.9

2011 December 2,649.7 331.5 329.5 251.8 77.7 202.0 1,698.1 17.3 1.5 1,127.0 510.9 7.3 47.4 41.3

2012 December 2,829.3 425.7 287.9 228.0 59.9 256.6 1,763.4 19.8 1.4 1,169.8 542.6 6.9 57.7 38.1

January 2,812.6 390.7 311.9 237.6 74.3 262.5 1,754.9 19.1 0.8 1,165.1 542.1 6.4 57.2 35.4

February 2,837.8 399.6 297.4 220.8 76.6 282.7 1,765.6 19.1 0.4 1,176.9 540.9 7.0 56.6 35.9

M arch 2,835.7 414.3 270.1 193.1 77.0 275.5 1,782.7 19.9 0.3 1,188.0 545.8 6.7 56.0 37.2

April 2,799.3 394.5 279.3 190.3 89.0 229.5 1,801.6 18.7 0.3 1,203.7 551.0 6.9 56.2 38.2

M ay 2,825.3 379.8 292.9 205.3 87.6 246.7 1,810.0 18.6 0.3 1,209.1 554.0 7.0 57.4 38.5

June 2,787.0 355.4 261.4 175.4 86.0 246.3 1,825.7 19.1 0.3 1,216.1 561.9 6.9 57.6 40.5

July 2,860.1 402.6 294.3 216.3 78.1 249.8 1,816.0 19.3 0.3 1,203.7 565.3 7.0 57.0 40.3

August 2,968.0 455.0 349.3 270.0 79.3 273.8 1,790.1 17.9 0.3 1,193.6 551.5 6.4 56.7 43.0

September 2,935.4 438.3 328.4 228.5 99.8 276.0 1,798.0 18.8 0.3 1,195.1 556.5 6.3 56.3 38.5

October 2,952.0 452.8 333.6 230.0 103.6 271.7 1,798.8 18.6 0.3 1,186.9 566.5 6.4 55.5 39.5

November 2,976.7 468.4 332.0 239.4 92.6 278.1 1,803.2 18.9 0.3 1,193.4 563.9 6.3 55.2 39.8

2013 December 3,059.3 463.3 339.9 258.8 81.0 354.5 1,805.8 20.4 0.2 1,194.5 563.9 6.1 55.5 40.3

January 3,048.5 431.7 383.6 298.3 85.3 355.1 1,794.5 19.1 0.2 1,189.5 559.8 6.0 55.2 28.5

February 3,045.1 398.0 397.2 299.1 98.1 373.2 1,794.3 19.1 0.2 1,190.0 559.3 5.9 54.6 27.9

M arch 3,053.3 367.6 384.8 295.3 89.5 392.7 1,825.9 20.0 0.2 1,214.9 564.8 5.7 54.2 28.1

April 3,038.3 357.4 355.5 267.7 87.7 397.4 1,839.7 18.8 0.2 1,224.4 571.2 5.8 55.8 32.4

M ay 3,041.0 338.6 360.8 277.7 83.1 397.4 1,856.8 19.1 0.2 1,229.1 583.4 5.9 55.3 32.2

June 3,059.5 358.2 318.7 232.7 86.0 405.3 1,889.9 20.2 0.2 1,250.9 593.2 5.9 55.2 32.2

July 3,116.4 391.1 377.2 301.9 75.2 380.9 1,874.3 19.0 0.2 1,241.0 601.5 6.2 55.0 37.8

August 3,160.4 422.9 380.9 304.8 76.0 418.9 1,848.2 19.2 0.2 1,212.2 604.0 6.2 54.5 35.0

September 3,149.5 413.0 385.5 313.1 72.5 410.0 1,855.0 7.8 0.2 1,225.2 609.5 6.4 53.4 32.6

October 3,150.3 414.0 417.6 350.9 66.6 380.6 1,854.0 7.5 0.2 1,236.4 603.1 6.2 53.8 30.3

November 3,156.4 444.0 379.9 325.1 54.7 379.5 1,860.8 7.6 0.2 1,236.1 610.2 6.1 53.4 38.9

2014 December 3,186.6 447.1 390.8 328.0 62.8 383.8 1,882.3 7.1 0.6 1,232.7 635.3 6.0 53.7 28.8

Source: CBK (2015)

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Table 4.2. ODC balance sheet – liabilities

(Cumulative data, end of period, in millions of euro)

Total liabilities

Balances Deposits Other Write - Other Subordin Own of which: from other borrowin downs, liabilities ated debt resources Description banks Transfera Other Saving gs (incl. provisions Share ble deposits: deposits non neg. capital deposits CD)

2001 December 519.8 . 492.3 365.4 126.8 _ 5.0 … 2.0 … 20.4 18.4

2002 December 473.7 . 427.2 295.9 131.3 _ 5.4 … 6.6 1.3 33.2 30.8

2003 December 589.2 1.8 514.0 290.5 223.5 _ 8.9 … 17.5 2.0 45.0 44.1

2004 December 816.5 14.3 694.5 281.0 413.5 _ 1.4 … 27.9 9.3 69.1 57.7

2005 December 984.4 23.0 836.7 296.6 540.1 _ 6.4 … 37.3 7.0 74.0 62.4

2006 December 1,161.2 30.3 924.3 308.9 615.4 _ 4.2 … 92.1 7.0 103.3 78.4

2007 December 1,435.0 25.8 1,143.1 380.7 762.4 _ 2.7 … 103.7 7.0 152.7 114.9

2008 December 1,808.3 34.9 1,444.1 429.8 1,014.2 _ … … 129.8 7.0 192.5 145.9

2009 December 2,204.6 58.5 1,744.8 515.0 1,229.8 _ … … 171.7 24.4 204.6 159.4

2010 December 2,455.1 70.7 1,936.8 670.9 923.2 342.7 23.4 0.1 160.0 33.5 230.5 170.4

2011 December 2,649.7 40.0 2,104.0 699.0 1,056.8 348.2 30.4 0.2 191.3 31.0 252.8 176.6

2012 December 2,829.3 6.0 2,279.1 751.9 1,172.1 355.0 18.9 1.7 221.4 31.0 270.8 200.1

January 2,812.6 4.3 2,265.1 738.9 1,170.9 355.4 19.1 1.6 218.6 31.0 272.6 200.1

February 2,837.8 7.2 2,278.3 744.1 1,178.2 356.0 20.0 1.8 227.4 31.0 271.7 200.1

M arch 2,835.7 4.0 2,269.4 756.0 1,155.6 357.8 19.4 1.6 233.0 31.0 276.9 200.1

April 2,799.3 3.0 2,231.4 756.8 1,095.4 379.2 19.9 1.2 229.2 31.0 283.2 205.1

M ay 2,825.3 10.6 2,247.0 776.6 1,096.2 374.3 17.5 1.7 229.9 31.0 287.2 212.3

June 2,787.0 20.2 2,201.3 745.3 1,086.8 369.2 14.8 1.7 239.4 36.3 272.9 218.3

July 2,860.1 6.9 2,271.2 779.7 1,117.0 374.5 11.2 1.7 237.9 55.3 275.7 219.2

August 2,968.0 6.4 2,370.9 867.8 1,120.1 383.1 11.3 2.0 244.4 56.3 276.6 219.2

September 2,935.4 9.8 2,344.7 826.6 1,134.9 383.2 10.8 1.9 239.2 56.3 272.5 219.2

October 2,952.0 11.5 2,354.6 828.4 1,140.7 385.4 10.7 1.9 240.0 56.3 276.8 220.2

November 2,976.7 15.1 2,359.2 833.1 1,135.5 390.5 10.6 2.0 258.8 56.3 274.7 220.2

