Financing Business Growth & Job Creation in Kosovo


Governor Gërguri’s speech at the Crimson Finance Fund (CFF) presentation: “Financing Business Growth & Job Creation in Kosovo”, November 7th 2012, at the Emerald Hotel in Pristina

Dear Mr.Gold, Chairman of the CFF
Dear Minister Stavileci,
Dear Ambassador Jacobson,
Dear Ambasador Braathu,
Dear Major Stojanovic,
Dear clients of the CFF
Ladies and gentlemen,

I am very pleased to speak this morning to this honorable audience and share my thoughts on the contribution of the financial sector to the business growth and employment in Kosovo. Speaking about the contribution of the financial sector in Kosovo is an easy thing because of its achievements and sustainability, but, at the same time, it is also challenging because of the large weight and responsibility that this sector has for the overall economic stability and development of the country.
Having started from scratch, the financial sector of Kosovo has overcome successfully many challenges during these 12 years. During this period, the Central Bank of the Republic of Kosovo has had the responsibility to develop in two but interrelated directions: the first one being its own development and consolidation and the second one being the establishment and maintenance of a sustainable financial sector. Today, I am proud to emphasize that the CBK has become an outstanding institution which, in a close cooperation with the financial industry, has achieved to install strong and healthy financial sector fundaments in Kosovo.
The first commercial bank in Kosovo started in year 2000 with a lot of challenges in providing banking services to an entirely unbancarized economy. There were a lot of challenges related to basic infrastructure, recruitment of adequate employees, etc. The progress towards overcoming these challenges was tremendous. Today, we have financial services provided in every corner of Kosovo.
Loans issued by this sector have reached the amount of euro 1.8 billion. There is a continuous growth from year to year, including the periods with global financial distress. Most of the loans (around 70 percent) are provided to enterprises. The structure of loans to enterprises reflects the economic activity profile of the country, with the trade sector dominating. Hence, more effort is needed to diversify the portfolio and support much more also the less bancarized sectors of the economy. Certainly, one of the least bancarized sectors of the Kosovo’s economy is the agriculture sector. In this regard, I would like to emphasize the important role that non-bank financial institutions have had in supporting this sector. When speaking for a sector such as the agriculture in Kosovo, only the extension of credit is not sufficient to support its development. Even more important it is to help the farmers organize the business, compile the business plans and then finance their projects. This is something that has been done by a number of non-bank financial institutions operating in Kosovo, including our hosting institution today.
Our experience shows that poor bancarization of some sectors is not to be addressed only by the supply side of the credit. Getting a loan is not a granted right, it should be deserved. This means that we must also improve the demand side of credit, by preparing potential borrowers to organize their businesses in the way that makes them eligible to gain access to finance. Besides the owner it is also the bank that needs business to succeed too. The bank should be seen as an ally to the business. Therefore, the volume of financing for business growth as well as its cost is linked to the degree of how much businesses are able to abide to the criteria for securing a healthy lending.
Definitely, this also requires a healthy business environment, because it is this environment that shapes the risk profile of lending activity in the country. We have observed in the past that due to poor business environment, the financing was mainly of short maturity and with very high interest rates. Nowadays, the continuous improvement of the overall business environment is reflected also in the risk perceptions of financial institutions and subsequently on more favorable loan terms and conditions for the borrowers. However, despite the improvements that have taken place so far, we consider that there is still space for better terms and conditions to be applied by the lending institutions and especially in terms of the cost of finance.
For this to happen, we need an even more efficient financial sector, better performing businesses and a better performing judicial system. When it comes to the judicial system, we are exploring on possibility of establishing a special chamber or body within court for financial sector in order to expedite financial cases resolving and subsequently contribute to further reduction of risk as well as the cost of financing.
The contribution of the financial system to the Kosovo’s economy has been highly significant also in terms of the employment that it has generated. More than 4 thousand people are directly employed in the financial industry. Apart of serving as a direct employer, the contribution of the financial sector is significant also because of its role in staff training and education. It was the financial institutions themselves that spent considerable resources in staff training and education, especially at the inception of the financial sector in Kosovo.The requirements and attitude of the financial institutions towards the labor force has had positive spillovers also for the Kosovo’s education system in general. As a result of this, existing financial institutions and potential new comers in the financial system and in the Kosovo’s economy in general now face a different profile of the labor force.
When it relates to the newcomers, let me use this opportunity to announce that yesterday we have granted a preliminary license to a branch of a big foreign bank. We will continue to attract new entries that are capable to bring value added in terms of financial services and products and increase the competition as well.
In addition to serving as an employer, the contribution of the financial system to the generation of employment opportunities in Kosovo is expressed also through the loans issued to businesses. Moreover, a significant contribution has been given by the non-bank financial institutions which have supported employment in the sectors with more difficult access to the financial services, such as the agriculture, farming, etc.
The successful stories that are presented here show translation of Crimson’s Guiding Principles into tangible results as they really demonstrate how important is helping people to help themselves – to take responsibility for their circumstances.
Despite of the achievements, the challenges for the financial sector have not ended, but their nature has changed. The main challenges faced by the financial sector today are similar to the challenges faced by the financial sectors globally. The developments in the Eurozone economies and wider have increased the uncertainties related to the performance of the real economy as well as have affected the access to finance for financial institutions.
All these developments may affect also the behavior of the financial system in Kosovo, primarily through the slowdown in the credit growth. The economy of Kosovo is expected to generate a positive growth rate in 2012 and remain the economy with the highest growth rate in the region. However, the trend of deleveraging by financial institutions could affect the prospects for the overall economy, which then can affect the performance of the financial system as well. Therefore, financial institutions operating in Kosovo should behave responsibly by adjusting their strategies according to the developments in Kosovo in order to continue contributing to the stability and development of the economy where they operate. Just to remind that actually this was their mantra when they applied to operate in Kosovo’s market.
The Central Bank of the Republic of Kosovo will continue to safeguard its main objective which is to maintain the financial stability in the country. In addition to this, we are continuously improving the infrastructure that enhances banks’ efficiency and risk assessment capacities. The latest example of this is related to the recent upgrade of the Credit registry, which has been done with the support of the USAID.
In the end, I would like to congratulate the Crimson Finance Fund for the successful operation in Kosovo and wish that such examples are followed by other financial institutions operating in Kosovo.
Thank you!