Skopje, 12 September 2024 (MIA) - The National Bank Council at its session on Wednesday adopted the 2023 Financial Stability Report. According to the report, the domestic financial system is stable, copes well with challenges and is resilient to shocks. The environment in 2023 was more favourable, with a gradual slowdown in inflation, as well as slower economic growth, and uncertainties and risks from the environment. All institutional segments of the domestic financial system continue to operate smoothly. Risks to financial stability arising from each of these segments are moderate, and so is the threat of spillover of risks from one segment of the financial system to another. The banking sector is the largest, as well as the main segment of the financial system, where the savings of the non-financial sector and the liquidity of other financial institutions are concentrated, which is why it is crucial for the country's financial stability.

According to the central bank, the banking sector has maintained stability and security in operations, with improved solvency, which is at the highest level in the past 17 years, solid liquidity and good credit portfolio quality. The latest report applies a new, advanced methodological framework for conducting macro stress testing, which is an upgrade of the existing methodology and reflects the IMF's recommendations in improving the stress testing of the Macedonian banking system. This year's macro stress test showed a high degree of resilience of the domestic banking system to the assumed shocks from the macroeconomic and macro-financial environment. The macroprudential measures adopted by the National Bank in the domain of the anti-cyclical protective layer of capital had a significant contribution to further strengthening the resilience of the banking sector.

Due to the more favourable movements of the capital markets in 2023, compared to the previous year, private pension funds and investment funds managed to achieve solid annual rates of return, and also the insurance sector achieved a better financial result and maintained a high solvency which is several times higher than the minimum prescribed by the regulations in this area. The other segments of the financial system (savings banks, leasing companies, financial companies) have little significance within the overall financial system.

The report notes that risks from the non-financial sector are moderate, given the good financial position of households and the corporate sector and, consequently, the low rate of non-performing loans in the banking loan portfolio, but vigilance and prudent debt management are needed to ensure its sustainability and in the coming period. The report concludes that households continue to have a moderate and stable level of indebtedness, while the debt of the corporate sector (measured through its participation in GDP) is slightly higher, compared to the previous year, but for the time being it does not point to greater risks for its sustainability, however careful risk management is required.

During 2023, the National Bank strengthened activities in the domain of climate risks, as one of the most important structural vulnerabilities to which the global and domestic financial system is exposed in the long-term.

The domestic banking sector is exposed to physical and transition risks related to climate change, due to banks' credit exposure to areas with a high degree of risk in relation to natural disasters and clients in activities with high emissions of greenhouse gases, such as energy-intensive activities and activities which depend on fossil fuels.

In addition, the report notes that the environment is still uncertain and points to risks for the coming period, which are mainly related to possible escalation of geopolitical tensions and their spillover into the global, and indirectly into the domestic economy, which, being small and open, is strongly exposed to external shocks. Also, the possible longer retention of the tightened financial conditions could adversely affect the sustainability of the debt, with transferable effects on the balance sheets of financial institutions. Such situations point to the need for further vigilance on the part of financial institutions and in the management of macroprudential policies, in support of maintaining financial stability in the coming period as well. Maintaining a strong and resilient banking sector will remain a priority of the National Bank in the coming period, which is a key prerequisite for maintaining financial stability. Hence, in conditions of an uncertain macroeconomic environment, the macroprudential policy of the National Bank will continue to be aimed at maintaining adequate capital and liquidity strength of domestic banks and thus, at strengthening the resilience to potential risks.

Photo: MIA archive