2013 December 3,059.3 16.5 2,449.0 900.8 1,144.0 404.2 13.4 2.0 244.3 56.3 277.9 221.2

January 3,048.5 21.3 2,443.4 887.4 1,134.4 421.7 13.2 1.6 231.5 56.4 281.0 221.2

February 3,045.1 21.3 2,433.4 890.7 1,113.8 428.8 13.9 1.5 235.1 56.3 283.4 221.2

M arch 3,053.3 21.6 2,430.8 910.4 1,085.4 435.0 13.4 1.5 241.7 56.3 287.8 221.2

April 3,038.3 23.1 2,425.9 920.0 1,062.9 443.0 13.5 1.2 241.7 57.3 275.5 226.2

M ay 3,041.0 25.7 2,415.1 926.7 1,035.1 453.2 14.4 1.2 244.8 57.3 282.5 226.2

June 3,059.5 29.9 2,421.0 957.8 1,006.6 456.6 17.9 1.2 242.2 57.3 289.9 226.2

July 3,116.4 26.9 2,474.9 1,029.1 975.9 469.9 17.0 1.1 239.4 57.3 299.6 231.2

August 3,160.4 25.3 2,513.6 1,096.6 922.8 494.2 16.7 1.1 237.6 57.3 308.8 231.2

September 3,149.5 22.2 2,518.0 1,100.3 908.8 508.8 16.9 1.5 233.6 47.3 310.0 231.2

October 3,150.3 22.5 2,514.0 1,112.3 880.1 521.6 17.0 1.6 235.2 47.3 312.7 231.2

November 3,156.4 27.2 2,502.7 1,129.9 844.4 528.4 16.4 2.1 243.6 47.3 317.0 231.3

2014 December 3,186.6 32.2 2,537.5 1,198.3 803.9 535.3 14.1 2.9 229.9 47.3 323.1 231.3

Source: CBK (2015)

84|

Number 7 Financial Stability Report

Table 5.1. ODC deposits – Euro deposits

(Cumulative data, end of period, in millions of euro)

Total deposits in euro

Governm Finanncial corporations Non financial corporations Other domestic sectors Nonresid ent ents Description Other Other Insurance Pension Financial Public Other Househol NPISH deposito financial companies funds auxilliaries nonfinanc nonfinanc ds ry intermedi ial ial corporati aries corporati corporati ons ons ons

2001 December 492.3 ______. __ 165.2 __ 165.2 313.1 313.1 __ 13.9

2002 December 427.2 ______. __ 183.6 __ 183.6 226.1 226.1 __ 17.5

2003 December 515.8 __ 1.8 1.8 __ __ . __ 226.1 __ 226.1 267.9 267.9 __ 20.0

2004 December 674.9 1.3 25.6 3.7 3.5 15.5 . 2.9 275.3 173.5 101.8 360.3 350.7 9.6 12.3

2005 December 815.3 2.9 35.4 8.1 5.8 18.8 . 2.8 319.0 211.3 107.7 440.7 428.7 12.0 17.3

2006 December 890.4 7.0 28.1 0.1 2.4 24.7 0.4 0.5 337.8 217.4 120.5 499.2 486.1 13.1 18.2

2007 December 1,092.0 4.1 39.1 3.1 5.6 28.3 0.4 1.7 386.2 215.5 170.7 647.0 631.9 15.2 15.6

2008 December 1,366.9 1.4 62.9 5.0 6.5 31.5 19.4 0.4 479.7 263.8 215.9 785.0 774.5 10.5 37.9

2009 December 1,640.1 165.0 78.2 6.1 5.9 43.1 22.6 0.4 371.5 121.6 249.9 962.2 948.8 13.4 63.2

2010 December 1,831.1 11.7 105.0 7.3 7.9 47.6 41.6 0.6 414.9 122.3 292.6 1,220.1 1,206.1 14.0 79.4

2011 December 1,982.4 2.7 117.5 9.9 6.8 57.2 43.1 0.5 406.6 128.5 278.1 1,395.6 1,373.4 22.2 60.0

2012 December 2,162.8 0.7 120.0 3.8 6.2 64.3 45.3 0.4 401.7 75.6 326.1 1,558.6 1,535.4 23.2 81.7

January 2,142.0 0.8 120.4 3.0 6.9 64.0 46.0 0.4 375.4 76.0 299.5 1,569.9 1,544.8 25.1 75.6

February 2,154.9 1.0 115.5 4.5 6.8 63.9 39.9 0.4 386.3 71.8 314.6 1,579.5 1,553.8 25.7 72.5

M arch 2,143.4 1.0 98.0 1.5 6.6 65.1 24.3 0.5 369.8 69.1 300.7 1,583.6 1,558.1 25.5 91.0

April 2,106.5 0.9 77.9 1.6 6.1 64.2 5.5 0.4 367.5 60.7 306.8 1,575.6 1,549.3 26.4 84.5

M ay 2,122.0 1.9 78.6 2.2 6.5 64.0 5.4 0.5 372.8 65.6 307.2 1,591.7 1,563.9 27.7 77.0

June 2,076.0 1.3 78.6 1.5 7.1 64.1 5.7 0.3 363.4 64.8 298.6 1,562.1 1,535.2 26.9 70.6

July 2,144.6 0.8 80.5 2.0 7.0 65.5 5.5 0.4 378.2 70.6 307.6 1,588.6 1,561.0 27.6 96.4

August 2,242.9 2.1 80.4 1.4 6.9 66.1 5.6 0.4 425.0 77.6 347.4 1,639.9 1,610.8 29.0 95.5

September 2,216.4 1.4 83.7 1.9 8.1 67.5 5.8 0.4 419.4 87.4 332.1 1,622.8 1,594.7 28.1 89.0

October 2,225.4 1.4 85.3 3.1 8.4 67.6 5.8 0.4 425.4 89.9 335.5 1,628.6 1,600.4 28.3 84.7

November 2,235.7 2.0 90.1 3.6 8.6 69.1 8.5 0.4 411.2 84.6 326.6 1,648.9 1,623.5 25.4 83.5

2013 December 2,314.1 1.8 88.2 2.5 7.4 72.3 5.7 0.3 455.6 72.1 383.5 1,685.1 1,658.7 26.4 83.4

January 2,312.9 1.7 96.1 6.3 13.7 70.3 5.4 0.5 397.5 59.9 337.5 1,710.8 1,681.4 29.4 106.8

February 2,303.9 1.8 107.0 5.8 12.9 71.7 16.1 0.4 381.6 58.4 323.2 1,711.5 1,682.5 28.9 102.1

M arch 2,298.3 1.9 110.7 6.4 11.9 75.1 16.8 0.4 376.9 52.0 324.9 1,712.5 1,675.9 36.7 96.3

April 2,288.9 1.8 111.4 5.1 12.0 76.3 17.6 0.4 379.6 68.7 311.0 1,705.0 1,674.6 30.3 91.1

M ay 2,280.8 2.0 112.9 4.9 12.1 77.1 18.5 0.3 383.9 68.2 315.7 1,695.2 1,667.0 28.2 86.7

June 2,285.9 1.9 112.9 3.6 12.3 77.3 19.3 0.3 382.8 69.2 313.6 1,703.7 1,676.2 27.5 84.7

July 2,339.8 1.9 114.0 7.0 11.0 76.1 19.7 0.3 407.4 70.0 337.5 1,719.8 1,691.4 28.4 96.8

August 2,381.2 2.0 117.7 5.6 12.4 78.2 21.1 0.4 428.8 67.1 361.7 1,741.6 1,710.7 30.9 91.2

September 2,389.5 4.6 117.2 3.9 11.7 79.5 21.8 0.3 433.2 66.4 366.8 1,748.9 1,718.9 29.9 85.7

October 2,394.6 7.2 118.5 4.0 13.3 79.0 21.8 0.5 423.9 68.0 356.0 1,758.5 1,726.9 31.6 86.5

