Republic of North Macedonia Macroeconomics and Banking System Developments May, 2019 1
Macroeconomic Overv rview The table below presents an overview of the country’s main macroeconomic indicators Macro indicators 2013 2014 2015 2016 2017 2018 GDP (real growth rate) 2,9 3,6 3,9 2,8 0,2 2,7 Inflation (annual average) 2,8 -0,3 -0,3 -0,2 1,4 1,5 Industrial production (cum. growth) 3,2 4,8 4,9 3,4 0,2 5,4 Current account balance (% of GDP) -1,6 -0,5 -2,0 -2,9 -1,0 -0,3 Export (annual growth) 4,6 15,8 8,2 11,2 12,1 16,9 Import (annual growth) -1,1 10,8 6,1 8,4 8,3 13,0 FDI (% of GDP) 3,1 2,4 2,4 3,5 1,8 5,8 Private transfers (% of GDP) 18,1 17,3 16,8 15,4 15,9 15,8 Public debt (% of GDP) 40,3 45,8 46,6 48,8 47,8 48,5 Fiscal balance (% of GDP) -3,8 -4,2 -3,5 -2,7 -2,7 -1,8 Unemployment rate (annual average) 29,0 28,0 26,1 23,7 22,4 20,7 2
Macroeconomic Overv rview Real GDP growth Industrial Production • Macedonian economy recorded 2013 -2018 3.9% 5.4% 2013 -2018 average was 3.6% robust growth between 2013- 4.9% 4.8% average was 2.7% 3.6% 2016. 2.9% 2.8% 2.7% 3.4% • Real GDP growth along with 3.2% industrial production experienced a stagnation in 2017 as a result of prolonged 0.2% 0.2% political crisis. 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 • However, upon political normalization, the economy Unemployment rate Consumer Price Index (average) started to improve with 2.8% (y-o-y) 29.0% 28.0% expectations to continue so in 26.1% 23.7% the upcoming years. 22.4% 20.7% 1.5% 1.4% • Labor market has been improving, and unemployment is expected to decline further. -0.2% -0.3% -0.3% 3 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
Macroeconomic Overv rview Budget Deficit & Public Debt as % of GDP • During the past decade, the 60.0% 0.0% Macedonian public debt followed -0.5% 48.5% 48.5% 47.8% 46.6% 50.0% 45.8% a dynamic increasing trend. -1.0% 40.3% -1.8% 40.0% -1.5% • The dynamic of country’s -2.0% 30.0% -2.7% borrowing has been put under -2.7% -2.5% 20.0% -3.0% stabilization since 2017. Yet, the -3.5% -3.8% -3.5% public debt level calls for caution 10.0% -4.2% -4.0% in debt management. 0.0% -4.5% 2013 2014 2015 2016 2017 2018 • Along with the progressive increase Public debt as % of GDP Deficit as % of GDP of public debt in the recent years, Gross external debt to GDP (private and public) gross external debt has been increasing as well. 74.2% 73.6% 73.66% 70.0% 69.3% 64.1% • The share od public external debt 35.4% 34.4% 34.99% in total external debt of the 33.3% 32.3% 26.7% country has increased from 2013 on. Still, more than half of country’s gross external debt 39.2% 38.8% 38.67% 37.4% 37.0% 36.7% belongs to the private external debt. 2013 2014 2015 2016 2017 2018 Gross private external debt to GDP Gross public external debt to GDP 4 Gross external debt to GDP (private and public)
Macroeconomic Overv rview External Sector 2013 2014 2015 2016 2017 2018 • Increase of exports from the free economic zones, has contributed to favorable movements of the trade Trade Deficit to GDP -22.9% -21.7% -20.1% -18.8% -17.9% -16.2% deficit, expected to improve in Current account balance -1.6% -0.5% -2.0% -2.9% -1.0% -0.3% future as well. • Stable export growth has been also result from strong trade integration with the EU, which is expected to Foreign Direct Investments drive economic activity in the future. 5.8% - EU is the largest trade partner of Republic of N. Macedonia. 3.5% 3.1% • Current account deficit has been 2.4% 2.4% improved in 2017. Robust export 1.8% growth is expected to keep the current account check despite rising imports. 2013 2014 2015 2016 2017 2018 5
Banking Sector Overv rview Banking soundness indicators 2013 2014 2015 2016 2017 2018 (in EUR mill. unless otherwise stated) Total Assets 6,007 6,511 6,878 7,233 7,513 8,187 Total Deposits 4,215 4,668 4,971 5,250 5,518 6,038 - Retail Deposits 3,082 3,359 3,498 3,596 3,818 4,180 - Corporate Deposits 988 1,150 1,301 1,469 1,504 1,642 Total Loans (gross) 3,741 4,115 4,506 4,570 4,839 5,205 - Retail Loans 1,495 1,676 1,897 2,059 2,258 2,492 - Corporate Loans 2,198 2,389 2,553 2,459 2,529 2,647 NPL Ratio * 11,5% 11,3% 10,8% 6,6% 6,3% 5,2% Capital Adequacy Ratio (CAR) 16,8% 15,7% 15,5% 15,2% 15,7% 16,5% Return on Equity (ROE) 5,7% 7,4% 10,4% 13,6% 13,5% 16,0% Return on Assets (ROA) 0,6% 0,8% 1,1% 1,5% 1,4% 1,7% Loans to Deposits Ratio 89,7% 89,4% 91,9% 87,8% 88,0% 85,9% Cost to Income Ratio 60,6% 55,5% 51,6% 49,8% 48,7% 46,2% Net Interest Margin 3,4% 3,4% 3,5% 3,5% 3,4% 3,2% * * The he de declin line of f the he NP NPL in n 20 2016 16 is s a result lt of f wr writ ite-offs stemmin ing from the he de decis ision on of the he Central l Ban ank 6
