the development of the second banking sector · pdf fileestimates that the banking sector...

Oct. 2014. Vol. 4, No.6 ISSN 2307-227X

International Journal of Research In Social Sciences © 2013-2014 IJRSS & K.A.J. All rights reserved www.ijsk.org/ijrss

37

THE DEVELOPMENT OF THE SECOND BANKING SECTOR IN

KOSOVO

1NAGIP SKENDERI,

2BEDRI BAHTIRI,

3YLLKA AHMETI,

4SHPEND SKENDERI

1Asstt Prof., Faculty of Economics, UP “Hasan Prishtina”

2Asstt Prof., Faculty of Law, UP “Hasan Prishtina” 3Ma.Sc., Central Bank of the Republic of Kosovo

4Government of Kosovo, Ministry of Culture, Youth and Sport

Email: [email protected],

[email protected],

[email protected],

[email protected].

ABSTRACT

The banking system has been facing tough challenges worldwide in the last several years. In Kosovo, it seems like

the banking system was untouched by the global financial crisis and the worldwide loss of confidence. Thus, we

analyze this sectors’ performance during recent years and therefore we try to explain the way it works. The CBK

estimates that the banking sector stands well as regards to capital and especially bad credits. Still, the interest rate

on deposits is considered very low as compared to the interest rate on loans. Arguably, this has an important impact

on investments and in economic growth also. Furthermore, the lack of a strong competition has its share at the pie

of this problem, mentioning the fact that all of the banks have some unused capacity of crediting as they remain

over-liquid. We also analyze the performance of pension funds, insurance companies, microfinance institutions and

some other financial auxiliaries. At the end we conclude that the banking system faces many challenges and as such

it has its own issues although it seems immune to the global financial crisis. As a case study, the financial statements

of TEB bank are analyzed.

Keywords: Bank, loan, interest rate, deposit, financial statement

1. INTRODUCTION

The banking system in Kosovo has managed to gain

the confidence of individuals and businesses deeply

considering his development from scratch. Today,

many international reports estimate the banking

sector as a strong and stable financial crisis facing the

region and beyond. However, sustainable and robust

banking system remains one of the main barriers in

the business environment in Kosovo. High rates and

low access to finance for businesses are seriously

hampering the development of the private sector and

consequently economic development of Kosovo.

After about twelve years of establishment, taking into

account the perceptions of stakeholders, it is difficult

to say that the banking sector has played its role in

facilitating economic reconstruction, but today this

sector is presented as a serious obstacle to any

potential private sector initiative.

Financial sector in the country mainly offers

traditional financial services. Commercial banks

continue to have as main activity of the local

economy lending funded mainly by deposits

collected within the country, the insurance industry

generates premiums received mainly through the

activity of liability insurance to third party lending

and microfinance institutions to finance as the main

activity of funds borrowed from financial institutions

that operate outside Kosovo.

Despite the deterioration in some sectors of the

economy, the financial sector and in particular the

banking system had positive performance and is

estimated to have supported overall economic

activity. On the other hand, remittances, as one of the

main components of consumer financing in the

country continued positive growth trend even more

pronounced than in the past four years. The public

sector also continues to have a positive role in the

economic stability of the country as part of the

revenue as well as expenditure within the budget.

Besides capital investment, the public sector through

subsidies in 2012 has helped to accelerate the pace of

development in the agricultural sector, since an

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increase in the number of new enterprises in this

sector.

Conversely experts banking sector indicate that

interest rates are the highest in the region and

potentially unaffordable for SMEs in Kosovo.

As regards to capital, there is a large presence of

foreign capital in total assets, where 7 out of 9 banks

in Kosovo operate with foreign capital. Their

presence contributes to the financial system

modernization, bringing the most advanced practices

in finance and bank management. Banks have

constantly expanded their activities; have increased

deposits, assets and also business and household

loans from year to year.

Also, financial aspects and liquidity positions,

comparison with regional as many statistics are

included in this work.

It will present TEB bank financial statement analysis,

their ambitions, strategy and focus, key financial

indicators and goals for the futures.

2. BANKING SYSTEM IN KOSOVO

The banking system is an important component of the

Kosovo financial system comprising: Banking

Sector, Insurance Market and Microfinance

Institutions.

The World Bank lists Kosovo in the category of

lower-middle-income economies (USD 1006 to USD

3975) together with countries such as Bhutan, Bolivia

Ghana, Moldova, Sri Lanka etc.). 35% of the

population is living below the poverty line of EUR

1.55 per adult per day. Around 12% of people live in

extreme poverty with less than EUR 1.02 per adult

equivalent per day. Youth are disproportionately

poor; 60% of poor people are less than 30 years old.

In 2011, the Ministry for Labor and Social Welfare

set minimum wages for employees of both public and

private sector at EUR 170 per month. According to

labor statistics, the current average monthly wage is

said to be in the range of EUR 220 to 250 for civil

servants and about EUR 300 at private enterprises

(Kosovo Agency of Statistics, 2013).

Participants (number of institutions) into the financial

system in Kosovo are as follows (Monitoring

Analysis of Competition in the Banking Sector in

Kosovo , 2011):

Banks and branches of foreign banks 9;

Microfinance institutions 15;

Nonbank institutions 5;

Money transfer agencies 6;

Exchanges 28;

Insurance companies 11.

2.1. Product Market

Banking products and services are grouped into:

1) Deposits;

2) Loans;

3) Other products;

4) Service payments and transfers;

5) Securities.

In a specified order Kosovo Banks offer a number of

products and banking services. Although most of

these products are among the group of classical

banking services, banks recently have begun

expanding their range of services with several

innovations to market, such as leasing, electronic

banking services (Mobile Banking) and other

services.

