macroprudential measures (nbrm) - world bank

Macro-prudential Measures to theMacro prudential Measures to the Banking System at the Time of Crisis: The Case of MacedoniaCrisis: The Case of Macedonia

FrosinaFrosina CeleskaCeleska MscMscBanking Regulations UnitBanking Regulations Unitg gg g

Financial Stability, Banking Regulations and Financial Stability, Banking Regulations and Methodology DepartmentMethodology Department

National bank of the Republic of MacedoniaNational bank of the Republic of MacedoniaNational bank of the Republic of MacedoniaNational bank of the Republic of Macedonia

17.03.2011

OutlineOutlineOutlineOutlinePre-crisis, crisis and post-crisis trends (2004-2010)e c s s, c s s a d post c s s t e ds ( 00 0 0)Macro-prudential measures

Prevention of high credit growth riskg gCapital requirementsLiquidity ratiosRegulation on FX lending

ConclusionsMeasures’ impactThe role of the National BankF t h llFuture challenges

PRE-CRISIS, CRISIS AND ,POST-CRISIS TRENDS

Pre crisis period (2004 2007)Pre-crisis period (2004-2007)39 1%38 1%40 0%

45.0%

27.0%

39.1%38.1%

34.2%

28 0%30.0%

35.0%

40.0%

117.7%

23.0%17.0%

28.0%

15 0%

20.0%

25.0%94.8%

3.1%15.0%

17.2%

5.0%

10.0%

15.0%383.9%

0.0%

2004 2005 2006 2007 2008 2009 2010

Credit growth CAR LA/TA ROAE Deposit growthCredit growth CAR LA/TA ROAE Deposit growth

Crisis period (2008 2009)Crisis period (2008-2009)39 1%38 1%40 0%

45.0%

27.0%

39.1%

34.4%

38.1%

34.2%

28 0%30.0%

35.0%

40.0%

23.0%17.0%

16.4%

25.1%28.0%

15 0%

20.0%

25.0%

3.5%

16.4%

3.1%15.0%

5.6%

17.2%

3 9%5.0%

10.0%

15.0%

3.5%3.9%0.0%

2004 2005 2006 2007 2008 2009 2010


Post crisis period (2010)Post-crisis period (2010)38 1%40 0%

45.0%

27.0%

38.1%

30.2%30.0%

35.0%

40.0%

23.0%16.1%

15 0%

20.0%

25.0%

7.4%3.1%

7.3%17.2% 13.5%

5.0%

10.0%

15.0%

7.4%0.0%

2004 2005 2006 2007 2008 2009 2010


Impact of the CrisisImpact of the CrisisDecline of the deposit growthDecline of the deposit growthSignificantly lower credit growth ratiosLower profitability ratiosLower profitability ratiosDeterioration of the credit quality

2007 2009 2010

However

2007 2009 2010

NPLs/Total loans 10.3% 9.1% 9.3%

However,Stable liquidity and solvent positionNo need for a direct financial support by theNo need for a direct financial support by the Government

Reasons for the “low” directReasons for the low direct impact

Low correlation with the global financial marketLack of complex and toxic financial productsproductsConservative approach to credit risk (“credit risk averse”)( credit risk averse )Macro-prudential measures of the National BankBank

MACRO-PRUDENTIAL MEASURES OF THE NATIONAL BANKO

Macro prudential measuresMacro-prudential measuresPrevention of high credit growth risk - 2008Prevention of high credit growth risk 2008Capital requirements - 2008Liquidity ratios - 2009Liquidity ratios 2009Regulation on FX lending - 2006

Structure:Reasons for the introduction of the measureDescription of the measureImpact of the measurep

Prevention of high credit growthPrevention of high credit growth risk Average growth rate

(households) – 49.3%

Average growth rate (enterprises) – 20.8%

36 3%

56.2%

50.0%60.0%70.0%

60,000 70,000 80,000

36.3%

20.3%30.3%

20.0%30.0%40.0%50.0%

20 00030,000 40,000 50,000

0.0%10.0%

-10,000 20,000

Loans to households (lhs) Loans to enterprises (lhs)Loans to households (lhs) Loans to enterprises (lhs)

Annual growth rate (households) (rhs) Annual growth rate (enterprises) (rhs)

Prevention of high credit growthPrevention of high credit growth risk

Decision on the compulsory deposit with the NBRM– June, 2008 and December, 2008, ,

Cumulative monthly credit growth ratios on short-term and long-term loans toshort term and long term loans to households (2008 and 2009)Higher credit growth than the prescribedHigher credit growth than the prescribed monthly ratios - compulsory deposit with the NBRM (1% p a )NBRM (1% p.a.)


