4 2 Quarterly Assessment of the Economy No. 17, Q IV/216 12 1 8 6 1 2 3 4 5 6 7 8 9 Summary Economic activity in euro area has continued to recover in 216, while in line with the CBK expectations, the inflation rate has marked a gradual increase. The improvement of financial conditions, as a result of the expansionary policies and non-convention measures taken by the ECB, alongside with the improvement of conditions in the labor market and low prices of main commodities in international markets have had an impact on the rise of the economic activity in euro area. The improvement of demand in the euro area was reflected positively in economic developments of Western Balkan countries, which was characterized with export and investments increase. Similar to euro area and Western Balkan countries, the growth of the economic activity in Kosovo, in 216, was mainly driven by strengthening of domestic demand, namely by increase of consumption and investments. Based on KAS estimates, during four quarters of 216, Kosovo s economy was characterized with a GDP growth of 3.4 percent. In 216, prices in Kosovo were relatively stable, with an average CPI increase of.3 percent. In this period, import and producer price index were characterized with a decline. Fiscal sector was characterized with an increase of budgetary income and expenditures. In 216, Kosovo s budget recorded a primary deficit of EUR 61.1 million, compared to the deficit of EUR 111.4 million in 215. Balance of payments in Kosovo marked a deficit growth of the current and capital account in 216, mainly as a consequence of the decline of goods export (4.8 percent) and the increase of import (5.9 percent). Also, the decline of income from compensation of employees had an impact on the deterioration of current account. On the other hand, the increase of exports and the decline of import of services had an impact on the increase of the positive balance of services account. As regards to the financial account, foreign direct investments also in the last quarter of 216 continued to have lower values compared to previous year. Banking sector in 216 was characterized with an increase of lending activity (1.4 percent), mainly as a result of improved conditions of crediting by banks and the increase of demand for loans. The increase of lending continued to be robustly financed by deposits collected in the country, which marked an annual increase of 7.2 percent. The average interest rate on loans declined at 7.2 percent in 216, while the average interest rate on deposits marked an increase of 1.2 percent. The NPL rate continued to decline also in the fourth quarter, falling to 4.9 percent in 216, while also the other financial soundness indicators continued to have satisfactory level. With an increase were characterized also other segments of financial system, as pension sector, insurance sector and microfinance sector. Regarding the performance, it was noted a more significant improvement of microfinance sector, while also the pension sector realized a positive return on investments. Conversely, the insurance sector during this period marked a loss deepening. 3 PUBLISHER: Central Bank of the Republic of Kosovo, Economic Analysis and Financial Stability Department. Address: 33 Garibaldi, Prishtinë 1, Tel: ++381 38 222 55, Fax: ++381 38 243 763 E-mail: economic.analysis@bqk-kos.org Users of the data are requested to cite the source. Any required correction will be made in electronic version. This publication includes available data until 31 216.
BANKA QENDRORE E REPUBLIKËS SË KOSOVËS CENTRALNA BANKA REPUBLIKE KOSOVA CENTRAL BANK OF THE REPUBLIC OF KOSOVO CONTENTS Summary---------------------------------------------------------------------------------------------------------------- i Euro area and the Western Balkans ------------------------------------------------------------------------ 4 Kosovo s Economy ---------------------------------------------------------------------------------------------- 6 Real Sector ----------------------------------------------------------------------------------------------------------------------------------------6 Fiscal Sector --------------------------------------------------------------------------------------------------------------------------------------8 External Sector -----------------------------------------------------------------------------------------------------------------------------------8 Financial System ---------------------------------------------------------------------------------------------------------------------------------11 Banking Sector -----------------------------------------------------------------------------------------------------------------------------------11 Pension Sector -----------------------------------------------------------------------------------------------------------------------------------18 Insurance Sector ---------------------------------------------------------------------------------------------------------------------------------19 Microfinance Sector ----------------------------------------------------------------------------------------------------------------------------2 Securities Market --------------------------------------------------------------------------------------------------------------------------------23 Figures and Tables ----------------------------------------------------------------------------------------------- 4 Figure 1. Annual real GDP growth rate in euro area -----------------------------------------------------------------------------------4 Figure 2. EURIBOR interbank lending rate and ECB refinancing rate -------------------------------------------------------------5 Figure 3. Inflation rate --------------------------------------------------------------------------------------------------------------------------6 Figure 4. Price movements by main components ---------------------------------------------------------------------------------------6 Figure 5. Consumer, Producer and Import price indices ------------------------------------------------------------------------------6 Figure 6. Price movements of import -------------------------------------------------------------------------------------------------------7 Figure 7. Producer price movements -------------------------------------------------------------------------------------------------------7 Figure 8. Business registry --------------------------------------------------------------------------------------------------------------------7 Figure 9. Structure of new enterprises -----------------------------------------------------------------------------------------------------8 Figure 1. Exports, imports and trade balance ------------------------------------------------------------------------------------------9 Figure 11. Structure of exports by category ----------------------------------------------------------------------------------------------9 Figure 12. Structure of imports by category ----------------------------------------------------------------------------------------------9 Figure 13. Remittances -------------------------------------------------------------------------------------------------------------------------1 Figure 14. Structure of foreign direct investments by components -----------------------------------------------------------------1 Figure 15. The value of assets of Kosovo s financial system ------------------------------------------------------------------------11 Figure 16. Assets of commercial banks ----------------------------------------------------------------------------------------------------11 Figure 17. Growth trend of loans and deposits ------------------------------------------------------------------------------------------12 Figure 18. Loans to enterprises and loans to households ----------------------------------------------------------------------------12 Figure 19. Loans by economic sectors -----------------------------------------------------------------------------------------------------13 Figure 2. Annual growth of loans by economic sectors ------------------------------------------------------------------------------13 1
Figure 21. Deposits ------------------------------------------------------------------------------------------------------------------------------14 Figure 22. Structure of deposits --------------------------------------------------------------------------------------------------------------14 Figure 23. Structure of deposits by maturity ----------------------------------------------------------------------------------------------14 Figure 24. Average interest rates on loans to households and loans to enterprises -------------------------------------------15 Figure 25. Average interest rate on loans -------------------------------------------------------------------------------------------------15 Figure 26. Average interest rates on deposits -------------------------------------------------------------------------------------------15 Figure 27. Average interest rates on enterprise deposits -----------------------------------------------------------------------------16 Figure 28. Average interest rate on household deposits ------------------------------------------------------------------------------16 Figure 29. Net profit of the banking sector ------------------------------------------------------------------------------------------------16 Figure 3. Income and expenditures of the banking sector --------------------------------------------------------------------------17 Figure 31. Profitability indicators of the banking sector --------------------------------------------------------------------------------17 Figure 32. Indicators of loan portfolio quality and NPL growth rate ----------------------------------------------------------------17 Figure 33. Liquidity and solvency Indicators ----------------------------------------------------------------------------------------------18 Figure 34. Assets of pension sector --------------------------------------------------------------------------------------------------------18 Figure 35. KPSF investments ----------------------------------------------------------------------------------------------------------------19 Figure 36. Assets of insurance sector ------------------------------------------------------------------------------------------------------19 Figure 37. Written premiums and claims paid --------------------------------------------------------------------------------------------2 Figure 38. Assets of microfinance sector --------------------------------------------------------------------------------------------------2 Figure 39. The value of loans to households and loans to enterprises ------------------------------------------------------------21 Figure 4. Growth rate of loans to enterprises -------------------------------------------------------------------------------------------21 Figure 41. Leasing of microfinance sector, in percent ---------------------------------------------------------------------------------21 Figure 42. Average interest rate on microfinance sector loans ----------------------------------------------------------------------22 Figure 43. Average interest rate on loans, by economic sectors --------------------------------------------------------------------22 Figure 44. Income and expenditures of microfinance sector -------------------------------------------------------------------------22 Figure 45. Profitability indicators of microfinance sector ------------------------------------------------------------------------------23 Figure 46. Indicators of credit portfolio quality -------------------------------------------------------------------------------------------23 Figure 47. Structure of Government securities -------------------------------------------------------------------------------------------24 Figure 48. Interest rates on Government securities by maturity ---------------------------------------------------------------------24 Table 1. Annual real GDP growth rate -----------------------------------------------------------------------------------------------------5 Table 2. Number and value of securities issued by the Kosovo s Government -------------------------------------------------23 Table 3. Selected macroeconomic indicators --------------------------------------------------------------------------------------------27 2
