The Governor of the Central Bank of the Republic of Kosovo, Mr. Fehmi Mehmeti, at the year-end press conference, said that despite the difficulties faced by the country, the CBK has managed to implement its objectives, ensuring a stable financial system, which not only managed to cope with the unfavorable economic developments in the country, but also became one of the main pillars of support for businesses and individuals who faced financial difficulties due to the pandemic crisis.
In accordance with the new conditions that were created after the outbreak of the pandemic, the CBK was proactive in reacting quickly in order to maintain the normal functioning and stability of the financial system and, at the same time, to put the financial system at the service of economy.
In this way, according to Governor Mehmeti, in the first days of the restrictive measures, the CBK activated the Work Continuity Team, which had the task of monitoring and providing instructions that ensure the smooth running of the CBK and the financial system in general.
The regular functioning of the payment and cash supply system throughout the country was ensured at all times, including areas which have been isolated for a longer period of time.
"The contribution of the banking sector in supporting the economy was very important in terms of continued lending, despite the increase in the level of risks faced by banks. During January-October 2020, the value of new loans issued by the banking sector was 1.2 billion euros, while the total value of active loans in the banking sector in October 2020 was 3.2 billion euros, which represents an annual increase of 7 percent. Currently, even after taking all these not very common measures for a banking sector and an economy which is in a phase of recession, the banking sector of Kosovo continues to have a high level of stability and is willing to play its key role in the recovery process. The economic recovery package just approved by the Assembly of Kosovo foresees a very important role for the banking sector. A very important part of this package is based on credit guarantee schemes and interest rate subsidies, which will facilitate and improve the flow of bank financing to the country's economy. Total assets of the banking sector have continued the growth trend during this year, reaching the value of 5.05 billion Euros in October 2020, which represents an annual growth of 10.3 percent. The banking sector continues to enjoy high public confidence, which is also expressed by the continuous growth of deposits. In October 2020, the total value of deposits was about 4.1 billion euros, representing an annual increase of 8.7 percent. The growth rate of total deposits is mainly dictated by household deposits, a category that dominates the structure of total deposits in the banking sector with a share of 67 percent in total deposits, which in 2020 marked an increase of 7.3 percent. ”Interest rates on loans continued the downward trend, dropping to 6.3 percent from 6.5 percent that were in the same period last year, which indicates a continuous facilitation of access to bank financing," said Governor Mehmeti.
He noted that the non-performing loan rate increased slightly by only 2.7 percent in October 2020, compared to 2.2 percent last year, but the coverage of non-performing loans with loan loss provisions remains at high levels of 140 percent, which testifies to adequate levels of provisions in the banking sector.
The banking sector continues to have a high capital adequacy ratio of 16.9 percent in October 2020, compared to 16.5 percent in the previous year, which continues to remain significantly above the minimum regulatory level of 12.0 percent.
In order to maintain sound levels of capital within the banking system and to support Kosovo's economy through lending, the CBK has decided to suspend the distribution of dividends by banks for 2019 and 2020.
"Apart from the banking sector, microfinance and non-bank financial institutions also have an important role in the credit financing of Kosovo's economy, which mainly focus on providing microcredit. The total value of loans to this sector in October 2020 was 220 million euros, which represents an annual increase of 1.4 percent. In the insurance sector, until September 2020, a slight decline in activity was recorded. Gross written premiums until September 2020 were 72.3 million euros, which is a decrease of 2.2 percent compared to the same period last year. Claims paid by the insurance sector during this period amounted to 35 million euros, a slight increase compared to the same period last year when they were 34.5 million euros. Total assets of the insurance sector have continued the growth trend during this year, reaching the amount of 214.3 million euros in September 2020, with an annual increase of 9.3 percent. As a result of the aggravated financial situation and non-compliance with legal requirements for capital, as well as in order to improve the financial situation, in order to protect policyholders and ensure financial stability of the sector, the CBK during this year has decided to place under temporary administration of the insurer "Kosova e Re". This decision is a continuation of a series of measures taken by the CBK to increase the sustainability of the insurance sector, in order to ensure a stable sector and in accordance with the legal requirements of the CBK. Regarding the pension sector, despite the decline in the value of investments at the beginning of the pandemic, the performance of international financial markets has steadily improved in recent months and the value of the decline in the value of these investments has already recovered. The return on investments of the Kosovo Pension Savings Fund until the end of September 2020 was positive with a rate of 12.5 percent ", said Governor Mehmeti.