November 2,390.9 8.5 114.3 2.3 5.4 83.9 22.1 0.5 420.9 64.9 356.0 1,761.3 1,730.6 30.7 85.9

2014 December 2,426.3 8.8 104.6 2.8 5.1 79.3 17.1 0.3 449.7 61.8 387.9 1,781.1 1,750.6 30.6 82.1

Source: CBK (2015)

|85

Number 7 Financial Stability Report

Table 5.2. Non Euro deposits

(Cumulative data, end of period, in millions of euro)

Non-euro deposits

Finanncial of which: Nonfinan Other domestic sectors Non corporati cial residents Description ons CBK Other Other Insurance corporat Public Other Households NPISH deposito financial compani ions nonfinan nonfinan ry intermedi es cial cial Transfer Saving Other corporat aries corporat corporat able account deposits ions ions ions deposits 2005 December 29.4 … __ … … … 2.8 __ 2.8 26.0 25.7 10.8 __ 14.9 0.3 0.5

2006 December 34.3 … __ … … … 3.7 0.3 3.5 29.8 29.6 12.4 __ 17.2 0.2 0.5

2007 December 53.3 0.5 __ … 0.1 … 8.1 1.5 6.6 44.3 44.2 16.2 __ 28.0 0.1 0.4

2008 December 81.9 0.9 __ … … … 11.6 0.1 11.5 68.4 68.2 22.9 __ 45.2 0.3 1.0

2009 December 112.1 2.1 __ … … … 18.3 1.3 17.0 91.1 90.9 29.7 __ 61.1 0.2 0.7

2010 December 113.8 3.1 __ … __ … 13.7 4.3 9.4 93.8 93.3 33.1 25.9 34.3 0.5 3.1

2011 December 131.5 0.3 __ … __ … 9.8 0.1 9.7 117.5 117.0 46.5 31.7 38.9 0.4 3.8

2012 December 120.9 1.6 __ … 0.2 … 9.6 __ 9.6 104.9 104.7 45.7 27.0 32.0 0.2 4.8

January 125.7 0.4 __ … 0.2 … 13.1 __ 13.1 107.4 107.1 47.9 27.5 31.7 0.3 4.7

February 127.5 0.3 __ … 0.2 … 10.4 __ 10.4 111.9 111.4 50.6 28.8 32.0 0.4 4.9

M arch 127.1 0.4 __ … 0.4 … 7.8 __ 7.8 113.9 113.2 52.8 28.5 31.9 0.8 4.9

April 126.2 0.2 __ … __ … 9.4 __ 9.4 111.5 110.7 52.5 28.1 30.0 0.8 5.1

M ay 126.9 0.2 __ … 0.1 … 9.6 __ 9.6 111.9 110.8 53.3 28.3 29.2 1.1 5.2

June 126.3 0.2 __ … 0.2 … 8.6 __ 8.6 112.3 111.3 54.5 28.1 28.8 1.0 5.3

July 128.1 0.3 __ … 0.2 … 10.6 __ 10.6 112.2 112.0 56.5 27.8 27.8 0.3 5.0

August 128.9 0.3 __ … 0.2 … 9.8 __ 9.8 113.9 113.7 56.9 28.9 27.9 0.3 4.8

September 129.7 0.4 __ … 0.1 … 12.4 __ 12.4 112.1 111.8 55.8 28.8 27.2 0.3 4.8

October 131.7 0.4 __ … 0.1 … 13.8 __ 13.8 112.4 111.6 54.5 29.7 27.4 0.8 5.1

November 126.6 0.6 __ … 0.3 … 8.7 __ 8.7 112.2 111.4 55.2 29.0 27.2 0.8 5.0

2013 December 136.9 0.7 __ … 0.4 … 14.3 __ 14.3 116.7 116.2 59.6 29.6 27.0 0.5 5.2

January 136.4 0.1 __ … 0.1 … 12.6 __ 12.6 118.4 118.0 60.4 30.7 26.9 0.4 5.3

February 135.0 0.4 __ … 0.1 … 11.9 __ 11.9 117.3 116.7 60.9 30.4 25.4 0.6 5.4

M arch 138.5 0.2 __ … 0.1 … 15.3 __ 15.3 117.4 115.9 61.5 30.7 23.7 1.6 5.6

April 141.2 0.2 __ … 0.1 … 15.6 __ 15.6 119.5 118.4 64.9 30.3 23.2 1.2 5.9

M ay 138.8 0.4 __ … 0.3 … 11.7 __ 11.7 121.0 120.5 66.4 32.1 22.0 0.4 5.7

June 138.3 0.2 __ … 0.1 … 10.4 __ 10.4 121.4 120.8 68.2 31.6 21.0 0.6 6.3

July 141.7 0.5 __ … 0.5 … 10.1 __ 10.1 123.9 123.0 70.8 31.4 20.8 0.8 7.2

August 137.6 0.2 __ … 0.2 … 9.5 __ 9.5 121.4 120.9 70.0 31.7 19.2 0.5 6.6

September 132.0 0.1 __ … 0.1 … 9.4 __ 9.4 115.5 115.1 68.3 29.3 17.6 0.3 7.0

October 123.0 0.1 __ … 0.1 … 8.7 __ 8.7 108.0 107.5 65.6 26.6 15.4 0.4 6.3

November 113.8 0.1 __ … 0.1 … 8.7 __ 8.7 98.9 98.3 61.5 23.0 13.8 0.6 6.0

2014 December 113.1 0.3 __ … 0.3 … 8.5 __ 8.5 97.8 97.3 63.2 21.5 12.6 0.6 6.4881

Source: CBK (2015)

86|

Number 7 Financial Stability Report

Table 6.1.Euro deposits at ODC, by initial maturity – nonfinancial corporations

(Cumulative data, end of period, in millions of euro)

Non financial corporations

Public nonfinancial corporations Other nonfinancial corporations

Transfer Saving Other of which: Transfer Saving Other of which: Descritpion able account deposits able account deposits deposits Up to 1 Over 1 Over 3 Over2 deposits Up to 1 Over 1 Over 6 Over 1 Over2 month month months years month month months year years and up and up and up and up and up to 3 to 6 to 3 to 1 to 2 months months months year years

2001 December 165.2 __ __ … ______165.2 133.9 … 31.3 ______

2002 December 183.6 __ __ … ______183.6 159.7 … 23.9 ______

2003 December 226.1 __ __ … ______226.1 139.0 … 87.1 ______

2004 December 275.3 173.5 24.2 … 149.3 34.0 0.0 __ … 101.8 78.2 … 23.6 9.0 6.0 0.2 2.1 __

2005 December 319.0 211.3 29.9 … 181.3 23.9 12.8 __ … 107.7 74.4 … 33.4 6.3 8.3 5.1 0.7 __

2006 December 337.8 217.4 24.0 … 193.3 19.9 19.4 __ … 120.5 93.6 … 26.9 6.2 6.8 1.7 3.0 __

2007 December 386.2 215.5 27.1 … 188.4 105.6 21.4 __ … 170.7 128.4 … 42.3 18.0 10.4 3.7 2.0 __

2008 December 479.7 263.8 13.7 … 250.1 21.8 47.2 __ … 215.9 170.2 … 45.8 18.7 4.7 2.0 7.0 __

2009 December 371.5 121.6 47.6 … 73.9 0.7 10.7 52.3 … 249.9 178.0 … 71.9 31.2 11.1 … 5.3 10.9

2010 December 414.9 122.3 79.5 … 42.8 2.7 21.7 3.1 12.6 292.6 212.6 16.9 63.1 19.0 5.3 17.1 8.8 9.7

2011 December 406.6 128.5 67.8 0.0 60.8 0.1 29.7 17.2 11.6 278.1 201.1 14.0 62.9 12.3 5.1 18.5 7.3 8.0

2012 December 401.7 75.6 13.8 0.0 61.8 0.9 46.0 0.1 12.0 326.1 249.6 9.2 67.3 10.0 6.0 27.4 6.5 7.8

January 375.4 76.0 30.0 2.0 44.0 4.2 24.9 0.1 12.0 299.5 227.2 6.3 66.0 11.0 12.1 27.1 6.3 7.8