ABBREVIATIONS: CAR CBK CHF CPI SEE EUR IPI FDI GBP GDP IMF KAS MF NPL ROAA ROAE RWA USD WEO WEO Capital Adequacy Ratio Central Bank of the Republic of Kosovo Swiss Franc Consumer Price Index Southeastern Europe Euro currency Import Price Index Foreign Direct Investments The Pound Sterling Gross Domestic Product International Monetary Fund Kosovo Agency of Statistics Ministry of Finance of the Republic of Kosovo Non-Performing Loans Return on Average Assets Return on Average Equity Risk Weighted Assets United States Dollar World Economic Outlook World Economic Outlook 3
Euro area and Western Balkans The economic activity in euro area continued to recover also in 216, while in line with the ECB expectations, the inflation rate marked a gradual increase. The economy of euro area has continued to show sustainability against peripheral effects of the slow increase of the global economy and political uncertainties, while expansionary policies and nonconventional measures taken by the ECB within the quantitative easing program have had an impact on the improvement of financing conditions in the euro area. In 216, the annual GDP growth rate in euro area increased slightly at 1.7 percent from 1.6 percent as it was in the previous year, which was mainly supported by domestic demand (figure 1). The economic growth rate in euro area in 216 compared to the same period of the previous year was mainly sustained by the central euro area economies as Germany (1.8 percent), France (1.1 percent), Holland (2.5 percent), Italy (1.1 percent) and Spain (3. percent). Figure 1. Annual real GDP growth rate in euro area 2. 1.5 1..5. -.5-1. -1.5-2. Source: Eurostat (217) The inflation rate in euro area continued to stand below the ECB target, nevertheless it was estimated to have reached the level above the so called risk zone. In, the inflation rate was 1.1 percent, while the average inflation rate in 216 was.2 percent. New measures taken by the ECB in 216 within the quantitative easing program aimed at avoiding deflation and returning the inflation rate closer to the target of 2 percent. However, the impact of monetary expansionary policies on the price level in euro area has resulted to have been limited, mainly as a consequence of the sharp decline of energy prices in 216. ECB projections for 217 suggest that the average inflation rate is expected to be 1.4 percent. The launch of the comprehensive stimulating program since 216 has had a direct impact on the further decline of 1-month and 12-month interbank Euribor lending rate (figure 2). Moreover, the ECB has continued to keep its interest rate on main refinancing operations at zero percent. The recovery of lending activity in euro area has continued also in the fourth quarter of 216, mainly being supported by the increase of demand for loans for all categories and the improvement of lending conditions. However, in the majority of banks of the euro area credit standards in 216 remained unchanged, while Holland reported to have tightened credit standards for loans to enterprises. Euro area was characterized with a lending increase of 2.4 percent in 216, where with an accelerated growth rate of 1.9 percent were characterized households, 4
Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec while loans to enterprises marked an increase of.6 percent. The increase of disposable income in euro area, in this period, and the still low level of investments may have had an impact on the increase of resident deposits at the banking sector of euro area countries. A higher increase of deposits in this period was marked by enterprises (6.2 percent in 216), followed by household deposits (4. percent). 1..8%.6%.4%.2%. -.2% -.4% -.6% In 216, the performance of the economic activity in the Western Balkans continued to be strengthened. The demand increase in euro area, as the main trading partner for Western Balkan countries, was translated into an improvement of the net position of exports in some region countries. The increase of export, along with the increase of foreign investments and domestic consumption, represented important contributors to the average increase of 3.3 percent of GDP in Western Balkan, in 216 (table 1). Similar to the euro area, Western Balkan countries were characterized with weak inflationary pressures, which mainly are attributed to the price developments at the international markets. 5 Figure 2. EURIBOR interbank lending and ECB refinancing rate 1m 12m ECB refinancing rate, (right axis) Source: Euribor (217) and ECB (217) Table 1. Annual real GDP growth rate Description Bosnia and Herzegovina 2.4 1.1 3.2 3. Kosovo 3.4 1.2 4.1 3.6 Montenegro 3.5 1.8 3.2 5.1 Macedonia 2.9 3.5 3.7 2.2 Serbia 2.6-1.8.7 2.5 Albania 1. 1.8 2.8 3.4 Source: WEO (217) and CBK estimated for Kosovo in 216. In 216, Bosnia and Herzegovina and Macedonia faced a deflation (.7 percent and.2 percent), while Montenegro, Serbia, and Albania marked an average inflation rate of.1, 1.1 and 1.3 percent respectively. Concerning the developments of the banking sector, region countries were characterized with an increase of lending activity in this period where the highest increase was marked by Kosovo (1.4 percent), Serbia (6.1 percent) and Montenegro (1.3 percent), while a lower increase was marked by Macedonia with.7 percent. Region countries reported an increase of deposits as well, where Serbia marked the highest increase of deposits until 216 (11.5 percent) and Montenegro (9.4 percent), while the lowest increase was marked in Albania (5.4 percent). Until, EUR was slightly depreciated against the US dollar, while it marked an appreciation against other major currencies such as Great Britain pound and Swiss franc. During this period, the average exchange rate of EUR against the US dollar was depreciated by.1 percent, while against the Swiss franc and British pound was appreciated by 2.2 and 12. percent, respectively. Within the currencies of the region countries, EUR was appreciated against the Macedonian denar and Serbian dinar with.1 and 2. percent respectively,
