During the proceedings of this Panel held in Vienna on the occasion of the World Bank’s Publication "Risks and Returns (effects): Managing Financial Trade-Offs for Inclusive Growth in Europe and Central Asia", has contributed with a presentation on the speech on the occasion the deputy governor of financial supervision of CBK Mr. Fehmi Mehmeti. In his speech he initially greeted the Vice President of World Bank Mr. Mueller, then, Mrs. Ellen Goldstein, World Bank Director for the Western Balkans and Euro -Asia as well as governors and other senior official representative participants in this Panel. Later on he said: It is a pleasure to be part of this discursive panel and comment on Risks and Returns (effects): Managing Financial Trade-Offs for Inclusive Growth in Europe and Central Asia, regarding this very important study.
I would like to compliment the authors on a very thorough approach they have followed on this study and with such a large geographical inclusion, which has given us a great insight on past trends that ECA Countries have followed, and more importantly what the future holds for these regions.
As Vice president Mueller point out on his Foreword contribution most of us that come from countries that have transitioned into market based economies, have had expectations for new opportunities as result of greater economic freedom and access to finance. Western Balkans is no exception.
Did we experience greater economic growth as a result of such economic freedom and increased access to finance? Certainly, the progress over the last two decades has been evident, resulting in rising incomes and living standards. The transformation has been tangible in terms of progress and achievements, on both ends: macroeconomic stability and financial sector development. We also should acknowledge that we had some missed opportunities, as well.
Our economies have successfully implemented reforms that enabled us healthy economic growth and enhanced macroeconomic stability. The reforms unlocked the potential to global market, increased private sector participation and expanded experts. The financial sector, or better say banking sector has been a key factor in these reforms and followed, more or less the same path of development: Opening up the economies meant increase of foreign investments, especially in the banking sector. Foreign investment into banking, increased core deposit bases boosted credit growth.
Looking forward, as the report argues financial development in Europe and Central Asia must move beyond bank credit, become more balanced across all dimensions of finance, including financial deepening and financial intermediation. However, this balanced approach should then accommodate the fine line trade-offs such between financial inclusion and stability, both financial and macro fiscal.
The Republic of Kosovo and the Central Bank have consistently strived to follow a sound policy reforms for macro-fiscal stability and financial sector development. CBK has made enormous efforts to balance credit growth with prudent regulation. Keeping the balance between credit expansion and stringent regulation is always a challenge. We have tried to mitigate any negative consequence by continuous improvement of the regulatory framework, in line with international standards, being committed to continuous development of supervisory capacities, and a strong foundation for the development of financial system in Kosovo.
These achievements came to the fore particularly during the global financial crisis, when the Kosovo financial system and in particular the banking sector managed to maintain the stability and continued to support the overall macroeconomic stability of the country.
Kosovo's banking sector is currently a very important contributor in funding the country's economy and enjoys a very good financial health based in all relevant indicators. The loan portfolio quality that was pretty good has marked further improvement during 2016. At the end of the year, the rate of non-performing loans decreased to 4.8 percent compared to 6.2 percent as it was a year ago. The banking sector continues to have a high level of capitalization, with capital adequacy indicator at around 18.4 percent, which is significantly higher than the regulatory minimum required, from 12 percent. The liquidity continues to be satisfactory, with the indicator at about 39 percent, which is significantly higher than the regulatory minimum requirement of 25 percent.
However, despite these achievements, we are also aware, about the dynamics of the financial industry development at the global level, we also acknowledged the need for deepening of our financial sector beyond banking sector, as well as the need for financial intermediation in a multidimensional approach.
They present an opportunity, as well as, challenges for financial regulators. Therefore, we are committed to closely follow the developments in the financial industry as well as developments in the field of financial regulation standards. In this regard, the current strategic direction of the CBK is to advance the regulatory framework in line with international standards and EU legal acts for facilitating further development of the economy, as well as financial sector, and ultimately European integration as an anchor.
The CBK's contribution to creating a good environment for investment in Kosovo include promoting and maintaining a sound and stable banking system through sensible licensing policies and strong supervision, continuing to manage the euro as the domestic currency of Kosovo and maintain a sound and efficient payments system. The CBK pledges to ensure that Kosovo maintains the stable banking system that it currently enjoys.
In closing, I would like to highlight that this report has added value that for all of us as regulators, and policy makers on the developments, challenges, lessons learned and opportunities on comparative basis and an extended scope, about the developments and future prospects.