February 386.3 71.8 16.7 2.0 53.0 2.0 36.2 0.1 12.0 314.6 237.7 13.8 63.0 11.1 11.0 27.4 5.6 6.9

M arch 369.8 69.1 18.3 1.9 48.9 0.0 32.0 2.1 12.1 300.7 228.1 14.8 57.8 12.3 3.7 28.4 5.1 6.2

April 367.5 60.7 14.4 2.0 44.3 4.4 23.9 2.0 12.1 306.8 231.0 14.6 61.1 5.2 2.7 27.6 6.2 7.0

M ay 372.8 65.6 14.7 2.5 48.4 0.1 32.2 2.0 12.1 307.2 231.8 13.6 61.8 4.2 4.2 28.9 6.2 7.6

June 363.4 64.8 16.0 2.0 46.8 0.1 31.8 0.0 12.1 298.6 224.4 13.6 60.7 4.9 4.0 27.9 6.1 7.6

July 378.2 70.6 14.7 1.8 54.1 9.4 31.1 0.0 12.1 307.6 234.8 14.4 58.4 4.1 9.2 29.7 6.3 6.9

August 425.0 77.6 19.1 1.2 57.4 8.5 34.2 0.0 12.1 347.4 269.5 15.8 62.1 4.7 8.6 32.7 6.7 7.0

September 419.4 87.4 14.4 1.2 71.8 0.1 50.0 5.0 12.1 332.1 259.6 17.1 55.4 11.6 1.0 27.1 6.0 7.0

October 425.4 89.9 13.5 0.6 75.7 0.1 54.0 5.0 12.0 335.5 271.2 15.2 49.1 3.6 2.1 27.8 6.4 7.2

November 411.2 84.6 18.8 0.2 65.7 4.4 39.9 5.0 12.0 326.6 250.7 15.8 60.1 5.7 1.9 37.4 6.3 6.9

2013 December 455.6 72.1 16.4 0.1 55.7 0.1 35.3 5.0 12.0 383.5 286.4 17.0 80.1 8.5 1.4 54.7 7.1 5.9

January 397.5 59.9 11.8 0.7 47.4 0.0 27.7 5.0 12.2 337.5 246.7 17.4 73.5 7.0 1.5 49.7 6.9 6.0

February 381.6 58.4 10.7 0.2 47.5 4.4 6.5 22.0 12.2 323.2 243.4 7.0 72.8 8.0 1.3 48.5 6.9 6.0

M arch 376.9 52.0 9.5 . 42.5 0.0 1.5 17.0 12.3 324.9 246.6 6.2 72.0 4.0 0.9 48.7 5.5 6.7

April 379.6 68.7 11.5 . 57.2 0.0 1.5 27.0 12.3 311.0 238.5 7.7 64.8 3.9 0.6 48.2 4.7 7.0

M ay 383.9 68.2 10.2 . 58.1 0.4 1.5 27.0 12.3 315.7 246.2 8.9 60.6 3.7 0.5 44.4 4.7 6.8

June 382.8 69.2 11.0 . 58.2 0.4 . 29.0 12.2 313.6 246.5 6.7 60.4 4.2 0.4 44.0 4.8 6.6

July 407.4 70.0 12.1 . 57.9 0.0 . 19.0 12.2 337.5 266.0 6.9 64.6 4.4 0.4 47.7 4.6 7.1

August 428.8 67.1 27.6 . 39.4 10.0 . 2.0 12.2 361.7 289.1 8.2 64.4 4.2 0.6 46.8 4.7 7.8

September 433.2 66.4 12.5 . 53.9 … 10.0 2.0 12.2 366.8 292.3 11.0 63.5 3.9 0.4 46.0 4.9 7.9

October 423.9 68.0 14.0 . 53.9 10.1 . 2.0 12.2 356.0 283.6 9.1 63.3 4.0 0.5 45.7 4.9 7.8

November 420.9 64.9 11.3 . 53.6 10.1 . 2.0 12.2 356.0 288.0 8.9 59.1 3.7 0.3 42.4 4.8 7.7

2014 December 449.7 61.8 10.2 . 51.6 5.0 . 3.0 12.2 387.9 330.2 8.7 49.0 3.2 0.8 31.7 5.1 7.8

Source: CBK (2015)

|87

Number 7 Financial Stability Report

Table 6.2.Euro deposits at ODC, by initial maturity - households and NPISH

(Cumulative data, end of period, in millions of euro)

Other domestic sectors

Households NPISH

Transfera Saving Other of which: Transfera Saving Other Description ble account deposits ble account deposits deposits Up to 1 Over 3 Over Over 1 Over 2 deposits month months 3months year and years and up to and up up to 2 6 months to1 year years

2001 December 313.1 313.1 219.2 … 93.9 __ __ 93.9 ______… __

2002 December 226.1 226.1 121.7 … 104.4 __ __ 104.4 ______… __

2003 December 267.9 267.9 134.4 … 133.5 __ __ 133.5 ______… __

2004 December 360.3 350.7 136.9 … 213.8 63.8 __ 91.8 14.2 1.9 9.6 8.9 … 0.7

2005 December 440.7 428.7 144.7 … 284.0 87.2 __ 109.3 26.5 19.3 12.0 10.4 … 1.6

2006 December 499.2 486.1 143.8 … 342.3 122.2 __ 127.9 26.5 37.1 13.1 7.6 … 5.5

2007 December 647.0 631.9 170.6 … 461.3 156.2 __ 141.6 74.6 50.3 15.2 11.9 … 3.3

2008 December 785.0 774.5 163.3 … 611.2 189.6 __ 234.6 64.8 61.6 10.5 7.7 … 2.8

2009 December 962.2 948.8 208.0 … 740.8 242.4 315.9 … 63.2 80.5 13.4 11.1 … 2.3

2010 December 1,220.1 1,206.1 270.4 274.5 661.2 30.0 76.1 347.8 61.1 108.3 14.0 13.0 0.5 0.5

2011 December 1,395.6 1,373.4 314.4 276.2 782.8 24.8 67.0 257.3 261.5 147.6 22.2 18.3 0.5 3.3

2012 December 1,558.6 1,535.4 361.5 283.2 890.8 25.2 58.4 337.8 260.5 177.6 23.2 19.7 0.0 3.4

January 1,569.9 1,544.8 352.1 283.5 909.1 25.6 54.4 345.8 265.0 180.5 25.1 20.2 0.1 4.9

February 1,579.5 1,553.8 362.2 281.8 909.8 29.4 54.0 494.6 130.4 163.4 25.7 20.7 0.1 4.9

M arch 1,583.6 1,558.1 363.0 283.0 912.1 23.1 67.2 490.6 133.1 163.1 25.5 20.6 0.2 4.8

April 1,575.6 1,549.3 370.5 321.7 857.1 8.4 48.1 479.5 135.1 162.2 26.4 21.4 0.2 4.7

M ay 1,591.7 1,563.9 390.6 318.3 855.0 5.4 43.8 478.5 139.0 162.0 27.7 23.1 0.2 4.5

June 1,562.1 1,535.2 370.8 314.3 850.2 10.3 37.5 474.1 140.3 162.7 26.9 22.3 0.1 4.4

July 1,588.6 1,561.0 386.0 318.5 856.5 13.7 38.2 465.7 152.1 165.2 27.6 23.2 0.1 4.3

August 1,639.9 1,610.8 413.1 324.4 873.3 12.8 38.1 469.1 165.8 169.8 29.0 24.6 0.2 4.3

