Honoured media representatives,
First of all, allow me to thank you for your participation and express my highest
appreciation for the work you are doing in this difficult time to exercise your
activity.
In recent weeks, we have made maximal efforts to be close to you responding
to your requests for information within the shortest time possible; thus, we
considered necessary to hold this conference with you in order to respond to
all questions in your interest and of the general public.
While all efforts and attention of the whole government is rightly oriented in
protecting the health and saving lives of our citizens, the discussion about the
economy is being considered as necessary because, as it can be seen, it will
suffer due to the health crisis that has gripped the world.
Protection of health and economy or rescue of the economy with the least
consequences possible is necessary to protect the welfare of our citizens
during and after the crisis; therefore, it is a very important duty and
responsibility on all of us, in particular us as leaders of institutions with direct
impact on the economy of the country. Therefore, we invited you today to
discuss about the economy and in particular the measures the CBK is
undertaking within its scope to ensure the best management of effects of this
crisis on the economy of the country.
***
In the framework of measures to prevent or slow the spread of the virus, as in
other countries, Kosovo is applying a large-scale closure, allowing the
operation of solely economic sectors providing goods and services necessary
for citizens.
This has resulted in the interruption of numerous sectors of the economy, with
businesses with no revenues, while the liabilities of these businesses remain
active, thus risking their solvency and may lead them to the failure. At the
same time, employees of these businesses risk to be left partially or fully
without incomes, thus adversely impacting the purchasing power of
consumers.
Under these circumstances, when the credit demand decreases and future
insecurity increases, the decrease in lending from financial institutions is
expected as well, thus impacting the reduction of a very important source of
funding for consumption and investment.
Another important channel of the Kosovo economy shocked by the pandemic
crisis may be the foreign sector. Kosovo is highly depended on remittances,
receiving an amount of more than 10% of GDP on annual basis. The decrease
of economic activity in developed countries is surely expected to have an
impact on the decrease of this very important source of funding for
consumption in our country. Despite the stable flow of remittances to Kosovo,
they marked a decrease in the last global economic crisis, namely in 2009,
2010, 2011; therefore, it remains to be seen how the effects of pandemic crisis
are to be manifested in economies where our Diaspora is concentrated in
order to have a more specific assessment for the remittances this year. The
decrease of remittances in 2009 as a consequence of global financial crisis was
3.8%. At the same period, the Kosovo economy marked a decrease in
economic growth from 4.5% to 3.6%.
As a result of the overall decrease of demand in all countries, our exports are
expected to decrease, thus further increasing the effects of crisis on the
economy of Kosovo. Moreover, the inability to perform the economic activity
under normal conditions and insecurity for developments in the future are
expected to directly impact the decrease of foreign direct investments.
Public expenses constitute the category which is expected to sustain
sustainability during this period, as their flow in the economy is expected to
mitigate to an extent the adverse effects from the abovementioned channels.
The package approved by the government of Kosovo few days ago is expected
to provide a necessary injection of funds into the economy. However, the
circumstances that the economy is experiencing will challenge the public
finances as well. The decrease of the general economic activity is expected to
have an adverse impact on the total budget revenues, while the increasing
need for increased expenses in the form of various transfers may have an
adverse impact on capital public investments that are very necessary for
creating the conditions for greater economic development in Kosovo.
In order to mitigate the consequences of this crisis on our economy, the
Central Bank of Kosovo has been proactive by undertaking a range of measures
aimed at ensuring the normal functioning of financial system and mitigating
the impact of the crisis on our economy. Also, we have continuously followed
the developments at the region, EU and international level, and regularly
communicated with our international collaborators, such as IMF, World Bank,
EBRD and chambers of commerce in Kosovo and we all share the same
concerns for this situation and in particular for the consequences that may
occur in case this situation is prolonged. Also, in the framework of the CBK
constitutional mandate, we have coordinated actions with all institutions of
Kosovo in order to effectively manage the situation occurred.
Today, although you are informed, allow me to briefly reiterate the measures
we have undertaken and their purpose.
1. Initially, we have undertaken all necessary measures to ensure the regular
functioning of the payment system throughout Kosovo, including the
affected areas that have been isolated for a certain time period.