In general, the products and services offered by banks

include: deposit, loans, service charges / internal and

external transfers, business documentary (Guarantees

and letter of credit), electronic services, and other

products.

2.2. Structure and Concentration

During 2010, the Bank operated 8 in the territory of

Kosovo. Emissions geographic branches of these

banks is different for different Bank explained that

the power of their investment, longevity in the

market, the strategies they follow in the first years of

their existence (for new banks), etc.

Greater geographic extent of ProCredit Bank and

Raiffeisen Bank, this bank because of the potential

they have.

Significant geographic also appears for NLB, TEB,

BpB, EU, NCB, while Commercial Bank has its

branches in few districts.

In 2010, the banking system was characterized by the

expansion of infrastructure, number of branches and

sub-branches of commercial banks amounted to 303,

representing an annual increase of 16 units. The

structure of the banking system in Kosovo in 2010

was similar to that of a year ago, as the number of


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


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banks as well as by their ownership structure. In

2012, the banking market in Kosovo was added to a

new bank, raising the number of commercial banks in

nine (9). The ownership structure of banks remained

unchanged: 7 foreign-owned banks and two banks

with local ownership.

Foreign banks have a share of 89.5 percent of the

total assets of the banking system of the country.

In 2012, commercial banks had a total of 3,727

employees, as well as in 2011 when they were 3,728.

While the number of branches and sub-branches of

commercial banks in the country amounted to 310 in

2012, compared to two years ago increased the

number to seven.

The banking system in Kosovo continues to be

characterized by a high degree of market

concentration, where about 77.4 percent of total

banking system assets managed by the three largest

banks. Two largest banks, ProCredit Bank and

Raiffeisen Bank have a share in the credit market by

68 %.

None of these banks under the Law for the Protection

of Competition has no dominant position that it does

not exceed the limit of 40% of market share.

However, it should be noted that the continuous

increase of activity of smaller banks have influenced

the degree of concentration in the banking market

continued to decline from the previous year.

Table 1: Electronic payments (mil. €) (CBK, 2013).

Description 2009 2010 2011 2012

Number of

branches and

sub

295 311 310 310

Number of the

employees

3,459 3610 3728 3727

Shrinkage of

bank customers

through ATMs

582 640 790 873

POS 68 94 142 178

Payments

through e-

banking

607.3 782.4 1,191.8 1,499.1

On the other hand, has continued the trend of

expansion of POS Rage (Point of Sales: POS)

terminals, ATM (Automated Teller Machine: ATM)

and number of users of e-banking accounts (Table 1).

The use of POS terminals was higher in 2012,

reaching 178 million euro compared to 142 million

euro in the previous year. With increasing

withdrawals were characterized bank customers

through ATMs, which in 2012 totaled 873 million

euro (790 million euro in 2011). Also, the value of e-

banking electronic payments recorded an amount of

1.5 billion euro, an increase compared with the

previous year when these payments had a value of

1.2 billion euro. The growth of electronic payments

shows continuous reduction in cash payments.

2.3. Banking Sector in Kosovo and the Region

Table 2: Number of Banks in SEE Countries (KBA,

2013).

Country Number of Banks

Kosovo 9 Montenegro 11 Macedonia 16 Albania 16 Bosnia and Herzegovina 28 Serbia 32

Presence of 9 banks mostly foreign owned with

parent institutions in Germany, Austria, Slovenia,

Turkey and Albania;

• Generally funded by deposits and do not depend on

financing from their parent institutions;

• Commercial banks' range of services: loans,

guarantees, current accounts, savings accounts,

term deposits, domestic and international transfers,

credit cards etc.;

• The level of development and usage of electronic

banking services lags behind in comparison to the

region countries (KBA, 2013).

Table 3: Structure of the Banking System Assets and

Liabilities in Kosovo (KBA, 2013).

Structure of the

banking system

assets in Kosovo

(%)

June

2010

June

2011

June

2012

Cash & balance

with CBK

12.1 10.6 11.3

Balance with

commercial banks

15.8 12.8 10

Securities 5.1 8.2 8.1

Gross loans and

leasing

63.3 65 67


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


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Fixed assets 1.9 1.8 1.9

Other assets 1.7 1.6 1.8

Total 100 100 100

Structure of

banking system

liabilities in

Kosovo (%)

June

2010

June

2011

June

2012

Balance from other

banks

2.9 3.5 0.8

Deposits 78.9 78.3 79.5

Other borrowings 0.0 0.0 1.0

Other liabilities 6.9 7.3 7.8

Subordinated debt 1.1 1.3 1.2

Own resources 10.1 9.6 9.6

Total liabilities 100 100 100

2.4. The Balance Sheet of the Banking System

Total assets of commercial banks amounted to 2.83

billion euro’s in 2012, representing an annual

increase of 6.8 percent (7.9 percent in 2011).

The main activity continues to consist of bank

lending to the economy, despite the pace of credit

growth in 2012 appear to be slowing down. The

structure of the banking system assets in 2012

continued to be dominated by loans, which

represented 62.3 percent of total assets of commercial

banks. In 2012, loans reached a value of 1.76 billion

Euro (1.69 billion Euro in 2011). While in 2011,

lending to the economy was characterized by

accelerated growth trend compared to 2010, data for

2012 show sharp slowdown in growth. The annual

growth rate of loans to the banking system in 2012

was 3.8 percent, compared with an increase of 13.2

respectively 16.4 percent between 2010 and 2011.

The slower pace of lending to rise during 2012 was a

result of reduced demand for credit, but also the

tightening of criteria and standards applied in the

process of lending by banks in the country as well as

for enterprises to households.

