monetary tightening can have significant implications on financial stability, in particular if it is unexpected, rapid, follows a long period of accommodative monetary policy, and if combined with weaker risk management, prudential regulation and supervisory oversight. this certainly raises the issue of possible tradeoff between price and financial stability, or so - called " financial dominance " phenomenon where financial stability concerns limit the monetary policy headroom. avoiding financial dominance requires two important prerequisites. the first one is having a strong banking system balance sheet, well prepared to manage the rise of interest rates. the second prerequisite relates to the availability of effective financial stability instruments, both macroprudential instruments aimed at preventing excessive risk taking, and resolution instruments designed to resolve banks in trouble without undermining financial stability. on the capacity of the banking system in the cesee, to absorb possible losses, it seems that so far risks are well contained. banks have faced the recent multiple crisis context with strong capital and liquidity buffers that were broadly maintained and in some cases even increased. the latest data reveal a capital adequacy ratio of 20 % on average across the region, while the liquidity ratio stands at nearly 27 %. despite the weaker economic activity, the quality of the credit portfolios remains strong, with npl 2 / 4 bis - central bankers'speeches ratios remaining below 4 %, better off compared to the pre - pandemic levels. still, there is no room for complacency as transition to higher - for - longer interest rate environment could certainly expose some vulnerabilities of the financial systems, and test their resilience again down the road. rising interest rates is a two - edged sword for the banks. on the one hand, it may help improve their earnings ( as usually interest rate pass - through on deposits is weaker than on loans ) and thus strengthen capital positions. on the other hand, it increases the banks'exposure to so - called " hidden losses " stemming from long - term debt securities held to maturity - as was the case with the silicon valley bank ( where half of its assets were placed in such securities ). in addition, interest rate risk may translate into credit risk leading to accumulation of npls and lowering of earnings. whether the banks will be net beneficiaries in short and, even more importantly, in a medium term will depend on the overall macro - financial context. and the current macro context is complex, as interest rate

euros on the foreign exchange market in the amount of euro 4. 5 million, and has purchased euros, approximately twenty times, on the foreign exchange market in the amount of euro 170 million. even countries that apply floating exchange rate much frequently intervene by selling foreign currency on the foreign exchange market, in order to defend their currency. bis central bankers ’ speeches distinguished ladies and gentlemen, euro area debt crisis is our greatest challenge in the period ahead. due to the large scale trade, the recession in the euro area which is very likely, has adverse effects on the real sector of our economy. in such circumstances, other than the maintenance of inflation rate at the level of the euro area, we will use the monetary policy together with the macro - prudential policies to preserve the balances in the external and the banking sector. in a medium run, the challenges of the banking sector again arise from the euro area, related to the implementation of basel 3 standards. it is very likely that it will cause “ deleveraging ” in the european banks, hitting seriously the lending activity of banks in the south east europe. we closely monitor this process and get ready to respond adequately in order to protect the macedonian economy against severe impacts. therefore, the cooperation between the national bank and the commercial banks will be even more important. thank you for your attention. bis central bankers ’ speeches