January May July November January May July November January May July November January May July November while it was depreciated against the Albanian lek with 1.7 percent. Kosovo s Economy Real Sector Kosovo s economy, based on the KAS estimates, marked an increase of 3.4 percent in 216, which is in line with the CBK forecasts for the beginning of 216. This increase of the economic activity was generated mainly by investment increase of 1.4 percent and the consumption growth of 2.9 percent, while net exports are estimated to have been characterized with a considerable deficit deepening of 8. percent in real terms. Real economic growth rate in Kosovo was mainly supported by the economic growth of agricultural sector (7.6 percent), trade (4.8 percent) and financial activities (12.4 percent). Whereas the real decline was estimated to have been marked by real estate business (1.5 percent), processing industry (1.1 percent) and public administration (.4 percent). Prices Prices were relatively stable in 216. CPI recorded an average increase of.3 percent (figure 3). Figure 3. Inflation rate, annual change in percent 4.5 3.5 2.5 1.5 Regarding the CPI components, with an increase were characterized prices of alcoholic beverages and tobacco (8.1 percent), followed by prices of footwear and clothing (2.7 percent). On the contrary, a price decline was marked at the electricity, gas and other fuels (2.3 percent) and transport services (1.9 percent). Figure 4. Price movements by main components, annual change in percent 15 1 5-5 -1 Source: KAS (217) With a decline of.1 percent were characterized also prices of food, which account for 33.9 percent of the Kosovar consumer basket (figure 4). Import price index marked an annual decline of 2.6 percent (figure 5). 12 115 11 15 1 95 Alcoholic beverages and tobacco Transport Recreation and culture Footwear and clothing Electricity, gas and other fuels Food and non-alc. beverages Figure 5. Consumer, producer and import price indices.5 9 -.5-1.5 Consumer prices Producer prices Import prices Source: KAS (217) Source: KAS (217) 6
Prices of mineral products, which represent the main category of import price index, marked a higher decline (12.3 percent), while prices of edible oils marked the highest price increase (5.7 percent) (figure 6). Figure 6. Price movements of import prices, annual change in percent 35 3 25 2 15 1 Business registry Concerning business registry, in 216 it was marked an increase of the number of registered and closed enterprises as well. The number of new registered enterprises reached 1,424 or 591 enterprises more than in the previous year, while 2,376 enterprises were closed or 171 enterprises more closed enterprises compared to the previous year (figure 8). Figure 8. Business registry, non-commulative -1-55 -15-2 -25-3 Source: KAS (217) Mineral products Textile Plastic Base metals Vegetable products Wood 35 3 25 2 15 1 5-5 -1-15 Producer price index was characterized with a decline of.1 percent. In this period, with a decline was mainly characterized producer price of wood and furniture. While, with a price increase were characterized electrical energy, manufacturing of leather, metals, etc. (figure 7). Figure 7. Producer price movements, annual change in percent 3 2 1-1 -2-3 Source: KAS (217) Electrical energy Production of minerals Wood production Leather production Metal minerals Manufacturing of furniture New businesses Closed businesses Source: KAS (217) The largest number of registered enterprises continued to be concentrated in trade sector with 2,738 new enterprises, followed by manufacturing sector with 1,181 enterprises, agriculture with 1,9 enterprises and hotels with 1,17 enterprises (figure 9). Compared to 215, almost in all sectors it was marked an increase of registered enterprises. In the agriculture sector it was marked the highest increase of registered enterprises with 145 enterprises more, followed by the manufacturing sector which was characterized with 134 newly registered enterprises. Sectors which marked lower number of registered enterprises were trade and real estate sectors (165 and 16 enterprises fewer). 7
Figure 9. Structure of new enterprises 1 9 8 7 6 5 4 3 2 1 Fiscal Sector Budget revenues 1 in 216 reached a net value of EUR 1.6 billion, representing an annual increase of 9.6 percent. At the same time, budget expenditures 2 reached a value of EUR 1.66 billion representing an annual increase of around 5.7 percent. Consequently, Kosovo s budget registered a primary budget deficit of EUR 61.1 million compared to the deficit of EUR 111.4 million in 215. Regarding the type of taxes, it was observed a higher increase of direct tax revenues which reached a value of EUR 232.1 million (an increase of 17.4 percent), followed by indirect tax revenues which reached a value of EUR 1.2 billion (an increase of 11.2 percent), while non-tax revenues marked a decline of 8.3 percent and reached a value of EUR 175.3 million. Regarding the expenditures, almost all categories were characterized with an increase except goods and services which had marked a decline. Government expenditures on wages and salaries marked an 1 Within budgetary revenues are not included revenues from borrowings, receipts from privatization, receipts of donor defined grants and receipts from deposits in trust. 2 Within budget expenditures are not included debt payments, membership payments for IFN and returns from deposits funds. Agriculture Manufacturing Construction Trade Hotels Transport Real estate Source: KAS (217) increase of 3.6 percent and reached a value of EUR 543.7 million. Subsidies and transfers also marked an increase of 13.5 percent and reached a value of EUR 474.7 million. Capital investments, which account for 26.8 percent of total budgetary expenditures, marked an increase of 9.8 percent and reached a value of EUR 443.6 million. Government expenditures on goods and services (municipal expenditures are included as well) marked a decline of 1.3 percent and reached a value of EUR 22.8 million. Public debt reached EUR 852.7 million in 216, which represents an annual increase of 13.9 percent. As a percentage to GDP, public debt reached around 14.5 percent, from 13. percent as it was in the previous year. This increase of the public debt is mainly attributed to the increase of domestic debt of 26.8 percent (which reached EUR 479. million), while the external public debt has marked a slight increase of.7 percent reaching EUR 373.8 million. The share of external public debt to total domestic debt declined to 43.8 percent from 59.6 percent as it was in 215. External Sector During 216, the current and capital account deficit reached the value of EUR 534.6 million, compared to the deficit of EUR 471.4 million as it was in the previous year. This increase of the current and capital account is attributed to the increase of goods account deficit and the decline marked in the positive balance of the primary income account. Conversely, the positive balance of services and secondary income account marked an increase. The deficit of goods trade was characterized with an annual increase of 7.4 percent in 216, as a 8