September 1,622.8 1,594.7 395.1 323.9 875.7 9.3 34.2 467.3 173.4 174.0 28.1 23.7 0.2 4.2

October 1,628.6 1,600.4 393.9 326.1 880.3 6.9 31.1 464.9 179.5 176.6 28.3 24.2 0.3 3.8

November 1,648.9 1,623.5 417.3 332.1 874.2 11.1 27.7 459.3 182.3 178.1 25.4 21.4 0.2 3.8

2013 December 1,685.1 1,658.7 447.0 342.5 869.2 8.7 24.9 455.0 187.1 177.1 26.4 22.3 0.2 3.8

January 1,710.8 1,681.4 455.8 357.9 867.7 6.3 24.0 451.4 192.7 176.0 29.4 25.3 0.1 4.0

February 1,711.5 1,682.5 466.6 365.3 850.6 6.4 23.3 440.0 191.5 173.8 28.9 25.1 0.1 3.8

M arch 1,712.5 1,675.9 474.6 372.3 829.0 4.7 19.2 434.1 185.1 166.9 36.7 32.8 0.1 3.8

April 1,705.0 1,674.6 496.9 377.9 799.9 3.8 11.6 429.1 185.9 164.2 30.3 26.7 0.1 3.5

M ay 1,695.2 1,667.0 505.7 384.0 777.2 3.6 11.0 413.0 180.3 164.9 28.2 24.0 0.1 4.1

June 1,703.7 1,676.2 534.5 389.6 752.0 3.3 10.3 395.0 175.5 164.9 27.5 23.3 0.2 4.0

July 1,719.8 1,691.4 568.6 401.1 721.7 2.8 9.2 365.3 174.7 166.5 28.4 25.8 0.2 2.5

August 1,741.6 1,710.7 598.6 421.6 690.5 4.1 8.6 333.7 172.4 168.5 30.9 28.3 0.1 2.5

September 1,748.9 1,718.9 615.6 436.2 667.1 3.3 8.3 310.5 172.6 169.5 29.9 27.9 0.1 2.0

October 1,758.5 1,726.9 634.1 451.0 641.8 3.3 7.8 290.6 166.6 170.5 31.6 29.5 0.1 2.0

November 1,761.3 1,730.6 646.7 461.0 622.9 3.2 6.9 277.4 161.8 170.5 30.7 28.7 0.1 2.0

2014 December 1,781.1 1,750.6 679.9 470.2 600.5 3.4 6.0 259.7 155.2 172.2 30.6 28.5 0.1 2.0

Source: CBK (2015)

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Number 7 Financial Stability Report

Table 6.3. ODC loans – by maturity (Cumulative data, end of period, in millions of euro)

Total

Financial Nonfinan Other Loans in of which: of which: of which: corporat cial domesti Non Other Insuranc Public Korporatat jofinanciare Households Description ions corporat c Euro financial e ions nonfinan corporat Non Currency Up to 1 Over 1 Over 2 Up to 1 Over 1 Over 2 intermed compani cial ions residents iaries es corporat year year and years year year and years ions up to 2 up to 2 years years 2001 December 25.9 ______25.9 __ 25.9 24.6 1.3 ______

2002 December 86.5 ______80.8 __ 80.8 67.3 13.5 __ 5.7 5.7 1.4 4.3 ______

2003 December 232.8 ______193.7 0.2 193.5 124.7 68.7 0.2 39.0 39.0 11.4 16.0 11.6 __ __

2004 December 373.7 ______289.9 … 289.9 111.5 111.3 67.2 83.7 83.7 15.9 15.2 52.6 __ __

2005 December 513.9 ______387.9 … 387.9 117.9 125.2 144.7 126.0 126.0 19.5 21.0 85.4 __ __

2006 December 636.6 ______490.5 … 490.5 128.7 127.7 234.1 146.1 146.1 19.7 24.7 101.7 __ __

2007 December 892.1 ______691.5 0.2 691.3 174.0 122.6 394.6 200.6 200.6 24.0 29.6 147.1 __ __

2008 December 1,183.4 0.6 __ 0.6 901.8 0.1 901.7 191.0 132.3 578.4 281.0 281.0 20.9 30.9 229.2 __ __

2009 December 1,289.0 2.3 1.2 1.1 943.2 0.3 942.9 215.7 113.0 614.2 343.5 343.5 27.0 32.1 284.5 __ __

2010 December 1,458.7 5.7 2.6 3.0 1,014.5 6.3 1,008.3 259.4 64.3 684.5 434.3 434.2 26.5 30.7 377.0 1.6 2.5

2011 December 1,698.1 17.3 15.6 1.7 1,128.6 1.5 1,127.0 298.8 83.4 744.8 512.4 510.9 44.0 38.1 428.8 32.5 7.3

November 1,758.8 18.7 16.0 2.6 1,167.6 1.4 1,166.2 316.4 89.5 760.3 542.6 541.9 50.0 37.6 454.3 22.4 7.5

2012 December 1,763.4 19.8 16.3 3.5 1,171.2 1.4 1,169.8 313.4 91.7 764.8 543.0 542.6 52.2 37.3 453.0 22.5 6.9

January 1,754.9 19.1 16.0 3.1 1,165.9 0.8 1,165.1 303.7 96.8 764.6 542.5 542.1 51.8 37.5 452.8 20.9 6.4

February 1,765.6 19.1 16.1 3.0 1,177.3 0.4 1,176.9 349.8 76.1 751.0 541.4 540.9 52.5 40.5 447.9 20.9 7.0

M arch 1,782.7 19.9 16.3 3.5 1,188.3 0.3 1,188.0 354.7 79.9 753.4 546.8 545.8 53.8 40.9 451.1 21.0 6.7

April 1,801.6 18.7 16.2 2.5 1,204.0 0.3 1,203.7 364.7 86.8 752.2 551.4 551.0 57.4 41.3 452.3 20.6 6.9

M ay 1,810.0 18.6 16.1 2.5 1,209.4 0.3 1,209.1 374.2 87.1 747.8 554.4 554.0 57.1 41.1 455.9 20.6 7.0

June 1,826.9 19.1 16.4 2.7 1,216.4 0.3 1,216.1 373.6 99.5 743.1 562.7 561.9 61.6 42.7 457.6 20.6 8.0

July 1,816.0 19.3 16.7 2.6 1,204.0 0.3 1,203.7 377.2 91.7 734.8 565.6 565.3 62.5 43.0 459.8 20.0 7.0

August 1,790.1 17.9 16.1 1.8 1,193.9 0.3 1,193.6 362.9 95.8 734.9 551.8 551.5 59.5 41.1 450.9 20.1 6.4

September 1,798.0 18.8 16.2 2.6 1,195.4 0.3 1,195.1 369.8 94.9 730.5 557.3 556.5 62.4 41.7 452.3 20.1 6.3

October 1,798.8 18.6 16.8 1.8 1,187.2 0.3 1,186.9 368.1 94.1 724.7 566.9 566.5 64.1 42.7 459.7 19.8 6.4

November 1,803.2 18.9 17.0 1.9 1,193.7 0.3 1,193.4 381.9 96.0 715.5 564.6 563.9 63.5 42.0 458.5 19.8 6.3

2013 December 1,805.8 20.4 17.3 3.1 1,194.7 0.2 1,194.5 378.0 97.4 719.1 564.7 563.9 65.4 41.1 457.3 19.9 6.1

January 1,794.5 19.1 17.0 2.1 1,189.7 0.2 1,189.5 379.4 98.5 711.6 560.5 559.8 65.6 39.5 454.7 19.1 6.0

February 1,794.3 19.1 16.7 2.4 1,190.2 0.2 1,190.0 366.5 90.5 733.1 560.0 559.3 60.1 32.7 466.6 19.1 5.9

M arch 1,825.9 20.0 16.8 3.2 1,215.1 0.2 1,214.9 388.3 102.3 724.4 565.9 564.8 65.8 39.2 459.8 19.2 5.7

