New macro-prudential measures for further strengthening of the resilience of the banking sector have been adopted

Skopje, 29 April 2023 

The National Bank Council, at its regular meeting held on 28 April 2023, in order to further strengthen the resilience of the banking sector, adopted a decision on introducing macro-prudential measures for the quality of credit demand, according to the European practice. According to the Law on Financial Stability which entered into force last year, in December 2022, the Council adopted a decision which introduced the macro-prudential instruments for the quality of credit demand, i.e. determined in detail the methodology for calculating the indicators used to monitor the ability of the natural person to repay their monthly loan liabilities, as well as the ratio between the amount of loan and the value of the pledged real estate.

The newly introduced macro-prudential measures continue to strengthen the macro-prudential framework by setting maximum values for these indicators on a systemic basis. The macro-prudential measures are prepared in consultations with the International Monetary Fund, and are in line with the recommendations of the European institutions. The maximum values are determined on the basis of a detailed analysis of data provided by banks and savings houses and do not deviate significantly from the most frequently applied level of these indicators by them. The undertaken measures prevent the accumulation of systemic risks in the segment of households and in the real estate market.

At the same meeting, the Council also adopted the Annual Report of the National Bank for 2022, which states that despite the challenges imposed by the Russian war in Ukraine, last year the stability of the Denar exchange rate was maintained, at the end of the year inflation started to slow down, while the foreign reserves were maintained at an adequate level. In conditions of a strategy of a de facto fixed exchange rate of the denar against the euro, there was a need for changes in the monetary policy in order to stabilize inflation expectations and inflation in the medium run, maintain the stability of the domestic currency, taking into account the changes in the monetary policy of the European Central Bank. For that purpose, the National Bank since the end of 2021 started to gradually normalize monetary policy, which was made through appropriate liquidity management, as well as by gradually increasing the key interest rate on several occasions, starting from April 2022. Despite the challenges in the operational policy conduct in conditions of general global uncertainty, the National Bank also in 2022 operated devotedly and carried out a series of program activities, in order to further strengthen the regulatory framework, upgrade the available set of instruments, increase transparency and social responsibility. Numerous activities have been undertaken to create preconditions for enforcement of the new Law on Payment Services and Payment Systems (25 bylaws have been prepared and adopted), which will enable the entry of new payment services providers, will increase competition, the quantity and quality of payment services, and it also strengthens consumer protection. The National Bank started publishing new statistical data for the debt securities indicator, meeting the highest international statistical standard SDDS Plus, and also among the data and indicators for the banking system, it started publishing quarterly data on green financing loans approved to households and non-financial companies. On the initiative of the National Bank, and in order to create conditions for support of the development of the fintech sector, the financial regulators concluded a Memorandum of Cooperation which sets a system through which the regulators will act in a coordinated manner (Fintech Committee), in terms of the implementation of the national Fintech Sector Strategy, which was prepared by the National Bank and adopted by the Fintech Committee. The central bank continued to carry out enhanced activities in the field of financial education which contributes to raising financial literacy and financial inclusion of the population in our country.

The National Bank Council also adopted the Report on the Risks in the Banking Sector in 2022. The Report states that despite the uncertain macroeconomic environment, caused by global factors, and followed by energy crisis, inflation growth and tightening of the financial conditions, the banking system continued to perform financial intermediation. In 2022, banks provided the highest annual credit growth in the last ten years, due to the corporate sector, and household loans registered a more moderate growth. On the side of sources of funds, deposits of non-financial entities registered volatile movements during 2022, which resulted in a slower annual growth compared to the previous year. Generator of the deposit growth in 2022 were household deposits, but corporate deposits also increased. The propensity of depositors to hold their deposits in foreign currency was higher, but the measures taken by the National Bank with the reserve requirement, encouraged higher growth in denar deposits in the last months of 2022, which is also expected to continue in the future.

The exposure of the banking system to risks is moderate, and the stress testing shows that the banking system is resilient to the simulated shocks. The liquidity of the banking system is at satisfactory level, and the solvency improved in 2022, whereby the capital adequacy ratio reached the highest level for the last ten years, of 17.7%. The adequate capitalization of banks is very important to deal with different challenges in the downward phases of the economic cycles and in crisis conditions. The loan portfolio quality improved given the reduction of total non-performing loans and their share in the total loans to the historically lowest level of 2.9%. The share of non-performing loans in total loans decreased in both sectors, and amounts to 3.9%, in the portfolio of corporate loans and 1.9%, in the credit portfolio comprised of households. However, given the uncertain environment, there is a need for further prudent behavior.