consequence of exports decline and the increase of imports. Export of goods reached a value of EUR 39.7 million, corresponding with an annual decline of 4.8 percent (figure 1). 3 The decline of goods exports during this period was mainly attributed to the decline of base metals export, which at the same time have the highest share of the total structure of exports (around 4. percent) (figure 11). The decline of the total value of export of base metals was a result of the decline of nickel production in the 3 The source of data on exports and imports of goods in Kosovo is Kosovo Agency of Statistics. 9 Figure 1. Exports, imports and trade balance, in millions of EUR 7 5 3 1-1 -3-5 -7 Source: KAS (217) Export Import Trade balance Figure 11. Structure of exports by category, in percent 48.5 3.8 215 4.8 7.8 12.8 7.2 3.3 Agriculture products 3.7 Beverages and tobacco Mineral products Plastics, rubber and articles thereof Leather and articles thereof Textile and articles of it Base metals Machineries and mechanical equipment Source: KAS (217) 35.9 216 3. 5.4 9.3 8.9 2.6 2.8 3.6 Agriculture products Beverages and tobacco Mineral products Plastics, rubber and articles thereof Leather and articles thereof Textile and articles of it Base metals Machineries and mechanical equipment domestic economy, and the decline of the price of metals in international markets during this period. With a decline were also characterized the export of textile and articles of it, and export of machineries and electrical equipment. On the other hand, the export of mineral products marked an increase, mainly as a result of the increase of the value of export of electrical energy. Also, exports of rubber and plastics, and beverages and tobacco were characterized with an increase. The total value of imported goods reached a value of EUR 2.8 billion, representing an annual increase of 5.9 percent. Within goods import, with an increase were characterized transport vehicles, machineries and mechanical equipment, plastics and rubber products, prepared foods, etc. Conversely, the import of mineral products marked a considerable decline (figure 12). The decline of exported value and the increase of the value of imported goods resulted in the decline of the coverage rate of imports by exports to 11.1 percent (12.3 percent in 215). Figure 12. Structure of imports by category, in percent 4.7 9.9 11.8.3 215 6.2 5.4 15.3 13.4 Agriculture products Beverages and tobacco Mineral products Plastics, rubber and articles thereof Leather and articles thereof Textile and articles of it Base metals Machineries and mechanical equipment Source: KAS (217) The balance of services trade reached a value of EUR 565. million, representing an increase of 23.6 percent 4.9.3 9.9 6.7 12.8 216 5.3 13.4 11.7 Agriculture products Beverages and tobacco Mineral products Plastics, rubber and articles thereof Leather and articles thereof Textile and articles of it Base metals Machineries and mechanical equipment
compared to the previous year. The total value of exported goods marked an annual increase of 9.1 percent, reaching EUR1. billion. On the other hand, the value of import of services marked a decline of 4.3 percent and reached EUR 473.4 million. Within services export, travel services and transport services were characterized with an annual increase of 12.4 and 6.6 percent respectively, while the category of computer, information and telecommunication services marked a decline of 11.6 percent. In terms of services import, transport services marked a decline of 15.1 percent, whereas travel services marked an increase of 4.2 percent. Primary income account was characterized with a decline of 12.6 percent. The income balance of compensation of employees 4 decreased for 5.6 percent, whereas the balance of income realized from investments marked a decline of 1.6 percent. Figure 13. Remittances, in millions of EUR Kosovo, which at the same time represent the highest category within the category of secondary income account, reached the value of EUR 691. million, representing an annual increase of 3.8 percent (figure 13). Remittances received in Kosovo mainly come from Germany and Switzerland, from where are sent 37.1 and 22.6 percent respectively, of total remittances. A considerable amount of remittances were received also from the USA, namely 6.8 percent of total remittances received in Kosovo. Foreign Direct Investments (FDI) received in Kosovo reached an amount of EUR 215.9 million, representing a lower level compared to EUR 38.8 million registered in 215. Within the structure of FDI, with a reduced value were characterized two forms of FDI, capital and fund of investments in shares, and investments in debt instruments (figure 14). 2 18 16 14 12 1 8 6 4 2 25. 2. 15. 1. 5.. -5. Figure 14. Structure o foreign direct investments by components, in millions of EUR 13 11 9 7 5 3 1-1 Remittances Annual change (in percent, right axis) -3 Source: CBK(217) The balance of secondary income marked an increase of 3.2 percent in 216, which is attributable to the higher level of remittances. Remittances received in 4 The compensation of employees includes wages and salaries and other benefits received by resident employees abroad. In this context, are included seasonal employees or other shortterm contracted workers (under one-year contracts) and customs employees whose economic interest center is in their economy. Capital and fund of investment in shares Debt instruments Capital and funds of investments in shares, which comprises around 85.3 percent of total FDI, reached a value of EUR 179. million which is for 21.5 percent 1