The economic recovery package envisions injecting a significant amount of money into the economy (around € 220 million) enabling pension contributors to withdraw 10 per cent of their pension savings.
In this regard, the CBK has played a very important role in the operational implementation of this process by enabling funds with bank account details of pension contributors through the Bank Accounts Register in order to validate the accounts of contributors, and elimination of possible errors in making the 10 percent payment.
During 2020, the CBK has fulfilled the provision of a qualitative and quantitative supply of Euro banknotes and coins for the banking sector in order to settle cash transactions of the economy and citizens.
In order to deal as effectively as possible with the created conditions, the CBK has continuously coordinated with all institutions of Kosovo, financial institutions in Kosovo, chambers of commerce, as well as international financial institutions, holding very frequent meetings to ensure that adequate and timely measures are taken against the needs of the economy.
Also, the CBK from the beginning was part of the inter-institutional group for designing emergency measures to help the economy, and then to draft the economic recovery plan, which a few days ago was approved by the Assembly of Kosovo through the passage of the Law on Economic Recovery.
He announced that thanks to the communications of the CBK, the RFI (Rapid Financing Instrument) has been approved by the IMF in the amount of 52 million euros to cover the urgent and temporary needs of the balance of payments as a result of the COVID pandemic - 19.
Also, after coordination with the central banks of the region, the European Central Bank has approved the request of the CBK to establish a repo financing line in the amount of 100 million euros. This line of financing enables the CBK to borrow liquidity in euro currency from the Eurosystem, to address the potential liquidity needs of financial institutions in Kosovo in the event of market dysfunction due to the COVID-19 pandemic.
Seeing that the country's economy was entering a pronounced crisis, where businesses and citizens were facing great financial difficulties, the CBK, based on international best practices and in cooperation with lending institutions in Kosovo, undertook a series of measures to help the economy cope more easily with the challenges of this crisis.
"These measures initially consisted in the application of a moratorium on loan repayments without any punitive measures for all borrowers who have been negatively affected by the pandemic. This moratorium has temporarily relieved borrowers of the burden of loan repayment, thus improving their liquidity position to finance other needs. Following the end of the moratorium period, the CBK has published a guide to loan restructuring in order to establish the criteria on which the loan restructuring process should be based for borrowers who have encountered financial difficulties as a result of the pandemic. The Credit Restructuring Guide has made it possible to ease the credit burden on borrowers without implying any deterioration of their classification in the Kosovo credit register ", said among others Governor Mehmeti, adding that the CBK remains committed to continue its activity in the service of stability and development of the country's economy, creating the conditions for the development of a stable financial infrastructure, in line with contemporary developments in this field, including the development of new segments of the financial system such as the market capital, which requires a broad inter-institutional interaction.
Also, the measures taken by the CBK were assessed as very adequate, both by the local public and by international financial institutions such as the International Monetary Fund in the Article IV- report on Kosovo, the World Bank, the European Commission report on Kosovo for the year 2019 and the US Department of State report on the investment climate for 2020 for Kosovo.
The commitment of the CBK has also been praised by the Organization for Security and Co-operation in Europe (OSCE) and the Office of the Language Commissioner, who have awarded the “Best Practice in Implementing the Law on the Use of Languages”for 2020 for the CBK.
In this conference, Governor Mehmeti awarded the prize "Young Economist", where based on the evaluation of the professional commission for the evaluation of these works, the winner was Qendrim Shkodra with the topic "Kosovo’s Economy in Pandemic Time, the Impacts of COVID-19 on the Local and International Economy".
According to CBK forecasts, Kosovo's economy in 2020 is expected to decline by 7.2 percent in real terms, which represents the heaviest blow to the economy in 20 years.
Measures to restrict movement from other countries also had a significant impact on the decline in economic activity in Kosovo, where from the data recorded until September 2020, the expenditures of non-residents in Kosovo, most of which are from the diaspora, were 470 million euros, which represents a decrease of about 60 percent compared to the same period last year.
But the diaspora has continued to help the economy even in times of pandemics.
The value of remittances received until October 2020 was 796.5 million euros, which represents an annual increase of 12.9 percent.
In terms of foreign direct investment, their value by September 2020 amounted to 250.6 million euros, compared to the value of 216.4 million euros recorded until September 2019.