North Macedonia - Banking Systems North Macedonia - Banking Systems
The financial system in Macedonia consists of the National Bank of the Republic of North Macedonia (NBRNM), commercial banks, financial companies, savings houses, exchange offices, the Deposit Insurance Fund, insurance companies, pension funds, investment funds, brokerage firms, and a stock exchange. The banking system itself is two-tiered, based on the Banking Law and the National Bank Law. NBRNM is the independent money-issuing institution responsible for price stability, stability of the national currency (denar), stability of the financial system, liquidity of payments within the country and abroad, and the conduct of monetary policy and foreign exchange policy. The Supervision Department at NBRNM serves as the main regulatory body responsible for the supervision of all banking institutions and savings houses.
The main goal of NBRNM’s monetary policy is to maintain price stability. This objective is achieved by an exchange rate targeting strategy, whereby the denar is pegged against the euro as a nominal anchor for the economy. Twice a year, NBRNM prepares monetary and foreign exchange projections and reports, which are publicly available.
The banking system in North Macedonia consists of 14 private banks, one state-owned bank (Macedonian Bank for Development Promotion), and two savings houses. According to the Banking Law, banks observe the principles of profit maximization, liquidity, safety, and profitability. A foreign bank can have a presence either as a legal entity or by opening a branch or a representative office. In 2018, foreign capital was present in 14 and was dominant in 11 banks, controlling 71.6 percent of total banking sector assets, 80 percent of total loans, and 71.8 percent of total deposits. The operations of non-bank financial institutions are regulated by the provisions of the previous Banking Law and appropriate sub-laws.
The three largest banks, Komercijalna Banka, NBG Stopanska Banka Skopje, and NLB Bank, hold 57.3 percent of total assets, 49.9 percent of total loans, and collect 50.7 percent of total deposits. The nine smallest banks, which have individual market share of less than five percent, account for one-fifth of total banking sector assets. The savings houses’ shares in total assets of deposit-taking institutions in 2018 was 0.4 percent, in total loans 0.5 percent, and in total household deposits 0.4 percent.
In 2018, total deposits increased by 9.4 percent, nearly twice as much as 2017 (5.1 percent). Household deposits grew by 9.5 percent, while enterprise deposits increased by 9.2 percent. Total loans to enterprises and households grew by 7.6 percent on an annual basis, mostly due to a 10.4 percent increase in loans to households, while loans to enterprises increased by 4.7 percent. Banks’ liquid assets in 2018 were 30.6 percent of total assets, 0.8 percentage points higher compared to the previous year. The structure of liquid assets remained the same, as banks tend to keep most of their liquidity safe by purchasing treasury bills and bonds, Central Bank bills, or keeping accounts abroad. The capital adequacy ratio of the banking sector increased from 15.7 percent in 2017 to 16.5 percent at the end of 2018. The overall non-performing loan (NPL) ratio was 5.2 percent, dropping 1.3 percentage points from the previous year. The NPL ratio of the household sector remained low at 2.3 percent, while the corporate sector improved to 8 percent.
In 2018 NBRNM conducted regular stress-tests on banking sector sensitivity to different risks. All tests showed that the banking sector is healthy and resilient to such shocks, with its capital adequacy ratio remaining well above the legally required minimum of eight percent in all scenarios. Banking supervision is in full compliance with BASEL 2 recommendations, and it is currently implementing provisions of BASEL 3 standards.
In 2018, total assets of North Macedonia’s banking sector reached $9.5 billion, a 9 percentage point increase over 2017. Only one small bank was not profitable in 2018, and the banking sector’s overall profitability reached $158.5 million, which was 27.4 percent higher compared to the previous year. Profitability indicators in 2018 improved over the previous year. ROE (return on equity) reached 16 percent, while ROA (return on assets) was 1.7 percent. At the end of 2018, the banking sector employed 5,933 people, which is a slight increase of four employees compared to 2017.
Although considerably improved over the past several years, North Macedonia’s financial system is still relatively underdeveloped compared to Western standards. Banking is very conservative, offering traditional banking services only. Credit is available to private companies, but is still subject to significant collateral in the form of real estate, which often is appraised by the banks at lower than market value. Overall customer service does not meet Western standards. However, the use of credit cards is widespread and most companies and shops accept credit cards as a payment instrument.
The reference rate (interest rate on 28-day Central Bank bills) was cut by 100 basis points in just over a year, and now stands at 2.25 percent. The weighted average lending rate of the banking system in 2018 was 5.5 percent, while the weighted average deposit rate was 1.4 percent.
For more detailed information about various aspects of the banking system and its performance, NBRNM publishes annual and quarterly reports on banking supervision as well as other data and information on its website.