Today, the National Bank of the Republic of Macedonia Council held its fourth session, at which the Annual Report for 2015 was adopted.
Amid uncertain and variable trends in the world economy, the monetary policy, as in previous years, was conducted in line with its main objective, price stability maintenance, which is achieved by keeping stable exchange rate against the euro.
In 2015, the inflation was at the level of -0.3%, as it equaled 2014, which is fully due to the still low energy prices. The core inflation, which does not include food and energy prices, recorded a moderate increase and reached the annual level of 0.5%. The developments on the foreign exchange market in 2015 proved the stable exchange rate expectations, and it that context, also stable inflation expectations. The National Bank intervened with a moderate amount of net sale of foreign exchange, thus maintaining the stability of the nominal exchange rate against the euro. On the other hand, the new companies with foreign capital that had registered sound export performance, structurally, reflected favorably on the foreign exchange market. The foreign reserves have reduced, on the backdrop of net repayments of government liabilities to abroad, but remained at a solid level, with all indicators on the adequacy of the reserves being consistently favorable, indicating a sufficient level to absorb any adverse shocks. The key interest rate remains unchanged at 3.25%.
The domestic economy grew in 2015, when, according to estimated data, gross domestic product increased by 3.7%, which is almost the same amount as in 2014. Compared to 2014, the most significant change in the contribution to the annual growth accounted for construction, followed by trade, transportation and catering, while new export-oriented capacities remain a distinguishing feature of the Macedonian economy.
The deficit on the balance of payments' current account was moderate in 2015, as well, not indicating larger imbalance in the external sector. In comparison with 2014, the gap in the current account moderately increased by 0.6 p.p. of GDP and reached 1.4% of GDP. However, the balance in trade of goods, an especially reliable indicator, registered improvement, amid growing net exports of new industrial facilities in the economy and reduction in world oil prices.
The increase in the money supply and the banks' credit activity continued also in 2015. In terms of further economic recovery, favorable developments in the labor market, and relatively high inflows of private transfers, in 2015 a solid increase in the money supply M4 and the deposit base of the banking system has been registered. Such performances were further supported by intensified lending activity.
At today's session, the National Bank adopted also the Report on the risks in the banking system in 2015, and it was found that despite all the challenges, which primarily consist of expressive domestic turmoil and the debt crisis in Greece, the banking system remained stable and affirmed its resilience to shocks. Assets, loans and deposits rose by 5.8%, 9.7% and 6.7% respectively, on an annual basis. However, 2015 characterized with the increase in deposits being due more to the growth of corporate deposits than the growth in household deposits.
The liquidity of the banking system is at satisfactory level. Despite the slight decrease in liquid assets in 2015, they still account for over 30% of total assets of banks and cover nearly 60% of total liabilities. Also in 2015, the most common in the banking system in the Republic of Macedonia is the foreign capital, with 75% of the total share capital originating from foreign shareholders. However, the activities of domestic commercial banks do not depend on the sources of funding from foreign parent entities, thus enabling stability of the liquidity position. The banks expect stability of the deposits also in the following period.
Low yields of financial instruments on the domestic and international financial markets in 2015, contributed to maintain the banks' propensity for lending. Consequently, the banks' credit growth of 9.7% is only a slight deceleration compared to the growth of 9.9% registered in 2014. In these growth conditions, the credit risk, as the most significant inherent risk in banks' balance sheets, caused no concern. The growth of non-performing loans slowed down visibly, so the share of the non-performing loans in the total loans at the end of 2015, fell from 11.3% to 10.8% at the end of 2014. However, one should keep in mind that the decrease in the rate was due to the increase in the write-offs, while the restructured loans are recognized as a potential source of credit risk in the future, because of which the National Bank introduced macro-prudential measures to prevent it. The banks' exposure to other risks, primarily the currency and market risk, remained small also in 2015.
The banks' profitability in 2015 improved, compared to 2014, while the return on assets and equity amounted to 1.1% and 10.4% respectively. At the end of 2015, the rate of capital adequacy ratio equaled the high 15.5%, which amid solid growth of the banks' own funds, is only a slight decrease compared to the end of 2014, when this indicator equaled 15.7%. The Council also discussed other matters within its jurisdiction.