In billions of EUR lower compared to the previous year. Also, FDI in the form of debt instruments marked a value of EUR 36.9 million, representing a decline of 54.3 percent compared to the previous year. An FDI decline was marked almost in all of the sectors. A more significant decline was marked in real estate sector and in the sector of financial services, which were characterized with an annual decline of 11.6 and 7.5 percent, respectively. Banking Sector Assets During 216, assets of the banking sector marked an annual increase of 7.4 percent, amounting to EUR 3.64 billion (figure 16). Figure 16. Assets of commercial banks, annual changes, in millions of EUR 4, 4 Financial System 3,5 3, 2,5 3 2 The total value of assets of Kosovo s financial system reached EUR 5.39 billion in 216, corresponding to an annual increase of 1. percent (figure 15). 6,. 5,. 4,. 3,. 2,. 1,.. 213 214 215 216 The increase of assets of the banking sector and pension sector remain the main contributors to the growth of total assets of the financial system in the country. 11 Figure 15. The value of assets of Kosovo s financial system Commercial banks Pension funds Insurance companies Micro-financial institutions Source: CBK(217) Financial auxiliaries 2, 8.1% 1 1,5 7.4% 4.2% 6.2% 1, 5-1 -2 213 214 215 216 Cash and balance with the CBK Balance with other banks Investments in securities Gross loans and leasing Assets (fixed and others) Annual change of assets Source: CBK(217) The expansion of credit portfolio was the main contributor to the increase of the banking sector assets. This expansion reflects the consistent increase of deposits of the banking sector as the main source of financing crediting activity in the country. During 216, securities stock of the banking sector marked a slowdown growth of 7.8 percent compared to the increase of 23.3 percent marked in the previous year. This change is a result of the slowdown increase of Kosovo s Government securities investments of 5.8 percent (17.3 percent in 215), and securities investments of foreign governments of 9.7 percent (29.4 percent in 215). The slowdown increase of securities investments of Kosovo s Government was mainly a result of the increase of competition of other
participants of the market such as pension funds, insurance companies and other public institutions, which have increased their invested amount in Kosovo s securities. The movement trend of this assets category may be attributed to the increase of assets designated to lending, taking into account the increased demand for loans, the low level of nonperforming loans and higher return of investments in loans. Cash and balance with the CBK marked an annual decline of 6.9 percent compared to the increase of 9.6 percent marked in the previous year. The decline of this category partly may have been affected by assets movement towards increasing lending activity. Moreover, the decline of the balance with the CBK was affected by measures taken by the CBK, in August 216, for setting a negative interest rate on bank reserves above the level of obligatory reserves. Loans Loans of the banking sector accelerated the annual growth at 1.4 percent (figure 17). Until 216, the total value of loans reached EUR 2.23 billion. During 216, lending was mainly increased as a result of the credit demand, and the improvement of credit supply by the banking sector through the interest rate cuts, the increase of approved loans amount and the decline of other non-interest fees. Figure 17. Growth trend of loans and deposits, in percent 12% 8% 4% Loans to households represented the category which marked the highest annual growth (figure 18). While concerning new loans to households, this category marked an annual increase of 1.8 percent. Annual growth rate of deposits Annual growth rate of loans Source: CBK(217) Figure 18. Loans to enterprises and loans to households 1,3 1,1 9 7 5 3 1-1 Similar to loans to households, also loans to enterprises marked a more accelerated annual increase (figure 18). 12.7% 9.3% 6.3% The structure of loans to enterprises by economic activity continued to remain dominated by loans intended for trade sector, followed by loans to manufacturing and construction (figure 19). 14.7% 8.3% 3.9% 2. 2.1% 213 214 215 216 Loans to households Source: CBK(217) Annual change for households Loans to enterprises Annual change for enterprises 16% 14% 12% 1 8% 6% 4% 2% 12
Figure 19. Loans by economic sectors, in percent ( 216) Until 216, lending to all of the economic sectors marked an increase, with the exception of agriculture and other financial services sectors which were characterized with a decline (.3 percent and 39.5 percent) (figure 2). Bujqësi, 4.2% Shërbime financiare, 4. Ndërtimtari, 7.3% Tjera, 19.6% Prodhim, 12.2% Tregti, 52.7% Figure 2. Annual growth of loans by economic sectors 25% of new loans to enterprises reflects mainly the annual decline of new loans to services and industry sectors (2.7 and 26.4 percent). During 216, the accelerated lending activity was mainly attributed to the accelerated increase of household and enterprise loans (14.7 percent and 8.3 percent). As regards to the structure of economic sectors, it continued to remain the same with the previous quarters. Liabilities and Own Resources The structure of banking sector liabilities is dominated by deposits, which comprise 79.7 percent of total liabilities and own resources, thus representing the main financing source of the banking sector activities. A very important comprising category of liabilities continued to remain the category of other liabilities and balance with commercial banks. 2 15% 1 5% -5% -1-15% 213 214 215 216 The category of own resources of the banking sector was characterized with an annual increase of 7.1 percent, mainly as a result of a more significant increase of the retained profit value at EUR 68.7 million (24.4 million in 215). Manufacturing Agriculture Trade Construction An annual increase of lending was marked especially by construction and energy sectors (3.5 percent and 6.6 percent). New loans to enterprises marked an annual increase of 17.3 percent, where the category of investment loans marked an annual decline of 28.2 percent, while the category of non-investment loans marked an annual increase of 4.2 percent. The decline 13 Deposits Deposits the Kosovo s banking sector marked an annual increase of 7.2 percent, representing a more accelerated pace compared to the previous period (6.5 percent in 215). In 216, deposits amounted to EUR 2.9 billion (figure 21).
