Skopje, 24 August 2020

The ECB made an important decision - for the first time it enabled for the National Bank to have access to foreign exchange liquidity in euros. How was this important decision reached?

At the very beginning of the covid-crisis, we as a central bank launched an initiative supported by all central banks from the Western Balkans, to provide access to foreign exchange liquidity in euros from the ECB. We are all countries that, although we are not still members of the European Union and part of the Eurosystem, have a high degree of economic connection with the European economy, and the euro as a currency has a significant role in the economic flows. We also presented the initiative to the international financial institutions, which gave us support, followed by the individual bilateral requirements, which were assessed by the ECB.

The positive response followed after the positive assessment of the ECB of the fundamentals of the economy and the capacity of the central bank to respond appropriately and in a timely manner and to successfully maintain macro-financial stability. Given that the ECB provided us with quick and easy access to foreign exchange liquidity in euros, it is clear that their assessment and perception about us is favorable.

What will these funds be used for? What is the benefit for the economy?

The ECB's support through its positive response to our demand is very important. It basically means rapid access to foreign exchange liquidity in euros, if we need it.

Given that a pandemic is under way, which in global terms significantly increases the uncertainty and affects both the economic performance and the conditions in the financial markets, policy makers must dispose of instruments to respond, in case of materialization of greater risks.

At the beginning of the crisis and now, as an economy, we have denar and foreign exchange liquidity, which is at a high and adequate level. In the period from the outbreak of the crisis, the National Bank took measures used to provide additional denar liquidity in the banking system, and the foreign reserves were further strengthened. Funds have also been provided through the international financial institutions, but also on the international financial market. However, this crisis is characterized by uncertainty and hence the possibility for tightening of financial conditions is not excluded, i.e. increase in financing costs or decrease in liquidity. In case of materialization of this scenario, this instrument of the ECB allows us quick access to liquidity in euros, on favorable terms, which also means greater room for prompt and effective action.

The total amount of foreign exchange liquidity that the National Bank may provide from the ECB is Euro 400 million, and the use of these funds may be gradual, until reaching this maximum amount for the period until the middle of the next year or while it is necessary. The commercial banks will be able to use these funds through the National Bank, if they have a need for foreign exchange liquidity, which further ensures the stability of the banking system which is a pillar of the economy. If necessary, the liquidity from the repo-line of the ECB will be a significant support for the stability of the system, which refers to its resilience to shocks, confirmed by the latest stress-tests.

Will the National Bank have great costs to the ECB for this repo-line?

The possibility for using funds from the repo-line allows the National Bank to provide foreign exchange liquidity in euros on a temporary basis, with maturity up to 3 months, on the basis of placing securities with the ECB. The interest rate of the repo-line is at a level of the basic refinancing rate of the ECB and is currently 0%. This means quick access to liquidity, without the National Bank to have a need to sell its available securities that bring certain yields, or to keep the funds available at any time on an account with foreign banks at a negative interest rate in the current conditions. Hence, the price of the repo-line is dimensioned in a way that makes it more attractive and more favorable compared to the less favorable conditions in the global financial markets, especially in case of future intensification of the COVID-19 pandemic.

Is the repo-line from the ECB an additional support for the stability of the Denar?

Of course. The fact that as a central bank, regardless of the conditions in the international financial markets we have guaranteed quick access to liquidity in euros from the ECB, clearly indicates that this is an important additional support for the stability of the exchange rate. I say additional, because the level of foreign reserves is high and according to all adequacy indicators, the reserves are in a safe zone.

However, the fact that Eurostandard Bank went into bankruptcy was top topic until some day ago. Did it have to?

First, I want to emphasize that there is no central bank that wants to adopt or easily adopts a decision on revoking the license for founding and operating a bank. It is a tough decision, which follows after detailed supervisory assessments and analyses and after all alternative solutions that mean better outcome are exhausted.

As we explained at the press conference, due to the need for provision for a larger part of credit placements, the Bank’s owners had assumed an obligation for recapitalization of the Bank in the first half of this year, above the payment of Euro 11 million during 2019 with which they showed certain responsiveness by increasing the Bank’s capital which was key for the maintenance of the minimum legal requirements.

Considering the situation in the Bank, only recapitalization was a possible solution. We clearly pointed to the owners about the gravity of the situation in the bank and we insisted on urgent recapitalization, stressing that if the recapitalization does not occur, the National Bank will have no other choice but to take the toughest measure - revocation of the license for founding and operating the bank. Unfortunately, the owners did not provide the necessary capital for the first half of this year, nor provided a satisfactory and real solution for transfer of the ownership to an investor. The non-fulfillment of the obligation for recapitalization together with the major losses led to insolvency of the bank.

I say a satisfactory and real solution, because given the financial position of the Bank, a satisfactory solution also meant an investor who would perform fast recapitalization in scope and at a pace that would enable its sustainability. And of course, for somebody to be an owner of a bank, they should also go through a fully documented process of assessment of the adequacy for a shareholder in accordance with the criteria defined in the Banking Law.

The whole team and I made maximum efforts, in accordance with the legal regulations, to find a more favorable solution, including through intensive communication with the owners, but also communication with the potential investor indicated by them. Ultimately, this step had to be taken, as required by the Banking Law. As a matter of fact, it is also a legal obligation, the observance of which protects the banking system, but essentially - the depositors and creditors of the specific bank are also protected.

The political parties reacted. What is your response to these reactions?

As we have already emphasized - the National Bank is an institution with a constitutionally and legally guaranteed independence, which, when accomplishing its legally established objectives and tasks, is guided exclusively by the laws, thus protecting the citizens’ interest. Exactly because of the professionalism and independence of the central bank, the macroeconomic stability has been maintained for years now, which is also noted in the reports of all relevant international financial institutions, as well as in the reports of the European institutions. Therefore, we call again for observance of the independence of the National Bank, not to be involved in political discussions, and not to put its decisions in a political context.

