Governor of the Central Bank of the Republic of Kosovo, Fehmi Mehmeti, accompanied by two Deputy Governors, Sokol Havolli and Lulzim Ismajli, disclosed data in relation to the recent developments in financial sector following the new anti COVID-19 measures.
On this occasion, Governor stated that despite the situation the country is experiencing since March and with the decline in revenues from external sector, Kosovo’s economy continued to benefit from the ongoing increase in lending of the banking sector of Kosovo.
It also highlighted that the banking sector is more stable, liquid, well-capitalized than ever and with positive business.
In September 2020, the active loans in the banking sector of Kosovo totalled to EUR 3.2 billion, which represents an annual increase of 7.6%. New loans issued for the period January – August 2020 amount to EUR 912.5 million, compared to EUR 959 million or a decrease of 5 percent, compared to the previous year. However, data for July – August of this year are promising, with new loans allowed by the banking sector amounting to EUR 320.7 million compared to the new loans issued for the same period of the previous year in the amount of EUR 260 million or an increase of 23 percent.
Increase in lending has been undoubtedly facilitated by the regulatory and oversight measure of the CBK, which were aimed at mitigating the burden of debt payment for borrowers and facilitating the regulatory requirements for banks.
Deposits continue to represent the main source of funding for the banking sector and marked an annual increase of 8.6 percent in September 2020, where deposits of households represent 67 percent of total deposits in the banking sector, which marked an increase of 7 percent compared to the same period of the previous year.
Similar to the previous years, the effective interest rate to loans is 6.4 percent, as in September 2019, whereas the interest rate to deposits is 1.5 percent, same as in September of previous year.
Non-performing loans rate remains at low levels of 2.7 percent, while their coverage with provisions is 137.8 percent.
Insurance sector has experienced positive developments, which by September 2020 marked a slight decline in activity, but, however, a positive financial performance, as well as improvement of liquidity position.
Micro-Finance Institutions and Non-Bank Financial Institutions (MFIs-NBFIs) also continued to mark a significant increase in assets, namely lending activity.
During the press conference, Governor Mehmeti presented measures undertaken within the CBK.
“We continuously pay attention to the internal controls, which are aimed at preventing the losses and ensuring reliable financial reporting; therefore, we have recorded ad-hoc the state of cash in the Central Bank of the Republic of Kosovo. Based on the results of this recording, we have concluded that the reporting of the state of cash has been presented in financial statements of the Central Bank of the Republic of Kosovo in accurate, fair and timely manner, and in full compliance with the physical condition of the cash. This proves an effective system of internal controls in Central Bank of the Republic of Kosovo, reducing the possibility for frauds, abuses and wrong actions.
Given the ongoing situation with the pandemic and consequently possible adverse effects on the economy, the Central Bank remains committed to undertake further measures to support the economy by facilitating the flow of lending to private sector.
“We are planning to undertake a new measure, similar to the measures undertaken by the European Central Bank, whereby temporarily reducing the regulatory requirement for capital of banks, which is expected to release a significant part of the capital that may be used for lending of the economy. Regulatory requirement for capital will be re-established at the level required under the normal conditions, in compliance with the pace of economy back to normal. In the initial discussions we had with the Kosovo Banking Association and representatives of banks, our approach towards the pandemic has been welcomed and highly appreciated, which makes us believe that it will be effective in achieving our purpose to support the economy of the country,” stated the Governor.
He reiterated the importance of adopting the Law on Economic Recovery by the Assembly of Kosovo as soon as possible, given the fact that a significant part of the economic recovery package is based on the measures to facilitate the access to finances.
“Subsidizing of interest rates and loan guarantee are expected to have a very important role in increasing loan financing in our economy. However, we should make efforts to make this scheme of economic support as more effective as possible, carefully determining the eligibility criteria for the beneficiaries. On this occasion, it should be considered the fact that the financial position of a significant part of businesses and individuals has been adversely affected by the crisis, but this should not exempt them from benefiting from facilitations of access to finances as they may be categorized as not good borrowers. If the Kosovo Credit Guarantee Fund would accept to guarantee only loans of customers who have had no problem with loan repayment, then they would end up supporting customers who even without such a scheme would ensure access to loans, while exempting those mostly in need for such a scheme to support in their recovery,” stated Governor Mehmeti.
The projections of CBK and International Financial Institutions, such as International Monetary Fund and World Bank, suggest that the economy of Kosovo will decline in 2020.
Based on CBK projections, the economy of Kosovo in 2020 will mark a decline of around 7.2%. However, these projections may be reviewed again considering the numerous insecurities related to the pandemic development in the coming years and measures that can be undertaken from responsible authorities to manage the situation of pandemic.
The Governor added that the causes behind the economic decline are mainly related to the measures undertaken to prevent the pandemic spread, which have had an adverse impact on both consumption level and investment level in the country. In addition to the internal factors affecting the decline of consumption, such as restrictions in the activity development for numerous businesses, possible losses of jobs and so on, a significant impact on the decline of consumption in the country has had the decrease in diaspora visits to Kosovo, which usually represent a very important source of increase of overall demand in Kosovo.
Based on the data recorded by July 2020, costs of non-residents in Kosovo - the vast majority of which have origin from diaspora - amounted to around EUR 300 million compared to EUR 643 million recorded in the same period of the previous year.
According to Governor Mehmeti, one factor that has had a great impact on the mitigation of the crisis were remittances, which by August this year amounted to EUR 608.6 million, which represents an annual increase of 10 percent.
According to the Governor, this year’s decline in consumption in Kosovo was reflected with a smaller value of import of goods, which by July 2020 marked an amount of EUR 2.03 billion or an annual decline of 9.9 percent. Also, by July, Foreign Direct Investments amounted to EUR 202.6 million, compared to EUR 147.7 million recorded by July 2019.