While the reduction of demand for loans was present

mainly to enterprises, tightening of standards and

criteria by banks for loans to enterprises was applied

as well as households.

2.5. Structure of Loans

The slowdown in the economy by lending to

commercial banks during 2012 was reflected as loans

to households, as well as to loans to enterprises.

Loans to households grew by 6.2 percent in 2012,

compared with annual growth of 17.7 percent in the

previous year. Similarly, loans to enterprises were

characterized by slower growth in 2011 in 3.9 percent

in 2012 from 12.3 percent (Banking Sector: Helping

or barriers).

Graph 1: Credit structure in Kosovo (%)

The service sector continues to dominate the structure

of loans to enterprises, with 72.0 percent in 2012

(71.7 percent in 2011). In the service sector, loans to

commercial enterprises continue to have the highest

share in total loans of the banking system. In 2012,

trade loans represented 53.2 percent of total loans in

the banking system (52.7 percent in 2011).

Loans for mining, manufacturing and construction,

which are categorized as loans for industry,

represented 24.3 percent of total loans in 2012. Loans

for agriculture continue to have a lower share of 3.7

percent in 2012 (3.5 percent in 2011). Considering it

as the sector with the highest uncertainty, among

other things, banks offer higher rates of interest for

agricultural loans, discouraging the demand of

borrowers, as these further increase the cost of their

financing from banks .In 2012, loans to the

agricultural sector grew by 7.7 percent annually,

compared with annual growth of 6.1 percent in the

previous year. Structure of loans by maturity

continues to be dominated by loans with longer term

maturity (over two years), which in 2012 accounted

73.3

69.9

67.5

67.5

26.7

29.8

30.1

30.8

0

0.3

2.4

1.7

0 50 100

*2009

*2010

*2011

*2012

Others

Households

Enterprises


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


41

for 71.4 percent of total loans. Loans with maturity

up to one year had a significant participation of 21.1

percent in 2012. However, as regards participation in

the total loans of the banking system, both these

categories of loans marked slowdown in growth in

2012 compared with the previous year, when loans

with a maturity of over two years and up to one year

loans had a turnout of 71.6 respectively 21.2 percent.

2.6. Liabilities

Structure of liabilities in the banking system in the

country continued to be dominated by deposits,

which simultaneously represent the main source of

financing for commercial banks in Kosovo. In 2012,

deposits of the banking system had a turnout of 80.6

percent, compared with an increase of 79.4 percent

participation in 2011.

The value of total deposits in the banking system in

the country, in 2012, amounted to 2.3 billion euro,

indicating a 8.3 percent annual growth compared

with annual growth of 8.6 percent in the previous

year slowdown in deposit growth was mainly due to

lower deposit public nonfinancial corporations in this

period.

2.7. Deposit Structure

The structure of deposits in the banking sector

continues to be generated mainly by households,

deposits which form 72 percent of total deposits in

2012.

Household deposits reached a value of 1.6 billion and

recorded an annual growth rate of 10 percent in 2012,

compared with growth of 14.7 percent in 2011.

The division by sector, enterprise deposits reached a

value of 528 million euro, an annual increase of 0.8

percent in year 2012, the structure of the deposits of

enterprises continued to be dominated by private

enterprise deposits with 85.7 percent of total deposits

of enterprises.

Deposits in Kosovo’s banking system maintained a

maturity structure similar to that of previous years.

With a share of 51.4 percent of total banking system

deposits, term deposits dominate the structure of the

deposit. The remainder of the deposit consists of

transferable deposits and savings deposits, which in

late 2011 had a share of 33.0 percent, or 15.6 percent

of total deposits.

2.8. Interest Rates

In 2012, interest rates on loans were characterized by

declining, while interest rates on deposits to increase.

The average interest rate on loans in 2012 was

reduced to 13.4 percent, compared with 14.1 percent

in 2011. While in the same period the average

interest rate on deposits rose to 3.6 percent from 3.5

percent in 2011.

The average interest rates for loans to enterprises

showed a decrease in 2012 compared to 2011 for all

sectors. Investment loans have an average interest

rate of 12.9 percent in 2012, compared with an

average of 14.2 percent in 2011.

Regarding the average interest rates on loans to

households, in 2012 there has been a slight decrease

of 0.2 percent to as consumer credit, as well as to

mortgage loans.

2.9. Performance of the Banking System

Kosovo is one of the poorest countries in Europe.

The country remains dependent on the Diaspora and

international community for financial and technical

assistance. More than a third of the country’s citizens

live below the poverty line (Kosovo’s Energy Crisis,

2012). While profit Kosovo banking system in 2012

dropped to 18.57 million euro, marking an annual

decline of 48.7 percent. Three out of eight banks and

bank branches, which operated in Kosovo throughout

2012, recorded negative performance.

The collapse of the banking system profits came as a

result of the slowdown in the annual growth of total

revenues, which grew by only 2.9 percent (10.5

percent in 2011). On the other hand, increased costs

of 13.0 percent more pronounced (10.9 percent in

2011), thus contributing to the almost halving of net

profit.

Graph 2: Structure of revenues by category (%)


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42

Costs of banking system in 2012 reached a value of

224.6 million euro compared with 198.8 million euro

in 2011. Cost structure continues to be dominated by

general and administrative expenses, followed by

interest expense and non-interest.

Graph 3: Structure of costs (%)

Dominant category of expenses, general and

administrative expenses, marked a slowdown from

10.3 percent growth in 2011 to 5.4 percent in 2012.

