“Deposit insurance in Kosovo- The impact of DIFK in the stability of banking system”

All banks in Kosovo have high liquidity, good return on investment, are well capitalized, so none of them is facing a situation that could endanger deposits hold by them.
The Center for Strategic and Social Research – STRAS, on Wednesday, in a conference presented the research "Deposit Insurance in Kosovo- the DIFK impact on the stability of banking system” and the findings in this field. Bedri Hamza, Governor of the Central Bank of Kosovo made an overview on the developments in the banking sector of the country with an emphasis on the increase of lending and deposits, focusing on the deposits insurance and the impact of system functioning.
"There are four pillars of the system where the CBK has primary responsibility for supervision. We have the possibility of emergency liquidity assistance, which means we can intervene in case that a bank is risked. So far, there were not such cases and there are no indication that there might be, but such an option creates reliability and stability in the banking market," said Governor Hamza.
According to him, the stability reflects in investment opportunities, namely lending, which targets the economic development promotion.
"The CBK as responsible, appreciates the performance and the management of the Deposit Insurance Fund. This Fund could be an example for many countries, because it is being built on sound foundations. However, we should keep in mind that safety is the key factor that influences the credibility of the sector and that means its growth and development," concluded the CBK Governor.
According to Avdullah Hoti, Minister of Finance, the stability of Kosovo is attributed to the Central Bank, as responsible for developing the financial sector, where the banking sector is included. Meanwhile, a developed and stable banking system remains the main supporter of economic development.
"We as a government are pleased with the growth of lending activity of banks, proving that banks are taking responsibility for funding of development, by letting us to deal more with capital investment in the public sector" , said Minister Hoti.
He further added that the government will focus on upgrading the legal security for investments by banks, but also in creating opportunities for easier use of loans, by not risking the system.
"Although I am disappointed with the growth of long term deposits, I think that the mechanisms for deposit insurance are functioning well. Here, the main role has the DIFK, supported by the Ministry of Finance depending on the needs", concluded Minister Hoti.
Ibrahim Rexhepi, managing director of STRAS during the presentation of study findings, said that banks deposited over 2.7 billion euro and credited over 2.0 billion euro. These figures show that the financing of the banking system is mainly based on internal sources, or by the money saved and deposited by citizens and legal entities in the country.
"There can be no stability and sustainability of the banking system in any country, if there is no deposit insurance. We are witness to the not so distant developments in some European countries where large depositors withdrew their money from banks because they lost trust on them. That’s why the construction of the deposit insurance system is essential and is one of European Union directives. Even though not long ago, Kosovo has built the system for security and stability of the banking system, which is based on four main pillars: laws and bylaws, supervision by the Central Bank of Kosovo, the internal control system in commercial banks and insurance by the Deposit Insurance Fund. Functioning of this mechanism increases the confidence of citizens and economic entities in banks", said Ibrahim Rexhepi.
In addition he stated that DIFK has an experience of five years and so far has managed to secure 500 million euro deposits or 18.7 percent of the total deposits, 97.08 per cent in deposit accounts respectively. There are about 27 million euros in the fund, which can be used in risk situation or in case of license withdrawing of any bank.
"The fund should aim at fulfilling the European Directive criteria. It seems that it is far from this goal, but this should not be seen only by the limits it requires to meet but also by building a system that increases the safety of depositors", Rexhepi said.
At first, insured deposit limit was 2.000 euros, by 2013 it increased to 3.000 euros, in 2016 to 4.000 euros, while in 2018 it is expected to be 5.000 euros.
Fehmi Mehmeti, Deputy Governor of the CBK, at the beginning of his presentation stated that banks are one of the most attractive sectors for investment. The main impact, according to him, had the stability and continuous development of this sector.
"Regarding this we are constantly supplementing legal basis. We have in place the risk assessment manual, which correctly defines responsibilities and the way of supervision of the banking system", said Mehmeti.
He noted that it is operating the online reporting and direct information on all developments in the market.
"This provides us with more information and perception of high level risk situations that may occur. For this we have security mechanism, i.e. fund, so that the depositors can withdraw their deposits at any given time”, concluded Mr. Mehmeti.
Violeta Arifi-Krasniqi, DIFK managing director welcomed the recommendations that validate the evaluation results by IADI’s international experts and reported on their follow-up, identifying them as strategic goals for institutional development of DIFK. "DIFK is completing the project for development of the system for compensation of depositors SCD ", which will achieve operational readiness for compensation of depositors within seven days, addressing the requirement of the European Directive supported by EBRD with a grant of 255 thousand euro. Regarding the liquidity needs, the DIFK has received the support in principle, from the Ministry of Finance as guarantee for a secondary credit line.
Bahrije Dibra from KfW talked about beginnings of deposit insurance in Kosovo, the process that faced many challenges, since it took place during the global financial crisis.
"I think that a good system was built, with a solid fund, and I hope there will be no need to use it for return of deposits", said Dibra.
Shkendije Himaj, DIFK Board Chairman, insisted that such researches should include more chord within the system. Commercial banks have a special role and they should look over the organization of the internal control and security system as well as concrete impact they have on the safety of deposits.
Agim Hasani from NLB Bank advised the increase of the insured deposits limit, because, according to him, the main source for the financing of the system are small depositors who need this assurance.