INVESTIGATING THE RELATIONSHIP BETWEEN THE SINGLE-NAME CONCENTRATION RISK AND CAPITAL SURPLUS: EVIDENCE FROM THE MACEDONIAN BANKING SECTOR

Banks lend large funds to big clients and are exposed to concentration risk. The concentration risk is indirect credit risk exposure for the banks and it might cause large losses in case of default of the big clients. Therefore, prudent banks would increase their capital surplus as the concentration exposure rises in order to preserve their stability against deteriorating performances of the big clients. Thus, this paper investigates the effect of the single-name concentration risk on the capital surplus in the Macedonian banking sector. The analysis was done by employing Vector Error Correction Model on quarterly data 2006q1 to 2018q4. The results suggest that Macedonian banking sector is prudent and increases the capital surplus from 0.65 percentage points (p.p.) to 2.20 p.p., as the single-name concentration risk rises by 1 p.p.. More concretely, a future increase of the banking sectors’ large exposures by 53.7 millions of euros (1 p.p. of the total gross loans as of 2018q4), would require an increase of the capital surplus by minimum amount of 3.1 millions of euros (0.65 p.p. of the minimum capital requirment as of 2018q4), under assumption of not changing both the total gross loans and the minimum capital requirment, compared to 2018q4

The impact on the banking system from the accession of Macedonia in the EU

The aim of this paper is to examine the impact on the banking system from the accession of Macedonia in the EU. EU enlargement is a complex process with enormous impact on the economy of the new member countries. The financial system of the new member country, and the banking system as a part of it, faces with the challenge of integration in the EU financial system. The best evidence of the EU accession impact on the banking system is the analysis of the basic characteristics of banking systems on the countries that became members in the last 20 years. The future banking development in new EU member countries will very likely follow some main patterns known from the old EU members. In a way banks from candidate countries can see their own future by observing the current developments in Western European banking. The process of restructuring in the banking system through consolidation which lead to increased concentration was one of the main drivers of changes. The existence of this process in new EU countries will be examined together with the structure of Macedonian banking system. It is important to examine whether significant efficiency improvements were achieved in the banking systems of the new EU countries and are they result from the bigger market power or some other factor. Also, there were changes in the funding sources of the banks from the new EU countries with a lot of potentials for alternative funding possibilities. The financial crises made these potentials to evaporate, but on long term horizon, those opportunities will appear again. The low level of financial intermediation in new EU countries leaves space for increasing the range of financial services and their scope. Associated with the previous, a further enlarge of the market share on non-bank financial intermediaries in new EU members can be expected

The impact on the banking system from the accession of Macedonia in the EU

The aim of this paper is to examine the impact on the banking system from the accession of Macedonia in the EU. EU enlargement is a complex process with enormous impact on the economy of the new member countries. The financial system of the new member country, and the banking system as a part of it, faces with the challenge of integration in the EU financial system. The best evidence of the EU accession impact on the banking system is the analysis of the basic characteristics of banking systems on the countries that became members in the last 20 years. The future banking development in new EU member countries will very likely follow some main patterns known from the old EU members. In a way banks from candidate countries can see their own future by observing the current developments in Western European banking. The process of restructuring in the banking system through consolidation which lead to increased concentration was one of the main drivers of changes. The existence of this process in new EU countries will be examined together with the structure of Macedonian banking system. It is important to examine whether significant efficiency improvements were achieved in the banking systems of the new EU countries and are they result from the bigger market power or some other factor. Also, there were changes in the funding sources of the banks from the new EU countries with a lot of potentials for alternative funding possibilities. The financial crises made these potentials to evaporate, but on long term horizon, those opportunities will appear again. The low level of financial intermediation in new EU countries leaves space for increasing the range of financial services and their scope. Associated with the previous, a further enlarge of the market share on non-bank financial intermediaries in new EU members can be expected