April 1,839.7 18.8 16.7 2.0 1,224.6 0.2 1,224.4 395.8 99.6 729.0 571.8 571.2 66.5 39.7 465.0 18.7 5.8

M ay 1,856.8 19.1 16.9 2.1 1,229.2 0.2 1,229.1 397.4 97.1 734.5 583.8 583.4 68.5 40.4 474.5 18.7 5.9

June 1,889.9 20.2 17.2 3.0 1,251.0 0.2 1,250.9 399.4 96.0 755.5 594.0 593.2 69.3 40.4 483.4 18.8 5.9

July 1,874.3 19.0 17.2 1.8 1,241.2 0.2 1,241.0 396.1 93.4 751.5 602.0 601.5 70.3 42.1 489.1 5.9 6.2

August 1,848.2 19.2 17.1 0.8 1,212.4 0.2 1,212.2 375.8 92.6 743.8 604.4 604.0 69.5 41.3 493.2 5.9 6.2

September 1,855.0 7.8 5.1 2.7 1,225.3 0.2 1,225.2 386.6 84.2 754.3 609.6 609.5 70.3 41.3 497.8 5.9 6.4

October 1,854.0 7.5 5.1 2.4 1,236.6 0.2 1,236.4 368.1 73.8 794.6 603.2 603.1 48.9 35.1 519.1 0.4 6.2

November 1,860.8 7.6 5.7 1.9 1,236.3 0.2 1,236.1 377.6 76.4 782.1 610.4 610.2 50.2 35.0 525.0 0.5 6.1

2014 December 1,882.3 7.1 5.8 1.3 1,233.4 0.6 1,232.7 367.0 93.6 772.1 635.4 635.3 69.6 42.6 523.1 0.5 6.0

Source: CBK (2015)

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Number 7 Financial Stability Report

Table 6.4. ODC loans – main economic sectors

(Cumulative data, end of period, in millions of euro)

Total

Agriculture Industry, energy and construction Services Description Up to 1 year Over 1 year Up to 1 year Over 1 year Up to 1 year Over 1 year

2001 December 25.9 … … __ 3.8 3.8 … 22.2 22.2 …

2002 December 86.5 1.5 1.5 __ 13.6 13.6 … 71.4 71.4 …

2003 December 232.8 4.7 3.9 0.8 22.2 12.6 9.7 205.8 119.7 86.1

2004 December 289.9 7.9 3.9 4.1 47.8 22.5 25.3 234.2 89.5 144.8

2005 December 387.9 12.5 4.1 8.4 74.2 24.5 49.7 301.1 92.4 208.8

2006 December 490.5 16.4 3.4 13.0 97.7 28.0 69.7 376.4 120.6 255.8

2007 December 691.5 29.0 4.1 24.9 144.5 32.8 111.7 518.0 149.5 368.5

2008 December 902.4 37.4 4.1 33.3 160.2 28.9 131.2 704.8 126.4 578.4

2009 December 945.5 38.2 3.8 34.4 236.7 54.8 181.9 670.5 113.2 557.3

2010 December 1,022.8 38.2 1.7 36.5 269.3 77.1 192.2 715.3 188.5 526.8

2011 December 1,149.5 40.5 2.7 37.8 284.7 82.3 202.4 824.4 220.5 603.8

2012 December 1,194.2 43.6 3.0 40.6 290.4 74.1 216.2 860.2 232.3 627.9

February 1,199.2 44.7 4.2 40.5 291.7 90.8 200.9 862.9 251.6 611.3

M arch 1,210.9 46.1 4.5 41.6 294.3 93.2 201.1 870.5 253.5 617.0

April 1,225.4 47.1 4.4 42.7 296.4 93.2 203.2 881.9 262.7 619.3

M ay 1,230.8 48.0 4.4 43.6 296.3 94.5 201.7 886.5 270.6 615.9

June 1,238.3 48.2 4.1 44.1 294.8 93.9 200.9 895.4 271.1 624.2

July 1,226.0 48.4 4.1 44.3 291.4 95.1 196.3 886.2 274.2 612.0

August 1,214.1 56.5 4.1 52.4 291.4 95.5 195.9 866.3 258.3 608.0

September 1,216.5 55.4 3.7 51.7 295.1 96.4 198.7 866.0 265.9 600.1

October 1,208.0 46.8 3.2 43.7 291.9 94.1 197.8 869.2 276.3 592.9

November 1,214.7 46.2 3.2 43.0 292.1 97.6 194.5 876.4 286.5 589.9

2013 December 1,217.4 45.8 3.3 42.5 291.4 95.8 195.6 880.2 286.2 594.0

January 1,217.4 45.8 3.3 42.5 291.4 95.8 195.6 880.2 286.2 594.0

February 1,211.5 45.3 3.3 42.0 286.4 94.5 191.9 879.8 289.4 590.4

M arch 1,237.1 45.3 3.4 41.9 297.9 95.4 202.5 893.9 296.8 597.1

April 1,245.4 45.3 4.3 41.1 300.6 98.2 202.4 899.5 298.5 601.0

M ay 1,250.4 45.3 4.3 41.0 303.4 100.0 203.4 901.7 297.0 604.7

June 1,273.3 45.5 4.5 41.0 304.8 103.4 201.5 923.0 294.9 628.0

July 1,262.5 45.3 3.4 41.9 301.3 89.3 212.1 915.9 270.1 645.8

August 1,233.9 45.0 4.7 40.3 294.3 97.2 197.1 894.6 277.2 617.4

September 1,235.6 48.9 4.9 44.0 293.7 97.2 196.6 892.9 288.0 605.0

October 1,246.3 48.2 4.3 43.9 295.3 97.0 198.4 902.8 282.5 620.3

November 1,246.1 49.4 5.0 44.4 295.0 100.1 194.9 901.7 293.2 608.5

2014 December 1,242.8 49.4 4.0 45.5 290.0 85.8 204.2 903.4 281.8 621.5

Source: CBK (2015)

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Number 7 Financial Stability Report

Table 7.1. ODC effective interest rate – deposit interest rate (New contracts)

Deposit Nonfinancial corporations Households rates Transfer Other deposits Saving Transfe Other deposits Saving able deposits rable deposit deposits Less than 250.000 euro M ore than 250.000 euro deposit Up to 1 Over 1 Over 3 Over 6 Over 1 Over s Description s month month months months year 2years Up to 1 Over 1 Over 6 Over Up to 1 Over 1 Over 6 and up and up 6 and up 1 and up month month months 2years month month months to 3 months year 2 years and up and up 1 and up and up 1 months to 3 year to 3 year 2005 December 3.1 0.3 2.1 months2.4 3.4 * 2.9 months* * 1.7 0.0 1.8 2.2 * 3.3 3.9 4.0 1.7

