The Governors of the regional central banks discuss on the financial and monetary system

The Governor of the Central Bank of the Republic of Kosovo, Fehmi Mehmeti, is attending the regional summit of Finance Ministers, Central Bank Governors and Tax Administration Directors which is being held in Becici, Montenegro.

The topic of discussion in this summit is: “Financial and monetary stability in the region, in the climate of slowed down growth in Eurozone.

The CBK Governor, Fehmi Mehmeti, in his speech before the attendants stated that the recent global crisis has imposed changes on the agendas of Central Banks.

Governor Mehmeti, among others, stated that while central banks in developed countries are currently faced with other monetary policy challenges, for the Central Bank of the Republic of Kosovo, with a limited monetary policy as a result of unilateral euroisation, the main challenge continues to be maintaining the financial stability.

Given the fact that the Republic of Kosovo has limited monetary policy and the Central Bank cannot be used as a last resort lender, jointly with the Government of the Republic of Kosovo, respectively the Ministry of Finance, a Scheme of Liquidity Emergency Support for banks has been established with the co-financing of the Government and the Central Bank of the Republic of Kosovo.

During 2018 Kosovo’s economy has increased by about 4%, the highest increase in the region, while the Central Bank of the Republic of Kosovo for 2019 predicts an economic increase of 4.2%, where capital investments by the Government, bank lending and remittances are expected to have significant impact.

“Currently, Kosovo has a stable financial system that is increasingly playing its important role in supporting the country’s economic development. The banking sector, as the main component of the country’s financial system, is characterized by continuous growth in all of its indicators, such as: banking lending growth of 11%, deposit growth of about 9%, etc. Also, the banking sector’s financial soundness indicators in Kosovo are at very high levels where capital adequacy ratios are around 18%, the level of liquidity ratio at the end of last year was about 39%, while non-performing loans in the Kosovo banking sector continues to be at low levels of 2.6%. The effective interest rate on loans has decreased significantly compared to the previous years. The effective interest rate based on recent data has dropped to 6.55%, which facilitated to high extent access to finance and increased the level of financial intermediation. In addition, the Kosovo Credit Guarantee Fund has facilitated the access to finance, which was established with a view to guaranteeing loans and facilitating access to loans for micro and small enterprises that have been less credited and with a higher potential for job creation and increased production. As Kosovo uses Euro as an official currency, monetary policy changes do not present any direct impact on Kosovo. This is also due to the fact that Kosovo’s main trading partners continue to be Eurozone countries and regional countries using Euro currency that maintain a fairly stable exchange rate against the euro. This means that changes in the Euro exchange rate do not have much impact on the Kosovo’s economy”, said Governor Mehmeti.

Governor Mehmeti stated that the majority of loans and deposits in the Kosovo banking sector are denominated in the Euro currency, therefore the sector is well protected against exchange rate risk. 

“Knowing that micro-prudential supervision alone is not considered to be sufficient to prevent bank crises, we have also developed the macro-prudential policy framework and functionalized the Macro-prudential Policy Advisory Committee as the body responsible for macro-prudential policy”.

During the summit, Governor Mehmeti answered to journalists’ questions regarding the financial system in Kosovo and different financial developments.