The slowdown in spending growth in this category

was significantly affected by the slowdown of

personnel expenses, which dominate the structure of

these costs, and which rose to 3.9 percent from 7.7

percent in 2011 (CBK, 2012).

2.10. Profitability and Efficiency of the Banking

System

Leading indicators of profitability declined due to

lower profit. Return on average equity Rage (Return

on Average Equity) went down 7.1 percent compared

with 14.9 percent in 2011 (Figure 42). Return on

average assets during 2012 (Return on Average

Assets) also decreased to 0.7 percent from 1.4

percent in the previous year. The decline of these

profitability indicators, however, does not present

any risk for the banking system whose results remain

satisfactory.

Efficiency indicators also declined. The overall

efficiency indicator, which shows the ability of the

system to cover general expenses during a period of

total revenues is generated in the same period, has

deteriorated.

2.11. Banking Risks

2.11.1. Liquidity risk

One of the most important indicators of liquidity in

the banking system, loans to deposits ratio, which

shows the capacity of the bank to cover loans with

their deposits. This ratio decreased in 2012 to 77.4

percent, compared with 80.7 in the previous year.

Reducing this indicator reflects slower growth of

loans in 2012, compared with growth of deposits,

which did not change much compared to the last

year.

The fact that Kosovo's banking system has limited

exposure to liquidity risk is also confirmed by a

degree of required reserves that banks in Kosovo

consistently maintain higher level than the minimum

required by the regulator.

2.11.2. Credit risk

During 2012, the weakest performance in the

economy, and the banking system in particular,

78.5 78.1 77.6 78.9

1 1 1.2 1 1.5 1.8 2.2 1.2

16.1 17.3 17.4 17.9

2.9 1.8 1.6 1

0

20

40

60

80

100

120

*2009 *2010 *2011 *2012

Other operating revenues Fees and commissions

Securities Placements of banks

Credit

30.3 30.8 29.4 28.2

19.4 20.1 21.7 26.2

50.3 49.1 48.9 45.6

0

20

40

60

80

100

120

*2009 *2010 *2011 *2012

General andadministrativeexpenses

Non-interestexpenses

Interestexpenses


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


43

resulted with a decrease of the quality of the credit

portfolio. Given the difficulties facing Eurozone

countries, as well as the deterioration of the credit

portfolio in most countries of the region, it should be

noted that the total loan portfolio of the banking

system in Kosovo in general continues to have a good

quality in terms of classification loans. However, it is

worth mentioning that in 2012 it was observed a

decrease in the quality of loan portfolio.

During 2012, the share of classified loans to total

loans increased standing at 12.9 percent (10.0 percent

in December 2011). Also, the share of nonperforming

loans to total loans, in December 2012, was 10.0

percent (8.3përqind in December 2011).

Significant growth was recorded in the categories of

loans classified as 'lost' and 'doubtful', these two

categories together constitute the NPL portfolio.

2.12. Capital

In December 2012, the banking system's capital

amounted to EUR 277.1 million, recording an annual

decline of 7.6 percent (300.0 million euro in

December 2012).

The capital structure of the banking system continued

to be dominated by first-class capital that amounted

to 227.0 million euro (in December 2011 was 252.0

million euro). Meanwhile, second-class capital of

50.1 million recorded euro (48.0 million euro in

December 2011). In December 2012, the share of

first-class capital to total capital declined by 2.1 pp

standing at 81.9 percent compared with the same

period in the last year. While Tier capital raised

participation from 16.0 percent in 2011 to 18.1

percent in 2012.

3. PENSION FUNDS

Among the systems with the most significant growth

within the financial sector was the system of

Kosovo’s pension funds, whose assets in 2012

reached a value of 745 million and recorded an

increase of 15.9 percent (19.5 percent in 2011). At

the same time, Kosovo's pension system represents

the system's second largest financial sector with a

share of 19.5 percent. The main part of pension funds

assets managed by Pension Savings Trust Kosovo,

while 0.7 percent of the total assets of the Slovenian -

Kosovo Pension (Mid-term Expenditure Framework

2012-2014, 2011).

4. INSURANCE COMPANIES

The insurance industry is one of the systems of the

financial sector during 2012 was characterized by

growth. However, the participation of this system in

total assets of the sector is relatively low and

occupies only 3.4 percent. From a total of 13

insurance companies that operated in Kosovo in

2012, 10of them offered non-life insurance, while the

other three offered life insurances. The ownership

structure of insurance companies was similar to that

of the previous year, where 10 companies are foreign

owned and the other three are in local ownership.

Similar pattern characterizes the structure of assets by

ownership, where about 77 percent of assets are

managed from foreign companies, while the rest of

the assets are managed by local companies.

The market insurance companies have traditionally

been characterized by a low degree of concentration

in the market, compared with banks or microfinance

institutions.

Total assets of insurance companies in 2012 reached

a value of 130.8 million euro, an increase of 16.3

percent. The structure of assets of the insurance

companies is dominated by deposits with a share of

58.6 percent of total assets (56.1 percent in 2011).

However, despite the expansion of the assets of

insurance companies, the insurance industry in 2012

ended the reporting period with net loss of 2.3

million euro.

By the end of 2012, the number of policies sold by

insurance companies that operate in Kosovo

amounted to 757.2 thousand policies, representing an

annual increase of 25.1 percent compared with a year

ago.

On the other hand the value of claims paid by

insurance companies was characterized by a rapid

annual growth of 14.1 percent (1.1 percent in 2011).

5. MICROFINANCE INSTITUTIONS AND

FINANCIAL AUXILIARIES

In 2012 the microfinance industry operated a total of

18 institutions and 38 financial aids.