Figure 21. Deposits, in millions of EUR 2,9 2,8 2,7 2,6 7.2% 7.5% 2,5 6.5% 2,4 3.6% 2,3 2,2 213 214 215 216 Deposits Annual change 18% 16% 14% 12% 1 8% 6% 4% 2% may be attributable to some extent to low interest rate on deposits. Deposits continued to increase with an accelerated growth pace. The structure of deposits continued to suffer changes in favor of transferable deposits, while the category of time and saving deposits declined their share to total deposits. Interest Rate The growth pace of total deposits is driven mainly by household deposits, which marked an annual increase of 8. percent. This category also continued to be dominated by the structure of total deposits, followed by enterprise deposits (figure 22). Figure 22. Structure of deposits, in percent 1 4.8% 5.1% 5.7% 3.7% 9 8 7 6 72.5% 72.8% 72.7% 73.2% 5 4 3 2 1 22.7% 22.1% 21.6% 23.1% 213 214 215 216 Enterprises Households Other At the same period, enterprise deposits marked an annual accelerated increase of 14.5 percent, an increase which may have been affected by the increase of the average interest rate on enterprise deposits. It is worth noting that the category of transferable deposits continued to increase their share to the structure of total deposits to 57.9 percent from 54.7 percent as it was in 215, which The interest rate spread between loans and deposits narrowed to 6. percent compared to the same period of the previous year (6.5 percent in 215). The average interest rate on loans in 216 decreased at 7.2 percent, while the average interest rate on deposits marked an increase at 1.2 percent (figure 23). The average interest rate on loans in 216 declined to 7.5 percent, while the average interest rate on deposits marked a slight increase at 1. percent (figure 23). Figure 23. Average interest rate on loans and deposits 14% 12% 1 8% 6% 4% 2% Interest Rates on Deposits Interest Rates on Loans Interest rate spread 14
Interest rates on loans The average interest rate on loans to enterprises declined at 6.8 percent from 7.4 percent as it was in 215 (figure 24). Within this category, interest rates on investment and non-investment loans continued to follow a declining trend. Figure 24. Average interest rate on loans to households and enterprises 14. 13. 12. 11. 1. 9. 8. 7. 6. 5. 4. Interest rate 213on loans to households 214 Interest 215 rate on loans to enterprises 216 Interest Rates on Loans In 216, it was noted a slight decline of interest rates on enterprise loans compared to previous periods. Figure 25. Average interest rate on loans, by economic sectors 15% 13% a more accelerated pace such as other sectors and services sector, unlike the agriculture and industry sectors (figure 25). Household loans marked a decline of the average interest rates as well falling to 7.9 percent (8.4 percent in 215). Within this category, the average interest rate on consumer loans and mortgage loans continued to follow a declining trend. Interest rates on deposits The average interest rate of total deposits remained unchanged compared to the previous period (1.2 percent in 215). The increase of.1 percentage points of the interest rate on enterprise deposits and the decline of.1 percentage points of interest rate on household deposits had an impact on the average interest rate on deposits to remain the same (figure 26). Figure 26. Average interest rate on deposits 4.5% 4. 3.5% 3. 2.5% 2. 1.5% 1..5%. 11% 9% 7% 5% 213 214 215 216 Agriculture sector Industrial sector Services sector Other sectors The interest rate on all economic sectors marked a decline, where some of them were characterized with 15 Interest rate on total deposits Interest rate on households deposits Interest rate on enterprise deposits The average interest rate on enterprise deposits reached 1.6 percent, representing an annual increase of.1 percentage points. More specifically, an increase of.1 percentage points was
In millions of EUR marked by interest rates on saving and time deposits Performance of the banking sector 5 of enterprises (figure 27). Figure 27. Average interest rates on enterprise deposits, by category 5. 4.5% 4. 3.5% 3. 2.5% 2. 1.5% 1..5%. The profit of the banking sector marked a decline compared to the previous year, as a result of the decline of income and the increase of expenditures of the sector. The value of the profit realized in 216 was EUR 75.5 million, representing an annual decline of 2.2 percent (figure 29). Interest rate on transferable deposits Interest rate on time deposits Conversely, the average interest rate on household deposits dropped at 1. percent (1.1 in 215). This decline reflected mainly the decline of the average interest rates on transferable deposits (figure 28). 4. 3.5% 3. 2.5% 2. 1.5% 1..5%. Interest rate on saving deposits Figure 28. Average interest rate on household deposits, by categories Figure 29. Net profit of the banking sector,in millions of EUR 1 9 8 7 6 5 4 3 2 1 25.9 6. 213 214 215 216 The banking sector income was characterized with a decline in 216 (figure 3). In 216, the income value reached EUR 231.1 million, marking an annual decline of 3. percent. The income decline is mainly attributed to the decline of interest income as a consequence of the decline of the average 94.7 75.5 interest rates on loans. Interest rate on transferable deposits Interest rate on saving deposits Interest rate on time deposits The value of total expenditures of the banking sector reached EUR 155.6 million, representing an annual increase of 8.4 percent (figure 3). 5 Based on unaudited data. 16