Banking services in terms of changing environment: the case of Macedonia

The aim of this paper is to elaborate the impact of the changing environment on the services that the banking sector is providing. The trends in the international banking will be analyzed also from the perspective of the banking activities on Macedonian banks. Speaking of changes, there are two tendencies that can be determined in the international banking: 1) increased competition that influence on the banking products and pricing, 2) technology improvements that affects the distribution channels of selling and the operating cost on the banking activities. Increased competition and sharing the same target market along with other financial institutions affects the banks' market share and prices of their products. In developed economies there is a trend of suppression of banks from certain market segments and reducing their market share. This trend is mostly expressed in USA and is less pronounced in EU. Also rapid technology development and penetration of Internet in everyday life doesn’t leave immune nor the banking sector. The technological improvements affect the banking industry through introduction of new products, increasing efficiency in terms of operating costs and developing new distribution channels. Banks are forced to adapt their products to a new generation that is coming and who grew up in the Internet Age. The biggest changes have been made in terms of payment methods by allowing transactions to be made 24 hours a day from anywhere. The development of technology also affects on the improvement of data bases which enable better assessment of credit risk to individual products and customers. Banks along with other financial institutions are joining in collecting and sharing of customer data that enables better assessment of the credit risk

THE FUTURE DEVELOPMENT OF THE SERVICE SECTOR AND IT’S IMPACT ON THE BANKING INDUSTRY. THE CASE OF MACEDONIA

Abstract: The aim of this paper is to elaborate the importance of service sector and how its  future development  will affect the banking industry in the Republic of Macedonia. We live in a service society, where services sector represents more than two-thirds of economic activity and four-fifths of growth in recent years in OECD countries. This trend is evident in Macedonia also, where the service sector represents around 60% from the economic activity. Stil, because of the positive correlation with the economic development, further development will result with growth of the service sector. Further liberalization, removing product market barriers still limiting competition in various sub-sectors, allowing more FDI are factors that are indicated by experts that can contribute for further development of the service sector.Regarding banking industry in  Macedonia, service sector has the biggest share in the credit portfolio. Especialy this is due of the high exposure towards trade.Comparative analysis with developed countries shows that the share of exposure towards service sector is greather in Macedonia. This is mainly due of the lower risk of this credit portfolio, whose average riskiness is below the industry sector and agriculture.Also, in deficiency of strong industrial sector who can export its goods, Macedonian banks are turned towards wholesale and retail trade sectors. So it is expected with growth of GDP per capita in future banks to increase the loan portfolio of industry and in the same time to decrease the share of trade sector portfolio in total service portfolio

The Role of Economics Trade in International Economics

The modern world is painted with constant changes, in which the key to economic success lies in the ability of their understanding and optimally adapt to new business environments. The company is now fragmented by numerous lines - horizontal, vertical, and oblique and - the same number and interest of the opposing groups. These interests are opposed to a force that cannot be ignored. The force field imposed on certain moves and actions, even if the stakeholders have very different orientations. The forces produced by interweaving dynamic tendencies that generate the appropriate effects, and that the actors are not able, or to modify or to eliminate them. This complex constraint imposed by the act, and that same force and relentless, like the standard static constraints that economists are so close and are part of their usual analytical instruments. The disintegration of the bipolar system of international relations and a number of major political and economic consequences that are derived from it, have caused certain divert foreign policy and economic priorities. In today’s world, international and economic relations are a system of power relations, both political and economic. Economies are becoming less and less national, and increasingly global. However, regardless of the apparent trend in the international political and economic relations, the role of the state remains very significant, especially in the areas of economic relations. Most developed countries that their power based on economic superiority and supremacy in the field of manufacturing, its foreign policy priorities more shifting and linked to the economic sphere, trying to realize their interests, among other things, strong economic engagement

NON- PERFORMING LOANS IN THE BANKING SYSTEMS OF SERBIA, CROATIA AND MACEDONIA: COMPARATIVE ANALYSIS

The aim of this paper is to evaluate the level of NPL loans in banking systems of the three sample Balkan countries. The special attention is dedicated to the level of NPL loans and their ratio compare to total loans. The quality of credit portfolio is important determinant in future bank strategies, thereby it’s important for the economic development of the whole country. The NPL loans affect the economic development through the credit activity which influence on the consumption and the capital adequacy ratio which constrain the possibility of growth. Thus creating a spiral and higher NPL ratio create low economic growth and low growth creates further NPL portfolio. In this paper analysis will be focused to compare the data of quality of credit portfolio in Macedonia, Serbia and Croatia. The comparative analysis will outline the differences in the quality of the portfolios in sample countries as well as the reasons for the differences. The reasons for higher resilience of some banking systems portfolios compared to others can be used as a valuable tool for enhancing the stability of the banking systems. These three countries are chosen because they had high credit growth in the past until the financial crises, they were affected by the crisis in the same time and their banking systems are dominantly owned by foreign banks