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44

Regarding ownership structure, two MFIs are

institutions established by local capital, an MFI with

local and foreign capital, while the rest are foreign

institutions.

Microfinance industry infrastructure was

characterized by a slowing trend. Number of

branches of MFIs started with 119 branches in

January and was reduced to 111 branches in

December 2012.

Number of employees in MFI during 2012 was

characterized by a similar move, where in January

2012 the industry recorded a total of 934 workers,

while in December 2012 the number of employees

was reduced to 904.

5.1. The Balance Sheet of Microfinance

Institutions

Along with reducing the number of participants in the

microfinance industry, the value of assets in the past

two years has decreased by 5 percent, 4.6 percent

respectively. Otherwise, the value of the assets of

MFIs in 2012 was 115.8 million euro (about 2.4

percent of GDP), compared with 121.9 million euro

in 2011.

Within MFI assets, loans represent the most

important category, with a share of 66.9 percent (71.3

percent in 2011). However, during the last four years

shows that the share of loans in total assets of MFIs

has decreased and it is because MFIs have also

developed other products, such as leasing.

Despite the fact that loans are only offered by leasing

two MFIs in the market since 2009 when for the first

time also started their functioning, leasing loans

consistently have shown an upward trend. Value

leasing loans in 2012 amounted to 20.8 million euro

and recorded a growth of 19.1 per cent (62 per cent

growth in 2011).

Within MFI assets, investments in securities as an

instrument still remain underdeveloped microfinance

industry.

5.2. MFI Loans

The value of loans issued by MFIs has shown a

declining trend in recent years. The value of MFI

loans in 2012 amounted to EUR 77.5 million and was

reduced to 10.8 per cent (18 percent decline in 2011).

At the same time the number of active loans in 2012

was reduced to 8.1 percent or 57.536 credits in 2011,

declined to 52.885 credits in 2012.

One reason for the tightening of lending by MFIs

comes from the fact the closure of two MFIs in 2012.

Deposits for MFIs are not allowed under the law in

force.

On the other hand, reduction of credit issued by MFIs

during 2012 is also partly a result of tightening of

financing conditions for these institutions from

foreign markets. This is because the MFIs operating

in Kosovo are the main source of financing credit

lines from foreign markets because under the

legislation in force MFIs do not have the right to

receive the deposit, except in the form of loan

security. Microfinance institutions provide loans

mainly smaller volume destined for household

consumption needs.

Regarding the distribution of the total number of

loans issued by MFIs, the minimum value of a loan

issued in 2012 was 100 euro, while the maximum

value of a loan issued by MFIs was 358.267 euro.

The average value of a loan issued in 2012was EUR

1,869.6 compared with 1,829.1 euro in 2011.

Table 4: Distribution of loans to MFIs at intervals,

the values and the number (CBK, 2013)

IMF

loans

2012

0

≤

5,000

5001

≤

10,000

10,001

≤

25,000

> 5,000

Value

(mil. €)

48.8 7.1 4.8 12.1

Number

of loans

31.879 905 290 194

In Table, the loans extended by MFIs in 2012 are

divided into four intervals:

loans worth 0 to 5.000 euro, from 5.001 to 10.000,

from 10.001 to 25.000 and loans worth over 25,001

euro. As can be seen in Table 1, loans with lower

values which are distributed in the range of 0 to 5,000

euro, loans are often issued by MFIs loans released

up to 5,000 euro value share of 67.1 percent of the


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


45

total amount of loans issued in 2012. 5,001 loans in

the range of up to 10,000 euro were issued loans

worth 7.1 million euro, while the number of loans in

this interval was 290 credits. Most small loans issued

by MFIs are of great value loans, i.e. loans over EUR

25,000, from which 194 loans were issued in 2012.

5.3. Liabilities of the MFI

The main part of microfinance institutions liabilities

consist of obligations such as accounts payable.

Accounts payable in 2012 recorded a value of 84.6

million euro, with a share of 54.6 percent of total

liabilities. Within this category mainly includes

deposits of the financial sector, enterprise, customers,

etc. Which nature with maturity guarantee and loan

customers are returned, since under the law for MFIs,

these institutions do not have the right to hold

deposits. 26 important parts form the liabilities of the

MFI’s own capital. In the three previous years, the

own capital of MFIs stood at a stable level. However,

in 2012 the value of own capital amounted to EUR

31.2 million and recorded a decline of 20.2 percent.

Own capital to reduce the negative balance has

affected mainly between revenues and expenditures

in 2012, $ 4.5 million. The main part of own capital

consists of shareholders equity (57.4 percent)

(Republic of Kosovo: Financial System Stability

Assessment, 2012).

5.4. Interest Rates of Microfinance Institutions

Average interest rates on loans issued by financial

institutions, mainly characterized by a relatively high

level compared with average rates on loans issued by

banks. One of the factors that influence the higher

rate of interest on loans of MFIs is that MFIs do not

have the right of accepting deposits from citizens,

and consequently directed MFIs in other funds

research funding, as international financial

institutions, capital markets or even local banks,

which have high rates of borrowing. Also, a

substantial part of MFI loans intended for economic

sectors that are considered higher risk, such as

agriculture Also, requirements for collateral,

guarantees, etc., and generally easier procedures for

borrowing can justify higher rates of interest on the

loan, as cover for the risk of default on loans.

The average interest rate on MFI loans in 2012 was

23.47 percent. However, if you followed the trend of

monthly interest rates, note that interest rates have

undergone changes during 2012.

5.5. Performance of Microfinance Institutions

Microfinance industry in 2012 ended the reporting

period with a negative balance between revenues and

expenditures. One of the reasons for the negative

performance is the increased number of non-interest

expenses and lack of efficiency in the management of

personnel expenses.

