By Gunter Deuber, RBI |
Kosovo and its banking sector are often overlooked by international observers and investors. This is all the more astonishing given that the performance of the real economy and the banking sector in recent years has been remarkable. And both have to do with each other. In contrast to many other Southeastern European (SEE) countries, in the run-up to the global economic and financial crisis (2008/2009) Kosovo was not characterized by an exuberant credit expansion. In this respect, in recent years – in contrast to some neighbouring countries – no massive adjustments (e.g. with regard to the ratio of loans to deposits) and restructuring (e.g. with regard to non-performing loans) have been necessary. In this respect, the degree of financial intermediation has not fallen in recent years, i.e. no deleveraging has been necessary. The ratio of credit to GDP has even risen in recent years from 34% to almost 40%. The relative stability in the banking sector also manifests itself in a low ratio of non-performing loans (around 3%). As a result, the banking sector in Kosovo has been one of the most profitable destinations in Southeastern Europe in recent years and has recorded a Return of Equity reading of around 20% or even slightly above that in recent years.
Kosovo’s banking sector – one of the country’s success stories
And in view of the stability in the banking sector, Kosovo was not marked by an adjustment recession in the wake of the global financial crisis. All in all, the banking sector in Kosovo is one of the country’s success stories. Given its good starting position, the banking sector should be well positioned in the coming years to support a positive real economic development. In the banking sector, there is also a high affinity for digitization issues. This is all the more important if we are to record future expansion in the private customer business. With regard to some indicators, the degree of digitization in the banking sector in Kosovo is even higher than in Albania, for example. The high degree of international integration in the banking sector should continue to contribute to a positive development. Foreign banks account for almost 90% of the total market. The market share of foreign banks is thus almost at the level of EU members (e.g. Croatia, Slovakia), which are characterized by a particularly high degree of international banking sector integration. Despite some remaining challenges, we believe that the banking sector is certainly much further advanced than many other economic sectors in terms of EU readiness (albeit EU accession talks are a very distant scenario). Despite the positive aspects outlined above, it should of course also be noted that the banking sector in Kosovo also faces some challenges. For the banking sector and its further expansion – also via digital channels – further institutional improvements are certainly crucial (e.g. in the area of insolvency legislation or the judiciary in general). In addition, current regulatory and supervisory innovations at the EU and international level need to be transposed into national law and practices.
Given its relative attractiveness and the tendency to overlook Kosovo we restarted our coverage of Kosovo in the 2018 CEE Banking Sector Report. Find the whole report here.
Gunter Deuber is Head of Economics, Fixed Income and FX Research at Raiffeisen Bank International in Vienna.