Banking Sector Overv rview • Macedonian banking system Top 5 Banks comprises od 15 banks, 14 of Name Total Assets (EURm) Ownership them are privately owned while MBDP is the only state owned Stopanska Banka 1,493 NBG (95%) bank. Komercijalna Banka 1,861 Diversified shareholder structure • 11 of the Banks have foreign NLB Banka 1,334 Nova Ljubljanska Banka (87%) ownership capital, while 4 of them are domestically owned Halk Bank 767 Halk Bank (99%) (including MBDP as state owned Ohridska Banka 644 Societe Generale (70%) bank). Ownership Structure by Ownership Strucutre by • One of the main features of the Total Loans Total Deposits Macedonian banking sector is self funded and stable, which makes it quite resilient to Foreign Foreign 20.0% external shocks. 28.2% ownership ownership Domestic Domestic 80.0% 71.8% • The total share of foreign capital ownership ownership equates to 71.4% of the total Ownership Structure by equity in the sector. Total Revenues • Number of pan-regional and pan-European banks are present The dominance of foreign Foreign in the country (NBG, NLB, 25.1% ownership capital is most evident In Erste/Sparkasse etc.) Domestic 74.9% terms of credit activity ownership 7
Banking Sector Overv rview Market Share of Top 3 Banks by Market Share of Top 5 Banks by Total Assets Total Assets • Macedonian banking sector is relatively concentrated, with top 3 25.5% 42.7% banks holding 57.3% of Top 3 Banks Top 5 Banks Other Other 57.3% total assets. 74.5% • The penetration rate in the sector is moderate, with loans-to-GDP ratio Loans & Deposits to GDP at 48.8% in 2018, which implies further growth 91.9% 89.7% 89.3% 87.8% 88.0% 85.9% potential. • Loans/ Deposits ratio on 53.1% 51.6% 51.7% 51.0% 51.6% 50.1% 48.5% 48.8% 49.1% 48.2% 47.3% 46.4% the other hand in 2018 was 85.9% which provides room for further lending activities of the banks. 2013 2014 2015 2016 2017 2018 Loans/GDP Deposits/GDP Loan/Deposit ratio 8
Banking Sector Overv rview • Loans and deposits Loans & Deposits (annual growth) Capital Adequacy Ratio growth rates, have 16.8% 10.5% 10.4% experienced a slow 10.0% 16.5% 9.5% down in 2016 as a result 7.3% of the political crisis and 15.7% 6.5% 6.4% 15.7% 6.1% 5.7% 5.7% 15.5% 5.4% uncertainty, but have 15.2% been recovering since 2017. 1.0% • The capital base of the 2013 2014 2015 2016 2017 2018 banking sector, with 2013 2014 2015 2016 2017 2018 capital adequacy ratio at Private sector loans Private sector deposits 16.5% in 2018, NPL Ratio underlines its capacity to undertake adverse NPL coverage ratio for the period 2013-18 was developments. on average 110.2% • NPL ratio has been 11.5% 11.3% 10.8% decreasing at 5.2% in 16.0% 2018, which is bellow 16.6% 15.1% 6.6% 6.3% the NPL average for the 12.5% 12.5% 12.5% 5.2% region. Furthermore, the 9.6% 9.3% 8.7% 7.3% 7.2% 7.3% NPL portfolio is well 6.2% 5.7% 5.7% 3.5% 3.3% 2.1% covered, with NPL coverage ratio 110.2% in 2013 2014 2015 2016 2017 2018 2018. 9 Large-sized banks Medium-sized banks Small-sized banks NPL ratio
Banking Sector Overv rview Return on average equity Return on average assets 16.0% 1.7% 1.5% 1.4% 13.6% 13.5% • In 2018, only 1 out of 1.1% 10.4% 20.4% 15 banks in Macedonia 2.2% 0.8% 7.4% 16.5% 16.0% 1.7% 1.7% recorded a loss, while 0.6% 5.7% 12.5% 1.3% all other recorded 9.6% 1.0% 1.0% 9.1% 7.1% 7.2% 0.8% 7.0% 6.3% 0.6% 5.5% profit. 5.2% 4.7% 0.6% 0.7% 0.8% 0.8% 0.7% 0.3% 2.6% • The return on assets -0.1% -0.9% -5.5% -0.6% -0.2% -1.6% -0.2% -1.8% reached 1.7% in 2018. • The return on equity 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 for 2018 was 16%. Large-sized banks Medium-sized banks Large-sized banks Medium-sized banks Small-sized banks ROAE • Both return on assets Small-sized banks ROAA and return on equity Cost to Income ratio were highest for the large-sized banks. 60.6% 55.5% • Cost to income ratio 51.6% 49.8% 48.7% 46.2% also has been following a downside trend through the years. 10 2013 2014 2015 2016 2017 2018
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