31.05.2008 - BaseMonth Growth rate

31.12.2008 – Base Month Growth rate

January 2009 0.5%

July 2008 5.6%

August 2008 8.0%

February 2009 1.2%

March 2009 2.1%

April 2009 3.0%

September 2008 10.3%

O t b 2008 12 5%

May 2009 4.2%

June 2009 5.4%

July 2009 6.6%October 2008 12.5%

November 2008 15.1%

August 2009 7.5%

September 2009 8.3%

October 2009 9.3%

N b 2009 10 2%December 2008 18.1%

November 2009 10.2%

December 2009 11.3%


Only 1 bank within the prescribed monthly rates (during the whole period)rates (during the whole period)Average number of banks above the prescribed monthly rates (per month) 7prescribed monthly rates (per month) - 7 Annual growth rate for 2008 – 37.4%Growth rate until October 2009 – 1.83%2010 – end of the measure


70 0%120 000

36.3%

58.8%

33.5% 40 0%50.0%60.0%70.0%

80,000

100,000

120,000

20.3%

33.5%

8.5%10.0%20.0%30.0%40.0%

20,000

40,000

60,000 -90.3%

5.7% 0.0%10.0%

-

,

Loans to households (lhs) Loans to enterprises (lhs)

Annual growth rate (households) (rhs) Annual growth rate (enterprises) (rhs)

Capital requirementsCapital requirements250.0%

Annual credit growth196.4%

128 3%150.0%

200.0%Annual credit growth

97.2%

128.3%

81.8%

39 6%

100.0%

150.0%

39.6%

43.3%0.0%

50.0%

Credit cards and overdrafts Other exposures to households

Capital requirementsCapital requirements2006 2007 ½ f th th f th2006 2007

Total number of issued credit cards 419,168 716,611

½ of the growth of the total loans to households

Total value of transactions (mil. denars)

2,442.3 7,693.640% of the annual growth of C, D and E exposures tod a )

% of unsecured claims (credit cards and overdrafts)

N/A 74.5%

exposures to householdsMaturing of the )

% of C, D and E claims (credit cards and overdrafts)

3.8% 4.1%

gportfolio

)

Capital requirementsCapital requirementsAmendments of the Capital Adequacy MethodologyAmendments of the Capital Adequacy Methodology – March, 2008

Raising of risk weights on credit cards and overdrafts toRaising of risk weights on credit cards and overdrafts to 125%

Wh i l i k i h ?Why capital risk weights?Requires additional capitalReduces the credit growth risk to an acceptable levelReduces the credit growth risk to an acceptable levelSystem-wide measure - impact on all banks

Capital requirementsCapital requirements

21 3%25.0%250.0%

21.3%

15.0% 16.1%

15 0%

20.0%

150 0%

200.0%

128.3%

58.7%10.0%

15.0%

100.0%

150.0%

1.6%0.0%

5.0%

0.0%

50.0%

5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0

98.1%

31/1

2/20

0531

/03/

2006

30/0

6/20

0630

/09/

2006

31/1

2/20

0631

/03/

2007

30/0

6/20

0730

/09/

2007

31/1

2/20

0731

/03/

2008

30/0

6/20

0830

/09/

2008

31/1

2/20

0831

/03/

2009

30/0

6/20

0930

/09/

2009

31/1

2/20

0931

/03/

2010

30/0

6/20

1030

/09/

2010

31/1

2/20

10

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

Credit cards and overdrafts (annual growth rate) (lhs) CAR (rhs)

Liquidity ratiosLiquidity ratios38 1%

50.0%80 00090,000

38.1%

22.5%36.6%

20.0%

30.0%

40.0%

50 00060,000 70,000 80,000

-10.0%

0.0%

10.0%

20 00030,000 40,000 50,000

-26.4%-30.0%

-20.0%

-10,000 20,000

04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08

31.1

2.20

0

31.0

3.20

0

30.0

6.20

0

30.0

9.20

0

31.1

2.20

0

31.0

3.20

0

30.0

6.20

0

30.0

9.20

0

31.1

2.20

0

31.0

3.20

0

30.0

6.20

0

30.0

9.20

0

31.1

2.20

0

31.0

3.20

0

30.0

6.20

0

30.0

9.20

0

31.1

2.20

0

Liquid assets (lhs) Liquid assets/Total assets (rhs)Liquid assets (annual rate of change) (rhs)

Liquidity ratiosLiquidity ratiosDecision on liquidity risk management - December, 2008

Minimum liquidity ratios – LR30 and LR180Assets/Liabilities maturing in the following 30, i.e. 180 days = 1S t ti f th D d FX t d li bilitiSeparate ratios for the Denar and FX assets and liabilitiesMonthly dynamic

28.02.2011 - liquidity ratios (30 days)28.02.2014 - liquidity ratios (180 days)

Requirements for liquidity risk managementEnhanced role of the Senior managementEnhanced role of the Senior managementExplicit requirement for stress-testingLevel of concentrationE ti ti f th t d t it f t d li bilitiEstimation of the expected maturity of assets and liabilitiesInternal liquidity ratios

