North Macedonia’s banking sector: Facts & Figures
Updated September 2019 – For earlier editions of Facts & Figures click here
The overall environment in 2018 was considerably more favorable than in 2017. Indicators of economic activity showed its recovery, inflation remained low and stable, credit flows continued registering solid growth and loans and deposits growth accelerated.
After economic stagnation in 2017, the economy grew by 2.7% in 2018. Increased exports from the free economic zones, has contributed to favourable movement of the trade deficit, which is expected to improve in future as well. As a result, the current account deficit has been improved in 2018. The trend of unemployment reduction continued, thus reducing the unemployment rate in the last quarter of 2018 to the historically lowest level of 19.4%.
Last year, the National Bank of the Republic of North Macedonia reduced the reference interest rate on three occasions by a total of 0.75 percentage points to the historically low level of 2.5%.
At the end of 2018, 17 deposit taking institutions, i.e. 15 banks and two savings houses operated in the Republic of North Macedonia. The number of banks and savings houses is unchanged compared to the previous year. Fourteen banks are privately owned while the Macedonian Bank for Development Promotion is the only state-owned bank.
In 2018, the number of banks owned by foreign shareholders (11) as well as the number of subsidiaries of foreign banks (six) was unchanged compared with 2017.
According to the country of origin the biggest shareholders are from Greece and Slovenia, whose shares accounted for 19.5% and 14.8%, respectively, of the total capital and reserves of the banking sector.
The Macedonian banking sector is self-funded and stable, making it quite resilient to external shocks.
The banking network is spread across all country and consists of 420 business units (seven units fewer than in 2017).
The total number of transaction accounts in the country in 2018 grew by 2.4%. The total value of payments increased by 10.2%. Some 99% was realised with credit transfers and the rest with payment cards. Electronic credit transfers accounted for 43.8% of the number of credit transfers. Legal entities usually initiate electronic credit transfers through a personal computer (99.4%), while 81% of individuals use personal computers, 18% use mobile phones and 1% ATMs. There were 53 million transactions with domestic payment cards for the purchase of goods and services, in the country in 2018, representing an annual growth of 22%. The growth of contactless cards was accompanied by simultaneous growth of devices for carrying out contactless payments. Some 58.6% of EFTPOS terminals supported contactless cards at the end of 2018, 9.2 percentage points more than in 2017.
Total loans increased by 7.3%, recording moderate acceleration compared to the previous year (5.4%), with the largest contribution of loans to households, but also moderate acceleration in lending to the corporate sector. Household lending has grown by an average of around 10% per annum in the past six to seven years. Consumer loans represent the biggest part of the total loans in this sector. However, from the middle of 2015, housing loans have been the fastest growing segment of the household loan portfolio, with an annual growth rate around 15%, so their share in the total household loans has increased to almost 30%, end-2018, up from 25% at the beginning of 2015). The growth of loans to non-financial entities has accelerated and is twice as fast as in 2017, but is still lagging behind the growth of household loans. About 80% of total loans to non-financial entities in three economic sectors -industry, wholesale and retail trade and construction, and real estate activities.
In the past seven years, the ratio of loans to deposits has been relatively stable and was 86.2% at the end of 2018).
Prudent risk management contributed to improvement in the banks’ risk profile so the share of non-performing loans (NPLs) in total loans to non-financial entities dropped to 5.2%. Furthermore, the NPL portfolio is well covered, with NPL coverage ratio of 110.2% at the end of 2018.
Total deposits increased by 12.1%, which represented a significant acceleration compared to 2017 (5%). The stable and satisfactory solvency of the banking system strengthened further in the preceding year. The capital adequacy ratio equaled 16.5%, while the ratio of highest quality own funds of the banking system and the risk weighted assets was 15%. The banking system had capital available above the regulatory and supervisory requirement of 8.6% of the total own funds.
Profitability of the banking system improved in 2018. Return on average assets and return on average equity rates reached solid levels of 1.7% (1.4% in 2017) and 16.0% (13.5%), respectively.
The cost to income ratio in 2018 was 46.2% and this is following a downward trend (48.7% in 2017).
The transition in the second phase of the Stabilisation and Association Agreement concluded between the country and the EU and its member states will bring changes to the business environment for the banks, which are expected to integrate further the domestic system into the global financial system. At the same time, the entry of Fintech activities and the announced adoption of the Law on Payment Services and Payment Systems, a part of the rising regulatory burden, are challenges that the banks will face in the coming period.
Contributor: Milena Perchinkova firstname.lastname@example.org