In 2012, microfinance institutions recorded a loss of

4.5 million euro. Revenues of MFIs in 2012

amounted to euro 20.8 million, while expenses were

EUR 25.3 million. Costs of MFIs during 2012

remained at levels consistently higher than the

income of MFIs.

Consequently, the ratio between expenditure and

revenue MFIs, at the end of 2012 stood at 121.6

percent.

Reducing assets on the one hand, but also reducing

the number of workers in microfinance institutions

led to lower efficiency in asset management by

workers. The average value of assets managed by an

employee in 2012 was 128.1 thousand, while a year

earlier a worker on average managed assets of about

129.6 thousand. In 2012, the average number of

credit issued by a worker was 44.5, whereas the profit

generated per employee in 2012 was 4.9 thousand

euro.

6. CONCLUSIONS

The difference between the interest rate on the loan

and deposit interest rates (who in December 2011

was 10.8 percentage points), is considered as the

biggest obstacle to financial intermediation as the

return of the deposits of small savers has discouraged

potential, while the increased cost for borrowers

(especially individuals and businesses), and thus

reduced the opportunities for investment and

economic growth.

Kosovo's banking system remains highly

concentrated with the three largest banks covering 74

% of banking sector assets. This means that banks in

Kosovo concentrate heavily on the distribution

strategy of interest rate (interest rate spread), so

keeping artificially high interest rates on loans.


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


46

Regarding the potential growth of commercial banks,

CBK states that all banks in Kosovo have the

potential to increase the level of credit in the market,

the fact that the liquidity of stocks held by banks

consistently exceeded requirements in meaning that

excess reserves could potentially be given as loan in

the market.

Lack of competition in the financial market and

business environment with inadequate general

consensus assessed as major barriers to higher

interest rates, but additionally firms bear some

responsibility. Tax evasion and informality was

unable to give them compelling financial statements.

The capital of existing banks is dominated by foreign

capital and domestic capital percentage is low, there

is a need to make growth of new banks and their

extension throughout the country.

Must be banking market liberalization through

licensing of new banks, namely must increase the

number of banks operating in Kosovo.

It is necessary that effective rates of interest to be

more transparent and realistic. Also, we should know

how to do pricing of credit (such as fixed interest

loans as well as those with variable rate), at the same

time, the definition of administrative costs that

burden the price of credit to be more transparent.

Faster court verdicts must be given with regards to

mortgage and other financial cases.

7. TEB BANK

TEB Vision -To be the best bank in Kosovo .

Our mission - to continually create and increase

outstanding value for our customers, shareholders,

employees and society .

For TEB Türk Ekonomi Bankasi A.Ş. ( TEB ) is

among the oldest players and most reputable in the

Turkish financial sector. Founded in 1927, it has

acquired in-depth knowledge and expertise of eighty

five years in banking. TEB today remains one of the

most powerful banks in Turkey. In 2005, TEB A.Ş.

entered into joint venture with BNP Paribas. BNP

Paribas is one of the five most powerful banks in the

world and the largest bank in the eurozone. Being the

leading provider of banking and financial services, it

has a global reach with strong commercial banking

activities and corporate. She possesses one of the

largest international networks with operations in 80

countries. After joining in TEB Holding A.Ş, the

group began to grow rapidly in the Turkish market.

As a prominent member of the TEB Group, JSC TEB

Kosovo entered the market in 2008. Backed by global

banking experience of these two powerful groups,

TEB JSC quickly managed to demonstrate the ability

of this group to quickly adapt to the local banking

market. We are making great progress in our mission

to bring culture shared bank BNP Paribas and TEB

A.Ş in Kosovo .

As a prominent member of the TEB Group, created

by a joint venture between one of the most powerful

financial institutions BNP Paribas World, and one of

the most reputable banks in Turkey, Turk Ekonomi

Bankasi ( TEB ), we are equipped with banking

experience global which enables us to generate better

results for our clients.

7.1. Main Pillars of our Core Values and Strategy

Our strategy consists of several pillars or key

managerial principles.

Focus on clients / To inspire our employees who, in

innovative ways, the focus on customers in the first

place, since the client's interests are always at the

center of all actions tona.Entrepreneurship risk aware

/ initiatives for development and efficiency along:

• Accountability andworking in an interdependent

and cooperative with other entities to serve the global

interests of the Group and its customers ;

• Guard against risks related to our area of

responsibility and empowerment of employees to act

in the same way.

Care workers / Care to our employees, being shown

them respect by promoting equal opportunities for

them, recognizing their good work and develop their

talent and skills.

Leadership through image / image Provide through

our conduct and ethics as follows:

• Respecting the rules and regulations, as well as

being engaged in socially conscious.

• Applying these principles in the management of

self, while asking teams to do the same thing.

7.2. Macroeconomic Overview

Staff satisfaction in a creative environment to work /

success and reputation TEB JSC the banking sector is


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


47

achieved thanks to the hard work of our employees

and meet dynamic.Banking professionals demanding

environments in which they can apply and expand

their skills to express their values and skills. TEB

JSC offers its employees Such solution environment

and continually invests in the work environment,

where employees can evolve along with creating

profit tej.Rritje / TEB JSC works to increase market

share and improve resources revenues and

profitability. We focus on products and business

segments with higher profits.Comprehensive risk

management and audit / strong focus TEB JSC in risk

management and auditing is a pillar of its strategy.

