Today, the National Bank of the Republic of Macedonia Council held its fifteenth session and discussed the Report on the Risks in the Banking System of the Republic of Macedonia in the First Quarter of 2018, concluding that the indicators used to monitor the banking system significantly improved in the period, among other things also as a result of the stabilization of the expectations in the domestic environment. In the first quarter, which usually has a lower seasonal dynamics, total assets of the banking system increased by Denar 3,982 million or 0.9%. This increase was due to the greater propensity of banks to lend to households, compared to corporate lending that declined, which, except to seasonal factors, was also due to the one-time claim collection. In April and May 2018, the growth rate of corporate loans remained positive. On an annual basis, as of the first quarter, it can still be concluded that the growth of loans to households is much more solid than that to the corporate sector, i.e. 9.8% and 2.6%, respectively, values that follow the trend of previous years.
With this setup, the exposure to credit risk remains the main risk for the banking system, especially when one will take into account that the growth of total loans mitigates the growth rate of non-performing loans. The historically lowest and unchanged rate of non-performing loans to households of 2.4% among other things is also due to the solid growth of the loans to this sector. The rate of non-performing loans to non-financial companies reduced and amounted to 7.8% at the end of the first quarter. The share of non-performing loans in total loans to households and non-financial companies decreased by 1.2 percentage points in the first quarter of 2018 and reduced to 5.1%.
Analyzing the credit risk, the coverage of non-performing loans with their own impairment has increased and is high 81.4% at the end of the third quarter, amid a sufficient amount and quality of the banks' own funds. It means that the consequences of a possible full uncollectability of these loans on the banks' solvent positions would remain limited.
The exposure of the banking system to currency risk and the interest rate risk in the banking book generally has a more limited significance than the exposure to credit risk. The presence of loans with a foreign currency component to households and non-financial companies highlights the importance of currency risk to their stability and consequently the stability of banks. Liquidity indicators further strengthened, mainly as a result of the increased banks' placements in the National Bank and in the short-term time deposits abroad, whereby at the end of the first quarter, the liquid assets accounted for over 30% in the assets of the banking system, simultaneously covering almost 54% of the total short-term liabilities and about 58% of the total household deposits.
Profitability in the first quarter was high. The rates of return on average assets and average equity and reserves reached historically the highest levels, of 3.1% and 28%, respectively, but one should note that the one-time claim collection by several banks is the main reason for this result. By isolating this effect, which had the greatest impact on the profit in the first quarter of 2018, the profitability of the banking system would be usual and would remain at almost the same level as in the first quarter of 2017. The spread between lending and deposit interest rates continued to decline.
The National Bank will continue to closely monitor the developments of the domestic and international risks in the banking system, and if necessary, will take appropriate measures and activities for their mitigation.
At today's session, the Council adopted the Decision on amending the Decision on the terms and the amount of cash domestic currency, checks and monetary gold that may be taken in or out of the Republic of Macedonia, which facilitates the melting of coins of different denominations which became unfit for circulation.
At today's session, the National Bank Council also adopted the Decision on amending the Decision on currency exchange operations. The Decision which refers to the obligation of the licensed currency exchange operators to have a program for effective mitigation and management of the identified risk of money laundering and financing of terrorism, is in accordance with the new Law on Anti-Money Laundering and Terrorist Financing, which came into effect on 7 July 2018.
The Council has also discussed other matters within its jurisdiction.
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