2006 December 3.1 0.4 2.1 2.9 4.3 * 3.1 * * 1.5 0.0 1.9 2.3 * 3.4 4.2 4.5 1.7

2007 December 4.0 0.5 2.7 2.9 4.4 * 4.3 4.1 * 2.4 0.0 2.6 2.7 * 3.6 4.7 5.3 2.3

2008 December 4.4 0.5 3.1 4.0 5.3 * 3.6 4.9 * 2.9 0.1 3.2 4.6 * 4.5 5.0 3.9 2.7

2009 December 4.0 0.7 3.4 3.4 5.0 * 3.9 4.9 * 2.6 0.3 3.1 3.3 * 4.4 5.0 5.5 2.5

2010 December 3.4 0.6 2.4 3.1 5.0 5.1 * 3.7 * 2.1 0.6 2.6 2.6 3.1 4.5 4.8 5.1 2.2

2011 December 3.6 0.9 2.2 2.9 4.9 5.1 2.6 3.9 5.2 2.2 0.5 2.5 2.5 2.9 4.2 4.6 5.4 2.1

2012 December 3.7 0.8 * 2.8 * * 2.7 4.0 4.8 2.1 0.5 2.3 2.5 2.8 4.2 4.5 4.8 2.1

January 3.6 0.9 1.3 2.8 4.8 * 2.9 * 3.6 2.0 0.6 2.3 2.3 2.8 4.1 4.5 5.2 1.7

February 3.6 0.8 1.8 2.1 3.0 * * 4.0 * 1.9 0.6 2.1 2.4 3.0 4.1 4.6 5.2 1.6

M arch 3.5 1.0 1.8 * 2.1 * * * 5.0 2.0 0.6 2.1 2.5 2.9 3.9 4.4 4.7 1.7

April 3.4 0.8 0.8 1.6 * 4.9 * * * 2.0 0.6 1.9 2.2 2.7 3.9 4.5 5.0 1.6

M ay 3.5 0.7 * * 4.4 * 2.3 3.7 3.8 2.0 0.6 2.2 2.1 2.7 3.8 4.5 5.0 1.6

June 3.5 0.9 * * 3.6 * * * * 2.0 0.6 2.0 2.7 2.5 3.9 4.4 4.9 1.6

July 3.6 0.7 * 2.5 * * * * * 2.0 0.8 2.3 2.2 2.5 3.7 4.5 5.0 1.6

August 3.4 0.7 * * * * 1.7 * 4.8 2.0 0.4 2.3 2.1 2.6 3.7 4.3 4.6 1.6

September 3.4 0.6 0.6 * * 4.2 * 2.6 * 2.0 0.5 2.1 2.5 2.5 3.6 4.4 4.9 1.6

October 3.3 0.6 1.3 2.3 * * 0.0 * * 2.0 0.4 2.0 2.1 2.3 3.5 4.3 4.8 1.6

November 3.2 0.4 0.5 0.6 * * * * * 1.8 0.4 1.8 2.1 2.3 3.4 4.1 4.7 1.6

2013 December 2.4 0.5 0.8 * 0.5 * * * * 1.7 0.5 1.7 1.7 2.0 2.9 3.4 4.0 1.7

January 2.7 0.1 0.8 * 2.4 3.7 * * * * 0.3 1.6 1.7 1.9 2.8 3.3 3.8 1.4

February 2.0 0.3 0.8 0.9 1.5 * * * * * 0.3 0.9 1.3 1.8 2.1 2.7 * 1.1

M arch 1.7 0.4 0.5 0.5 * * * * * * 0.2 0.8 * 1.5 1.4 2.8 * 0.8

April 0.6 0.2 0.6 0.5 0.4 * * * * * 0.1 0.4 0.4 0.3 0.7 0.8 1.4 0.7

M ay 0.6 0.2 0.6 0.6 0.7 0.5 0.1 * * 0.6 0.1 0.4 0.3 0.3 0.7 0.8 1.5 0.7

June 0.6 0.2 0.4 0.6 * 0.1 0.0 * * 0.6 0.1 0.3 0.2 0.3 0.6 0.9 1.4 0.5

July 0.7 0.1 0.2 * * * * * 0.1 0.6 0.1 0.3 0.4 0.3 0.6 1.1 1.6 0.7

August 0.9 0.2 * 0.5 * 2.0 … * * 0.6 0.1 0.3 0.4 0.3 0.8 1.3 1.8 0.5

September 1.0 0.2 * 0.5 0.8 * … * * 0.6 … 0.3 0.4 0.2 0.8 1.4 1.9 0.5

October 0.5 0.1 * * 0.9 * 0.1 * * 0.4 … 0.3 0.4 0.2 0.6 0.6 * 0.5

November 0.6 0.2 1.0 * 0.9 * * * 0.7 0.5 0.02 0.2 0.4 0.2 0.7 0.3 1.6 0.4 2014 December 1.1 0.1 0.2 * * * * * 1.9 0.7 0.01 0.2 0.5 0.3 0.7 0.9 2.0 0.6

Source: CBK (2015)

|91

Number 7 Financial Stability Report

Table 7.2.ODC effective interest rate – credit interest rate

(New contracts)

Nonfinancial corporations (Loans) Households (Loans)

Investment business loans Other business loans Overdrafts Credit Loans with Overdraft Loans with Consume M ortgage loans / 3 (outstandin lines favourable s favourable r loans Interest g amounts) (outstand conditions /4 (outstand conditions /4 Description rate on 2/ ing ing loans / 1 Up to 1 Over 1 Over 5 Up to 1 Over 1 amounts) amounts) Up to 1 Over 1 Over 5 year year and years year year and Cash Other Cash Other year year and years 2/ up to 5 up to 5 over loans over loans up to 5 years years loans loans years

2005 December 14.5 17.3 13.3 13.3 15.2 14.4 15.1 11.5 … * * … * 11.5 * * *

2006 December 14.7 * 14.5 14.5 13.6 15.2 15.7 12.4 … * * … * 12.4 * 13.4 *

2007 December 14.1 * 13.8 13.8 * 14.6 15.1 13.7 … * * … * 13.7 12.9 12.4 *

2008 December 13.8 * 13.9 13.9 14.2 13.4 15.0 13.5 … * 19.5 … … 13.5 9.8 10.8 8.1

2009 December 14.1 * 14.3 14.3 * * * … * 17.8 … … 13.3 * 10.7 *

2010 December 14.3 16.1 13.9 * 18.7 14.4 12.7 13.3 7.7 * 22.6 6.6 8.6 14.6 * 11.7 10.3

2011 December 13.9 17.1 13.6 * 16.4 13.8 11.8 12.1 6.1 9.9 16.4 6.0 8.6 14.0 14.3 12.0 10.8

2012 December 12.9 15.4 12.0 10.2 15.3 13.7 10.7 11.9 5.9 * 12.5 6.1 8.0 13.1 * 10.8 9.8

January 13.6 12.7 13.7 * 15.5 15.4 10.7 12.6 5.6 * 16.4 6.5 4.8 12.6 11.9 11.2 10.3

February 13.5 14.1 14.0 * 16.7 14.2 9.7 11.6 * * 15.0 6.5 6.7 12.8 * 11.0 9.8

M arch 12.6 15.2 12.3 11.0 16.0 13.8 11.0 12.9 7.3 9.9 15.8 6.2 6.7 12.1 * 11.0 9.5

April 12.6 12.9 12.5 10.5 16.1 14.1 10.5 13.4 7.0 10.3 16.9 6.6 5.8 12.0 13.4 11.3 9.7

M ay 12.3 13.3 13.0 10.2 15.2 13.9 10.7 12.2 7.4 * 15.5 6.9 5.5 11.8 * 11.1 9.6

June 12.0 12.9 11.5 9.4 14.2 13.5 10.3 11.9 6.7 * 13.2 6.8 8.9 12.2 13.6 11.2 9.8

July 12.6 13.0 12.3 * 13.9 13.7 9.3 11.4 3.7 * 14.3 7.4 8.4 12.5 11.2 11.0 9.8

August 12.0 13.8 11.3 10.9 14.3 13.1 10.8 10.7 5.4 11.0 16.6 5.7 5.4 12.4 * 11.0 9.7

September 12.2 13.1 11.9 * 13.8 12.7 10.1 10.8 5.3 * 15.8 6.5 10.1 12.2 * 10.9 9.2

October 11.7 13.6 11.7 10.2 12.5 12.5 10.5 12.7 5.8 * 16.4 6.5 10.1 12.0 9.9 10.7 9.2

November 12.2 13.8 11.3 11.9 14.5 13.5 9.4 11.9 * * 15.9 6.0 9.8 12.5 13.8 10.4 9.5