We continually work to manage and reduce risk, with

particular focus on market risk, including interest rate

risk, liquidity risk and operational risk. Our system is

proactive audit.In 2012, major central banks have

maintained their policy stance accommodative and

have continued to expand their balance sheets

through the purchase of securities. The Fed's decision

to open facilities quantitative ECB's commitment to

providing support for the European market securities

and additional purchases of securities by the BoJ will

continue to support the financial system. Risks

associated financial crisis are greatly reduced due to

mitigation measures. However, global production

remains weak. The fragility of consumer and investor

confidence continues to affect investment spending

and consumption. First of all, global growth is likely

to be slightly better in 2013 than it was in 2012. The

euro area is expected to experience a second

consecutive year of negative growth, although

financial tensions in the region are reduced. The ECB

is ready to pour more money into circulation in case

of adverse developments in the Eurozone. " Fiscal

slide " the U.S. has avoided in recent times, and now

American politicians are arguing for increasing the

debt limit in order to avoid major debt crisis. The

Chinese economy is expected to expand rapidly in

2013. Therefore, global liquidity conditions will

remain loose and emerging markets are likely to

benefit from capital inflows and loose condition of

global liquidity during the global economic recession

2013. Versus,Kosovo has taken important steps to

keep its macroeconomic policies and financial track.

However, the uncertain external environment still

presents challenges. Therefore, the IMF has revised

its real GDP growth of Kosovo from 2.7% to 3.8 %

for 2012, and from 4.1% to 3.2% for 2013. However,

the growth rate of GDP of the country remains one of

the highest in the region. Although inflation rate

increased in the second half of 2012, in parallel with

rising prices of food and energy, headline inflation

ended the year at 3.7 % year on year and inflation.

The average rate fell to 2.5 % in 2012, versus 7.3 %

in 2011. Price inflationconsumption is expected to

fall to around 2 % in 2013 and core inflation is

projected to remain inlow level. The trade deficit is

the cumulative 12 -month extended € 2.3 billion in

November 2012 from € 2.1 billion in November

2011. During this period, exports have shrunk

gradually, reflecting reduced demand in foreign

countries for base metals that make up 57 % of

Kosovo's total exports. The trade deficit is projected

by the IMF to about40 % of GDP for 2012 and 2013.

Revenues from main host countries of diaspora,

namely Germany, Switzerland and Italy, is expected

to continue to finance the trade deficit and support

economic activity.

7.3. Key Financial Indicators

In 2012, TEB managed to generate good financial

results due to the continued growth of loans and

deposits, due to stable asset base, customer service

oriented and constantly prudent policies of credit risk

.At the end of 2012, total bank assets totaled € 300.2

million, an increase of € 87.6 million or 41%

compared to 2011, while the loan portfolio amounted

to € 232 million, an increase of 20% or € 52.2 million

compared last year, a rise in line with the trend of

continuous positive perennial growth. On the use of

assets, loans account for 77.3 % of the bank's balance

sheet. The ratio of non-performing loans (NPL)

(loans over 60 days past due) at the end of 2012

amounted to 5.0% compared with 3.9 % in 2011.

However, we have kept the NPLs ratio of the lowest

in the banking sector. The coverage ratio of NPLs

and provisions amount to cover non-performing loans

increased from 59 % in 2011 to 68 % at the end of

2012. The main item on the liabilities side of the

balance sheet, which has grown significantly, it is

customer deposits, which serves as a solid base for

increased lending. At the end of 2012 were a total of

268 million€ customer deposits, significant increase

of € 85.2 million or 47 % compared with year - end

2011. Subordinated debt from IFC's € 6.5 million,

contracted in 2010 with duration of 10 years, has

remained much the same, while shareholder equity

rose from € 15.8 million in 2011 to € 21.6 million in

2012, due € 4.3 million of retained earnings and € 1.5

million of additional capital paid by the shareholder.

All this represents an increase of 37 % on equity

compared with 2011. Indicators income statement

also show significant increase compared to last year.

Net interest income reached € 15.9 million, an

increase of € 3.5 million or 28 % compared to 2011,

despite the declining trend in the average interest


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


48

rates and financing costs increased during 2012. Net

income, non-interest totaled € 5.9 million, an increase

of € 1.9 million or 50 % compared with 2011. The

ratio between the total expenditure and net income,

which is an indicator of the efficiency of our

operations in 2012 decreased to 59 % from 67 % in

2011, indicating increased efficiency of products and

careful management of expenses operational. Net

banking income at the end of the year were 22.0

million compared with € 16.6 million in 2011. All

this has resulted in € 4.3 million profit after tax,

compared with 2.4 million in 2011 or an increase of

82 %. Regarding profitability indicators, in 2012 the

bank has generated a Return on Equity of 25.6 %

compared with 18.2 % in 2011, while return on assets

increased to 1.4 % compared with 1.1 % in the

previous year. The ratio between net interest income

and profit average assets was 6.7 %, down from 7 %

in 2011, mainly due to the sharp increase in our asset

base and fall in the interest margin on the market.

Capital adequacy ratio (CAR) is an indicatorbank

stability and liquidity management. Central Bank of

Kosovo has set a minimum requirement of 12 %. At

the end of 2012, CAR was 12.99 %, a decrease

ofslightly from 13.1 % in 2011, mainly caused by the

further growth of the loan portfolio during the year.