In millions of EUR In percent In millions of EUR In percent The increase of total expenditures was mainly driven by the increase of non-interest expenditures. Expenditures to income ratio of the sector was deteriorated compared to the same period of the previous year, as a consequence of income decline and the increase of expenditures in this period (figure 33). In 216, profitability indicators marked a decrease as a consequence of the profit decline. Return on Average Assets (ROAA) and Return on Average Equity (ROAE) decreased compared to the same period of the previous year, thus interrupting the increasing trend that was marked in three previous years (figure 31). 17 Figure 3. Income and expenditures of the banking sector 3 25 2 15 1 5 89.6% 75.4% 6.3% 67.3% 213 214 215 216 1 9 8 7 6 5 4 3 2 1 Rev enues Expenditures Expenditures/revenues (right axis) Figure 31. Profitability indicators of the banking sector 1 8 6 4 2 1.5% 1. 22.5% 2.2% 29.1% 22.2% 3.2% 2.6% Profit ROAA (right axis) ROAE (right axis) 35% 3 25% 2 15% 1 5% Financial Soundness Indicators Until 216, banking sector recorded a decline of nonperforming loans and an improvement of their coverage with provisions. The level of nonperforming loans declined to 4.9 percent, representing a low rate compared to the region countries (figure 32). Moreover, the level of the coverage of nonperforming loans with provisions increased at 126.5 percent. This influenced an increase of the coverage of nonperforming loans with provisions, marking an increase of 122.1 percent. Figure 32. Indicators of loan portfolio quality and NPL growth rate 1 9% 8% 7% 6% 5% 4% 3% 2% 1% 14 12 1 8 6 4 2-2 -4 NPL NPL growth rate (right axis) NPL coverage with provisions The banking sector continued to have high level of capitalization, with the capital adequacy ratio standing at 17.9 percent in 216. The indicator of liquidity marked a decline compared to the previous year, as a consequence of the implementation of the negative interest rate on reserves held by commercial banks at the CBK concerning the obligatory reserve, which consequently had an impact on the decline of cash amount and the balance with the CBK in this period. However, the
In millions of EUR In percent banking sector continued to have a satisfactory position of liquidity (figure 33). Figure 33. Liquidity and solvency Indicators 5 45% 4 35% 3 25% 2 15% 1 5% 16.7% 17.8% 19. 17.9% In 216, banking sector marked a decline in profit as a consequence of income decline and increase of expenditures. The level of nonperforming loans continued to follow a declining trend, reaching the lowest level of nonperforming loans compared to other Western Balkan countries. Moreover, banking sector continued to have high level of capitalization and satisfactory position of liquidity.. Pension sector Pension sector marked an annual significant increase of assets of 15.2 percent. The total value of assets of the pension sector for 216 reached EUR 1.43 billion, which makes the sector as the second largest one in financial system with 26.5 percent of assets (figure 32). The increase of pension sector assets primarily may be attributed to the increase of new collected contribution and return of investments during this period. 43.5% 43.6 44.9% 73.7% 74.2% 74.8% 77. 41.5% 213 214 215 216 Capital Adequacy Ratio Liquid assets to total short-term liabilities ratio Loans to deposits ratio (right axis) The value of new collections reached EUR 152. million (EUR 138. million in 215), 78% 77% 76% 75% 74% 73% 72% representing an annual increase of 1.2 percent. The value of new collections of Kosovo Pension Saving Fund (KPSF) reached EUR 151.5 million, while new collections of Slovenian-Kosovo Pension Fund (SKPF) reached EUR 496.5 thousands. Figure 34. Assets of pension sector, in millions of EUR 1,42 23.3% 25% 1,22 2 1,2 19.1% 82 15.2% 15% 62 13.1% 42 1 22 5% 2 213 214 215 216-18 Total assets Annual growth (right axis) Pension sector doubled its return on investments reaching EUR 65.3 million, compared the return of EUR 29.7 million marked in the previous year. KPSF realized a positive investments return of EUR 64.6 million, while SKPF realized EUR 74.7 thousands. Markets were characterized with significant oscillations this year mainly due to lower interest rates on investments, uncertainties related the Great Britain exit from the European Union and the expectations for changes on monetary policy performed by System of Federal Reserves. Despite these changes, the investment strategy of pension funds resulted to have absorbed these movements and to have enabled an increase of the returned value. KPSF, which comprises 99.5 percent of pension sector assets, changed the investment strategy compared to the previous year, thus being 18
In millions of EUR In millions of EUR In percent focused more on investments abroad. Kosovo s Government investments in securities marked a decline of 12.2 percent, while investments in common investment funds, which are comprised of investments abroad, marked an increase of 2.2 percent (figure 35). Figure 35. KPSF investments 1,4. 1,2. 1,. 8. 6. 4. 2.. 65.8 53.1 54.7 Pension sector during 216 marked a significant annual increase of assets. Positive investment return and the increase of new contributions were two key factors that influenced this increase. KPSF shifted its investments from Kosovo Government securities into investments in common investment funds abroad. Insurance sector 1,23.6 1,84.7 89.6 78.7 Insurance sector, which represents 3. percent of total financial system assets, in 216 marked an annual increase of 6.1 percent (figure 36). One of the main contributors to assets growth of insurance sector was the increase of cash held at commercial banks, which has a higher share to assets structure of insurance companies. 1,33.7 213 214 215 216 Obligacione Qeveritare Source: KPSF (217) Fonde investuese marked an annual increase of 5.8 percent. While, life insurances, which comprise the remainder of assets, marked an annual increase of 8.3 percent. Figure 36. Assets of insurance sector 18 1 162.1 16 152.9 9% 14. 14 132.7 9.2% 8% 12 7% 6% 1 6.1% 5.5% 5% 8 4% 6 3% 4 2% 2 1.5% 1% 213 214 215 216 Total assets Annual growth (right axis) During 216, the value of written premiums of insurance companies reached a value of EUR 83.5 million, representing an annual increase of 4.4 percent. The structure of written premiums is led by non-life insurance premiums which account for 96.9 percent of total written premiums. The value of written premiums of non-life insurance reached EUR 8.9 million in 216, representing an annual increase of 4.7 percent. While, the value of written premiums of life insurance reached a value of EUR 2.6 million, marking an annual decline of 3.7 percent. Claims paid by the insurance sector, which account for claims paid by insurance companies and Kosovo Insurance Bureau (KIB), marked an annual increase of 3.8 percent (an increase of 15.1 percent in 215). Non-life insurances, which represent the majority part of the sector with 89.9 percent of total assets, 19