Financial Inclusion: The Case of Republic of Macedonia

The core goal of this paper is to assess the level of finacial inclusion in Republic of Macedonia. The level of financial incluison in a country is important because it can facilitate the reduction of poverty in a country. Aslo the higher level of financial inclusion can have positive impact on macroeconomic development by facilitating the economic growth. The main mechanisams are lower transactional costs and better distribution of capital. Also the level of financial inclusion is important for effective execution of other social policies. The level of financial inclusion in Macedonia is on satisfactory level which was driven by the legislation also. Almoust all the population have access to bank account which is good base for further measures. Still, the use of the account only to receive wage and withdraw from ATM indicates for higher need for financial education. Also, the new payment methods like credit cards or electronic payments are on very low level which further emphasizes the need for education in which the banks must have more active role. The borrowings in major part are from relative and friends and from retail stores. In all categories as less financially included are older people, people with smaller income and people how are less educated. This gives clear path for the policy makers where to focus its activities of enhancement of the level of financial education

THE IMPORTANCE OF THE RETAIL CREDIT PORTFOLIO FOR ECONOMIC GROWTH OF MACEDONIA

The aim of this paper is to evaluate the influence of trends in retail loan portfolio on the consumption and economic growth of Macedonia. The consumption of population is one of the components of GDP, and one of its drivers is the retail credit activity. On macroeconomic level, there is wide consensus among researchers that credit activity and quality of portfolio is driven by GDP movements, unemployment ratio and indebtedness of population. Also, vice verse the activities in retail segment influence on consumption and indirectly on GDP. So these two linkages enhance between and can result in negative spiral. Negative movements in GDP influence on the quality of portfolio and higher NPL ratio. And higher NPL ratio results in further decrease in credit activity and has additional negative impact on GDP. Because of that is important to determine the causes of credit activity in this segment. The retail portfolio in the last 4 years in Macedonian banking sector is growing continuously, opposite of other Balkan countries. That is why is important to analyze the past growth of retail portfolio and to determine possible weaknesses because of its future impact on GDP. One of the most important drivers that determine the future credit growth is the quality of retail credit portfolio in the moment. Another important aspect for the portfolio trend will be the interest rate environment. There is clear empirical evidence that low interest environment triggers greater credit activity and vice versa. Another important aspect of the credit qrowth, is the maturity of the retail credit portfolio as a way to decrease the monthly installments and to accumulate greater risk on longer term. Special focus of this paper will be the trend in retail loan portfolio after 2008, when the banking system of Macedonia felt the impact from financial crisis. The activities that were taken by the banking sector then can be some guidelines for future crisis. The retail credit growth will be analyzed by products in order better to understand bank strategies and reasons that contributed for such a growth. Also, the analyze of NPL ratio by product will give answer whether the quality of portfolio by products was one of the key drivers for credit activity

The Capital Adequacy Ratio on the Macedonian Banking System After Basel III Implementation

The aim of this paper is to elaborate the impact of the new Basel III rules of the capital position on Macedonian banks and their activities. Having in mind the characteristics of the banking system, although Basel III still isn’t at force in Macedonia, this paper will analyze its impact on the CAR on banks. The financial crises showed that the bank’s resistance to crises is very fragile and two main issues were recovered that should be enhanced: the capital strength of the banking system and the liquidity position. As a result of the identified weaknesses of the regulatory framework the Basel Committee acceded to revision of the Basle II principles. The main question is will the new regulatory framework enhance the resilience of the banking system and how these changes will affect the business model of banks. Off course the effectiveness of the new framework depends on the decision of national regulators and legislation in different countries and regions. Having in mind the aim of this paper, the implications from Basel III regarding quality and quantity of the capital that is required will be analyzed on Macedonian banks on individual level