The ratio of liquid assets to total assets was 24.2 % in

2012, compared with 15.7 % in 2011, and to risk-

weighted assets amounted to € 227.5 million from €

177.9 million in the previous year and in line with

growth kreditor.Në portfolio in 2012 the bank has

opened another branch, increasing the number of

branches to 23, while the number of employees rose

to 436 compared with 379 m as they

7.4. Shareholder Structure

The bank's share capital is € 23,000,000, shares of

which were issued with a nominal value of 10 € per

unit. Number of shares of common stock referred to

without rights, preferences or restrictions associated

with them. Ownership structure as of the date April

17, 2012:

Shareholders of

April 17 2012

Capital paid on

shares owned

Shares

TEB HOLDIND

A.Ş. *

23,000,000 100%

*50%-50% BNP Paribas Fortis Yatırımlar Holding

A.Ş. dhe Çolakoğlu Group Joint Venture

The Board of Directors meets four times a year. The

Audit Committee, Credit Committee, Risk

Management Committee, the Payments Committee

and the Committee of Management of Assets and

Liabilities (MPD) report to the Board of Directors.

7.5. Corporate Profile

TEB bankers aim to create the best results for our

customers, shareholders, employees and society.

Today, we are one of the leading banks in the

country. But our ambition is much greater: we intend

and believe that we are on the way to becoming the

best bank in Kosovo. How do we do this ? 'Banking

services' includes a wide range of servicesdifferent

from the possibility of withdrawing money from your

local ATM, or use Starcard arranging finance your

business or trade, to loans for agriculture. This means

that our bankers should have extensive knowledge

dheekspertizë for banking services. What makes us

different is our passion and commitment when it

comes to offering you financial solutions that are

creative and responsive .

TEB operates according to well-defined principles.

TEB has already established sound reputation for

trust, lidershipdhe innovation - these values are

reflected in all our activities. Shared values derived

from these principles based on responsibility towards

society and the environment as a whole.

We operate in every segment of the banking sector:

corporate, commercial, SME and individual banking

services. By offering innovative products and

services andpractice, we do recognize that our

activities in the market through customer-centered

approach, backed by a dynamic business model and

anything technological advanced infrastructure.

Only after five years working in Kosovo, in 2012, we

have achieved 14 % market share of loans and 12 %

of the deposit market. As a result, we are now among

the main players in the local financial sector. As in

past years, we have maintained our leading position

in credit - card business.

Through Starcard , credit - card first installment in

Kosovo, we have changed the behavior of individual

consumers in the consumer market. Furthermore, we

have launched several highly advanced products and

unique in the market, including e-banking, the most

advanced systems and quick payment ; innovative

loans and deposit products .


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


49

We offer a wide range of financial services in the

Kosovo market through 23 branches and 433

dedicated employees, including staff of the Central

Office in Pristina. Besides traditional branch

network, TEB JSC meets the needs of all customers

through e-banking lines for individuals and

corporations, call center, 46 ATMs and more than

3000 points of sale.

We are committed to protect the environment and

have implemented programs to reduce our

environmental track. TEB JSC aims to attract the best

employees to serve customers and create long-term

value for shareholders.

• TEB Bank should focus on gradually increasing

after a fast increase in the market (number of loans)

also causes an increase in non-performing credit and

decrease your profit which, as is the case with the

bank which relies on the number of loans is money

TEB request but in terms of net profit is related to

that of TEB.

7. REFERENCES

1. (2013). Retrieved 10 21, 2014, from Kosovo

Agency of Statistics: http://ask.rks-

gov.net/ENG/labour-market/tables

2. Banking Sector: Helping or barriers.

3. CBK. (2012). Annual Report. Prishtina:

CKB.

4. Comparative Study on business environment

and the role of the banking sector in Kosovo

.

5. (2012). Kosovo’s Energy Crisis. World

Bank Publications.

6. (2011). Mid-term Expenditure Framework

2012-2014. Prishtina: Ministry of Finance.

7. (2011). Monitoring Analysis of Competition

in the Banking Sector in Kosovo .

8. (2012). Republic of Kosovo: Financial

System Stability Assessment. IMF.


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


50

APPENDIX A: TEB BANK FINANCIAL STATEMENTS (Teb JSC Annual Report, 2012)

Balance Sheet for 2013 (thousand €)


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


51

The Income Statement for 2013 (thousand €)


Oct. 2014. Vol. 4, No.6 ISSN 2307-227X


52

A summarize of some of the indicators:

Years 2013/9 2012/12 2011/12 Increase

Assets 213,356 300,172 212,325 88.75

Credit 257,123 232,352 174,458 52.2

NPL 4,924 4,299 3,305 994

Net Profit 3,201 4,291 2,363 1928

Deposits 342,325 268,333 184,036 85.2

Interest revenues 14,132 15,933 12,426 3.5

• TEB Bank should focus on gradually increasing after a fast increase in the market (number of loans) also causes an

increase in non-performing credit and decrease your profit which, as is the case with the bank which raises on the

number of loans is money TEB request but in terms of net profit is related to that of TEB.

• Exponential increase in long-term periods can be harmful after causing problems in the management of non-

performing loans.

In 2014 we aim to better understand customer requirements in order to continue with the design of appropriate

products for their needs ever change through the establishment of a Management Team Customer Relations. With

our brand, passion and commitment, we will continue to expand our range of products and will also invest more in

the provision of electronic services, so that our customers have access to even more easy and convenient to our

services.

Key areas of focus will be loans, electronic banking services pagëmarrësit and also designing various campaigns

dedicated to education loans, purchase of vehicles, purchase of property ( house or apartment ) and will further

expand our relationships third party.

200 Forbes Global 2011 BNP Paribas has ranked as one of the five strongest banks in the world and the largest bank

in the Eurozone (Teb JSC Annual Report, 2012)

0

100

200

300

400

2013/9 2012/12 2011/12

Val

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in t

ho

usa

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Some financial indicators

Assets

Credit

NPL

NetProfit

Deposits

Interest revenues


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