The National Bank of the Republic of Macedonia Council held its regular session

Today, the National Bank of the Republic of Macedonia Council has held its regular meeting and reviewed and adopted the Report on the risks in the banking system of the Republic of Macedonia in the second quarter of 2018. The Council emphasized that the banking system maintained and strengthened its stability in the second quarter of this year. At the same time, when reviewing the Report, the Council emphasized that the growth of the activities of the banking system accelerated, and profitability registered further improvement. After the seasonal decline in the first quarter of the year, in the second quarter of 2018, in conditions of further moderate easing of the credit conditions, the credit activity of the banking sector registered a quarterly growth of 2.7%. Greater contribution to the growth of the activity at the credit market was made by the household sector, but the lending to the corporate sector was also solid and made an important contribution to the quarterly change of the credit activity. The growth of 2.5% in the deposits in the second quarter arises from the corporate deposits, with further positive contribution of household deposits. 

In the second quarter of this year, according to the Report, the quarterly growth of non-performing loans amounted to 2.1% and was more present in the corporate loan portfolio of banks. Non-performing loans to households accelerated the quarterly growth to a level of 3%, with the largest contributors being the long-term consumer loans. Due to the solid growth of the credit activity of banks, the share of non-performing loans in total loans in the second quarter of the year did not change compared to the previous quarter and equals 5.1%.

According to the data and the findings presented in the Report, also in the second quarter of 2018, the liquidity ratios of the banking system remained stable, whereby liquid assets accounted for about one third in the total assets of the banks, covering more than half of the short-term liabilities and nearly 60% of the total household deposits.  In the first half of this year, the profit of the banking system continued to increase, and the rates of return on average assets and average equity and reserves reached solid levels of 2.4% and 21.3%, respectively. The improved profitability of the banking sector is mostly due to the collection of previously provisioned claims and sales of foreclosures. 

The Report among other things notes that the solvency of the banking system registers a slight improvement, whereby the capital adequacy ratio reached 16.5%. The improvement of the solvency ratios mostly stems from the increase in the capital positions, in order to reinvest profits, despite the more intensive growth of the banks' activities.

The direct exposures of the banking system to currency risk and interest rate risk in the banking book are still small and account for 6.5% and 4.9%, respectively, in the total own funds. However, the high share of loans with currency component to households and non-financial companies highlights the significance of currency risk for their stability and, consequently, for the bank stability, which is also essentially supported by the policy of stable exchange rate of the denar against the euro.

At the meeting, the Council also reviewed and adopted the Decision amending the Decision on reserve requirement, in which the amendments refer to the reserve requirement for business banks, which is maintained in Euros. With the amendments to the reserve requirement system, the NBRM, as well as several other central banks, from November, will start to determine reserve requirement remuneration in Euros, whereby the amount of the remuneration will be directly related to the interest rate on the overnight deposit facility of the European Central Bank. At the same time, this Decision also amends the calculation of the remuneration that banks pay for the excess funds above the reserve requirement, allocated to the foreign exchange account in Euros in MIPS, whereby it will be determined at a rate equal to the interest rate on the overnight deposit facility of the European Central Bank, reduced by 0.15 percentage points.

The Council has also discussed other matters within its jurisdiction.