2013 December 11.1 12.3 10.9 9.5 11.6 12.9 9.4 11.0 6.0 * 14.4 4.6 7.3 11.7 * 10.4 9.0

January 11.7 13.1 11.6 10.5 11.9 13.0 8.8 12.9 5.9 * 14.6 5.0 7.5 11.8 10.9 9.7 9.0

February 11.8 10.1 11.6 11.1 11.8 12.5 8.8 11.0 3.4 * 13.8 5.0 6.3 12.0 11.3 9.9 9.0

M arch 11.2 11.1 10.9 11.8 11.4 12.6 9.8 10.9 6.6 9.8 14.6 3.9 4.3 11.3 * 9.7 9.0

April 10.7 11.7 10.3 9.9 10.3 12.5 9.4 11.0 4.0 10.8 14.0 4.3 4.1 11.2 9.3 9.8 9.2

M ay 10.5 11.9 10.0 10.2 11.1 12.1 9.9 12.0 6.8 3.7 11.8 3.9 4.8 10.7 * 9.4 8.7

June 10.6 12.1 9.9 11.0 10.6 12.2 9.4 11.3 4.2 * 14.3 4.6 3.6 10.9 9.8 9.5 9.1

July 10.8 10.1 10.3 11.4 10.9 11.5 9.6 10.6 6.0 * 13.6 4.0 4.5 10.9 8.9 9.2 9.3

August 10.7 11.4 11.0 9.4 10.3 11.2 9.5 10.2 3.7 * 13.4 4.2 4.0 11.0 * 9.9 8.3

September 10.8 11.8 10.9 10.0 10.6 10.9 9.1 11.2 2.9 * 13.4 3.3 4.0 10.9 9.5 9.6 8.7

October 10.4 12.4 10.8 9.3 9.9 10.8 9.4 11.0 3.1 * 13.8 2.9 4.5 10.4 12.4 9.2 8.6

November 9.9 11.2 10.3 9.1 10.6 10.5 8.9 11.9 * * 13.3 2.7 * 9.9 * 9.1 8.0 2014 December 9.2 10.8 9.8 8.4 9.5 10.2 9.3 11.8 2.2 * 12.9 3.2 2.3 9.1 8.8 8.0 7.8

Source: CBK (2015)

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Number 7 Financial Stability Report

Table 8.1.ODC balance sheet – income and expenditure (Cumulative data, within one calendar year, in millions of euro)

Net profit / loss for period

Income Expenditures Net gains Provision or losses s for Interest of which: Non- of which: Interest Non- of General arising for taxes income Interest expenditures Interest which: and Description revaluatio income expendit administ Loans Securitie Fees and Deposits Provisio ns ( +/-) ures rative s commissi ns for expense ons loan and s other assets losses 2007 December 33.5 157.3 117.9 103.0 3.6 39.5 23.8 115.8 26.0 23.2 20.1 17.8 69.7 -0.2 7.9

2008 December 26.0 195.0 155.7 140.4 2.3 39.3 30.2 157.0 43.1 35.1 27.7 22.8 86.2 -1.5 10.5

2009 December 27.4 203.3 164.6 159.6 1.2 38.7 32.7 171.9 52.1 48.1 33.4 26.4 86.4 -1.1 2.8

2010 December 32.8 217.2 175.8 169.6 3.1 41.4 37.5 179.0 55.3 49.4 35.6 28.3 88.1 -1.2 4.3

2011 December 36.0 240.1 195.1 186.3 4.2 45.0 41.7 198.8 58.4 51.3 43.2 34.8 97.1 -1.2 4.2

2012 December 18.5 247.0 200.5 194.9 3.0 46.6 44.2 224.6 63.1 57.6 59.1 50.3 102.4 -0.7 3.3

January 1.9 20.8 16.7 16.2 0.1 4.2 3.7 18.6 5.6 5.2 4.8 4.2 8.1 0.1 0.4

February 0.9 39.8 31.9 31.0 0.3 7.9 7.1 38.3 10.6 9.8 11.4 9.8 16.3 0.1 0.7

M arch 6.2 60.6 49.0 47.4 0.7 11.6 10.6 53.8 16.2 15.0 13.3 10.9 24.4 0.2 0.8

April 7.7 81.2 65.6 63.6 0.9 15.6 14.5 72.4 21.5 19.9 18.2 15.1 32.7 0.2 1.3

M ay 11.4 102.1 82.5 80.0 1.0 19.6 18.3 89.1 26.8 24.8 21.5 17.7 40.7 0.3 1.8

June 15.2 122.7 99.1 96.3 1.2 23.6 21.9 106.4 31.9 29.5 25.5 21.0 49.0 0.9 2.0

July 17.7 144.6 116.5 113.2 1.4 28.1 26.0 125.6 37.2 34.4 31.0 25.7 57.5 0.9 2.2

August 18.7 165.9 133.1 129.4 1.5 32.8 30.0 145.8 42.4 39.2 37.8 31.6 65.5 1.0 2.5

September 22.4 186.1 149.0 145.0 1.7 37.0 33.8 162.2 47.7 43.9 40.9 33.9 73.7 1.1 2.6

October 25.7 206.8 165.7 161.1 1.9 41.1 37.8 179.2 53.1 48.8 44.2 36.5 81.9 1.1 3.0

November 23.6 226.7 181.7 176.5 2.1 45.0 41.5 201.0 58.4 53.4 52.1 43.6 90.4 1.2 3.3

2013 December 26.0 247.8 198.2 192.5 2.3 49.6 45.6 219.8 63.8 58.0 55.5 46.1 100.5 1.2 3.2

January 2.9 20.0 16.0 15.4 0.2 4.0 3.6 16.6 5.0 4.5 3.6 2.5 8.0 0.0 0.6

February 5.4 38.9 31.2 30.1 0.4 7.7 7.0 32.6 9.4 8.3 7.6 5.4 15.7 0.1 1.0

M arch 9.8 59.3 47.7 46.0 0.6 11.6 10.6 48.5 13.7 12.0 10.8 7.7 24.0 0.1 1.2

April 12.5 79.5 63.9 61.5 0.8 15.7 14.5 65.5 17.9 15.6 15.4 11.5 32.3 0.2 1.7

M ay 19.4 100.4 80.6 77.7 1.0 19.8 18.6 78.7 22.0 19.0 16.6 11.7 40.2 0.2 2.5

June 26.9 121.3 97.1 93.6 1.2 24.2 22.4 91.6 25.8 22.1 17.3 11.8 48.5 0.2 3.1

July 31.5 142.4 115.0 111.0 1.5 27.4 25.3 107.5 29.5 25.2 21.2 14.7 56.9 0.3 3.7

August 40.7 163.4 132.0 127.5 1.7 31.3 29.2 118.7 32.8 27.9 20.9 13.5 65.1 0.3 4.3

September 46.9 183.1 147.8 142.7 2.0 35.3 32.9 131.6 35.9 30.3 22.4 14.2 73.4 0.4 4.9

October 49.6 202.9 163.6 158.0 2.2 39.3 36.8 148.6 38.6 32.5 28.1 19.0 81.8 0.5 5.3

November 54.0 222.6 179.5 173.4 2.5 43.1 40.3 163.5 41.2 34.5 31.6 21.7 90.7 0.5 5.7

2014 December 60.1 243.7 195.9 189.5 2.9 47.8 44.5 177.4 44.0 36.4 31.6 20.5 101.8 0.5 6.8

Source: CBK (2015)

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Number 7 Financial Stability Report

11. References

Bank of Albania Bank of Slovenia Central Bank of Bosnia and Herzegovina Central Bank of Montenegro Croatian National Bank Insurance Europe – Statistics on European Insurance Industry Kosovo Agency of Statistics National Bank of Serbia National Bank of the Republic of Macedonia NLB Group: Annual Reports (2011-2014)

PCH: Annual Reports (2011-2014)

RBI: Annual Reports (2011-2014).

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