2. The economy of the country has been constantly and sufficiently supplied
with cash and I want to reassure citizens that all banks have sufficient
liquidity and there will be no problems in relation to the supply of cash. On
this occasion, allow me to inform you that the CBK commenced the regular
disinfection of all cash supplied in the market, as a protective measure for
users of cash. However, given that cash have a multiple circulation from the
moment they leave the bank, we urge citizens to strictly adhere to the
hygiene instructions issued by healthcare institutions after each cash or
card transactions. We urge our citizens to avoid cash as much as possible
and to use bank cards and other electronic payment methods as much as
possible.
3. Liquidity levels in the banking sector as of 31 March 2020 remain at a
satisfactory level of 35.3%, marking a slight increase of 0.3% compared to
16 March 2020. Deposits are also very stable, reaching EUR 3.88 billion as of
31 March 2020, marking an increase of EUR 9.3 million compared to 16
March 2020.
4. Recognizing the difficulties that some businesses and employees are facing,
CBK, together with the lending institutions, has decided to allow a grace
period for loan instalment payments starting from 16 March 2020 until 30
April 2020, and depending on the developments of the situation this period
may be extended. This is aimed at alleviating the financial burden on all
borrowers who are facing difficulties in generating income as a result of the
pandemic crisis.
5. The temporary suspension of loan instalment payments will be reviewed on
a case-by-case basis by the banks so that these benefits only go to those
affected by the current crisis.
6. In the event of such a request being approved by the bank, the penalty
interest related to the loans shall not apply during this period. During this
period, no deterioration measure of the credit rating will be applied to the
borrower.
7. CBK, through its Credit Registry measures, has undertaken all appropriate
legal measures to prevent credit ratings, to not require additional
provisions and to not classify them as non-performing loans in the Credit
Registry.
8. Banks should, in no case, raise fees for the delivery of services.
***
We believe that measures taken by domestic institutions will be able to
mitigate the effects of the pandemic crisis on the economy, but they may not
be sufficient to completely eliminate them. Although the effects of the crisis
nowadays are difficult to predict because there is still uncertainty about many
aspects of the pandemic, including its duration and its spread, where
macroeconomic forecasts are currently being adapted in all countries, with
new results suggesting in most cases that the economy will decline.
We share a similar view as well, expecting that in 2020 Kosovo's economy will
not continue with its economic expansion that was characterized by an
average annual growth of 3.6 percent in the last ten years. Assuming that the
economic shocks in the economy of Kosovo will be felt more in the first and
second quarter and partly in the third quarter of the year, our preliminary
forecasts suggest a real economic decline in the range of -2% to -4% during
2020. However, it's too early for these forecasts so they should be taken with
great caution. We will be very attentive to the developments in our and the
global economy and will also revise our macroeconomic forecasts on these
developments.
***
CBK has carefully considered the opportunities that they and the Kosovo
Government have in order to help the Kosovo economy recover after the
pandemic. The following are some of these opportunities aimed at facilitating
lending to Kosovo's economy and that will be applied as needed:
• Reduction of Minimum Reserve - may impact the increase of the credit
supply. Reduction of Minimum Reserve will enable the application of negative
rates to the amount above this surplus, encouraging banks to invest surplus
funds in other options, one of which will be lending to the economy.
• Kosovo Credit Guarantee Fund - Increasing this Fund would facilitate
access to finance and reduce the interest rate. However, the target of this fund
in this situation should be businesses that have been financially damaged by
the situation. So in this situation, priority should be given to businesses that
have been economically disadvantaged by the COVID 19 pandemic.
• Reduction of liquidity requirements of banks - This measure will also
impact the increase of the supply by banks. Liquidity requirements may be
temporarily reduced to stimulate credit growth of the economy.
• Provisional reduction of capital adequacy requirements - Given that
banks may have expected credit losses, which may adversely affect their
capital levels, CBK may consider a temporary reduction in capital adequacy
requirements from 12% to e.g. 10% or 9% . This measure would also enable
banks to increase lending but also reduce its cost.
• Suspension of dividend payments of financial institutions - In order to
maintain capital levels by banks as regards the enabling of lending, CBK may
suspend all dividend payments of financial institutions.
***
Finally, allow me to conclude my discussion by emphasizing that the Central
Bank of the Republic of Kosovo, fully implementing the recommendations of
the health institutions, has immediately succeeded in restoring its function to
full normality and 100% functionality. CBK has established a Work Continuity
Team and an Inter-Institutional Committee has been established between the
CBK, the Treasury and the Banking Association to ensure the smooth
functioning of the financial system in the country. Therefore, we will continue
to provide all services to the economy of the country, providing readiness to
undertake all necessary measures in order to maintain financial stability and
support the economy of the country.