Did you do everything to protect the citizens who used the services of this bank?

The National Bank made maximum efforts - all measures that we have taken towards Eurostandard Bank are for protection of the citizens who were its depositors. Actually, and in general, every supervisory measure that is taken towards some bank is in this respect. As a concrete example, I would point out the measure for limiting lending, which was taken towards Eurostandard Bank - it protected deposits. If this was not done, Eurostandard Bank would have been able to place the deposits of citizens and companies in loans, without having sufficient own capital that should cover possible losses. In this way, the National Bank had to protect the citizens and companies who were depositors of Eurostandard Bank and we did that.

Protecting the interest of depositors and creditors, we actively carried out all activities which, after the revocation of the license for founding and operating the bank, in the period until the commencement of the bankruptcy proceeding, are legal competence of the National Bank. The assets of Eurostandard Bank are protected, thereby providing some of the prerequisites for conducting an efficient and fast bankruptcy proceeding within which the claims of creditors and some depositors should be collected. Otherwise, the competence of the National Bank ends by opening the bankruptcy proceeding, when the management of the overall assets is undertaken by the bankruptcy trustee. If the bankruptcy proceeding is conducted successfully, one can expect fast and efficient collection of the claims of the creditors of Eurostandard Bank. In the past days, our team was maximally devoted to contribute to faster implementation of the administrative procedures related to the payment of the indemnification of the citizens’ deposits by the Deposit Insurance Fund and we hope that the payment will start on time.

Yes, it was announced that efforts are being made for faster completion of the administrative procedures related to the payment of the indemnification by the Fund. What is the status of the activities, what should citizens expect? 

We are in constant contact with the Fund, with efforts for the process to take place successfully. The Fund has already announced through which banks the payment will be made - Stopanska Bank AD Skopje, NLB Bank AD Skopje, Halkbank AD Skopje and Komercijalna Bank AD Skopje. It is important to know that the depositors of Eurostandard Bank should not report their claims based on a deposit to the bankruptcy trustee. Otherwise, the Fund will also indemnify the deposits of traders-individuals and of natural persons who according to the Law on Trade Companies are not considered traders. Efforts are being made for simplification of the administrative procedures for issuance of the insured deposit certificates, and taking into consideration the circumstances with the COVID-19 pandemic and the necessity to protect health, an appropriate distribution of depositors by groups is also being made. The Fund has informed us that activities are also being undertaken for other issues, in order to help depositors and for the process to take place more efficiently. Those citizens who are not in the country in this period should be calm, because the payment of the indemnification for their deposit can also be made in the future, when they will be able to. The same applies to the beneficiaries of the deposits that are subject to inheritance and probate proceedings - their payment can be made at any time upon completion of the probate proceedings. I believe that once all details are specified, the Fund will inform the depositors, whereby the date at which the indemnification will begin, will also be announced, within the legal deadlines.

What will happen to the borrowers?

The citizens and companies that were clients of Eurostandard Bank will have to regulate the manner of settling their liabilities based on loans, with the bankruptcy trustee, who is expected to share information with them on time. Within this process, it is crucial for the banks to provide support to the citizens and companies and it is an excellent signal that they, through the Macedonian Banking Association, have already announced that they are prepared to help the clients.

Do you guarantee the citizens that the other banks are reliable?

All other banks are reliable and stable, i.e. the overall banking system is reliable and stable, in the total assets of which Eurostandard Bank accounted only for 1.3%. As I emphasized recently, Eurostandard Bank is an isolated case, which will not affect the other banks.

The latest available data show that banks, despite the growing uncertainty in the global and domestic economies, have achieved solid results, which are even better compared to the data from the end of March when the covid-crisis was still not strongly present in the Macedonian economy. The banks’ capital was further strengthened, as a result of maintaining most of their profits to increase their capital, which is also a result of the recommendation that we sent them at the beginning of the covid-crisis. Moreover, somewhat more than half of the banks’ capital represents an excess above the legal minimum which is extremely important for protection of the banking system against shocks, as is the COVID-19 pandemic. The quality of the own funds is extremely high and a dominant part of them of around 90% consist of the Common Equity Tier I capital, as the highest-quality layer of the own funds of the banking system.

The fact that the liquidity available to banks is at a high level is also a guarantee for the stability of the banking system, although they temporarily delayed the payments of a significant part of the loans.

Do the other banks have an adequate level of capital?

The best measure for that is the capital adequacy ratio of the banking system, which at the end of the first half-year registered further growth and is within the historical maximum - by excluding Eurostandard Bank it amounts to 17.2%, i.e. it is more than twice higher than the legal minimum of 8%. In all banks, the capital adequacy ratio ranges from around 14% to 22%, i.e. in the most part it is twice higher than the minimum legal requirement, which is critical for the stability of the banks and the banking system as a whole.

And do citizens have confidence - what happens to the deposits after the failure of Eurostandard?

Household deposits do not register unusual movements for this period of the month. This is also confirmed by the information we receive from banks on a daily basis.  This is a significant signal that citizens have confidence in the banking system. And it should be so, because as we have pointed out several times, the banking system is one of the most solid supporting pillars of the Macedonian economy.  

Citizens are interested - the delay in the collection of loans with banks is by the end of September. Can they expect a new delay?

We constantly monitor the development of the events and, of course, we are prepared to adequately adjust the policies and to respond in a timely manner in accordance with our competences. Analyses are under way, on the basis of which a stand on this issue will soon be taken, taking into account the needs of citizens, and the stability of the banking system. 

The interview is available here.