Liquidity ratiosLiquidity ratiosDecision on liquidity risk management - December, q y g ,2008

C li ith th D i i ( d f 2010)Compliance with the Decision (end of 2010)All banks have achieved the minimum denar and FX liquidity ratios up to 30 daysliquidity ratios up to 30 daysOnly 2 banks have FX liquidity ratios up to 180 days lower than the prescribed dynamic

Liquidity ratiosLiquidity ratios38 1%

53.3% 50.0%60.0%

90,000 100,000

38.1%

22.5%

30.2%

36.6%

10 0%20.0%30.0%40.0%

50 00060,000 70,000 80,000

-20.0%-10.0%0.0%10.0%

20,00030,000 40,000 50,000

-40.0%-30.0%20.0%

-10,000 20,000

Liquid assets (lhs) Liquid assets/Total assets (rhs)Liquid assets (lhs) Liquid assets/Total assets (rhs)

Liquid assets - annual rate of change (rhs)

Regulation on FX lendingRegulation on FX lending26.3%100,000

20 0%23.4%

25.4% 26.1%

26.3%

60 00070,000 80,000 90,000

20.9% 20.6% 22.1% 23.8% 23.5%

26.4% 16.1%20.0%

30 00040,000 50,000 60,000

62.9% 59.4% 54.5% 50.8% 50.4% 47.3%

-10,000 20,000 30,000

30/06/2004 31/12/2004 30/06/2005 31/12/2005 30/06/2006 31/12/2006

Denar FX clause FXDenar FX clause FX

Regulation on FX lendingRegulation on FX lending76.0%

70 0%80.0%

Share of FX loans - 200570.0%63.0%

54.0%49.2% 48.0%

41 0%50.0%60.0%70.0%

Share of FX loans 2005

41.0%

27.0%22.0%

13 0%20.0%30.0%40.0%

13.0%

0.0%10.0%20.0%

Regulation on FX lendingRegulation on FX lendingDecision on the conditions and the manner of extending FX loans and Denar loans with FX clauseextending FX loans and Denar loans with FX clause - March 2006

Written policy and Extending FX loans and procedures for management of the induced credit risk

Denar loans with FX clauseClients classified as A or B clients by the bank and by the induced credit risk

Criteria for assessment of the (mis)match of clients’ FX assets and liabilities

y ybanking system (data from the NBRM’s Credit registry), orFirst-rate collateral (cash or FX assets and liabilities

Limits on the FX exposureStress testing of the FX

(cash equivalents, guaranties by the RM, NBRM, EU countries, first-rated banks, etc.)

Stress-testing of the FX risk (at least annually)

CONCLUSIONS

Measures’ impactMeasures impact63.2% 58.8%60 0%

70.0%

42.0%

58.8%

38.1%

30 2%40.0%

50.0%

60.0%

27.0% 19.8%30.2%

23.0%16.1%20.0%

30.0%

7.4%

5.7%

15.0%

0.0%

10.0%

04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

31.1

2.20

031

.03.

200

30.0

6.20

030

.09.

200

31.1

2.20

031

.03.

200

30.0

6.20

030

.09.

200

31.1

2.20

031

.03.

200

30.0

6.20

030

.09.

200

31.1

2.20

031

.03.

200

30.0

6.20

030

.09.

200

31.1

2.20

031

.03.

200

30.0

6.20

030

.09.

200

31.1

2.20

031

.03.

201

30.0

6.20

130

.09.

201

31.1

2.20

1

Credit growth rate Credit growth (households)Liquid assets/Total assets Capital adequacy ratio

The role of the NBRMThe role of the NBRM

Responsible for the monetary policyResponsible for the monetary policySole banking supervisor

d lMicro-prudential supervisionMacro-prudential supervision

Assessment and monitoring of the financial stability

Future challengesFuture challenges

When to end the macro-prudential measures?When to end the macro-prudential measures?

Capital requirementsNPL /T t l l 9 3%

Liquidity ratiosNPLs/Total loans = 9.3%NPLs (households)/Total loans (households) =

The banking system is still fragileBasel III liquidity ratiosloans (households)

8.1%C, D, E (credit cards and

d f )/ l ( d

Basel III liquidity ratiosLiquidity coverage ratio ≈ LR30N t t bl f di tioverdrafts)/Total (credit

cards and overdrafts) = 5.8%

Net stable funding ratio –longer time horizon than LR180

Future challengesFuture challengesBasel III implementationp

80.0%90.0%

31.12.2010

50.0%60.0%70.0%

20.0%30.0%40.0%

0.0%10.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Tier 1 ratio CAR 4.50% 6.00% 7.00% 8.50%

THANK YOU!THANK YOU!

Frosina Celeska MscFrosina Celeska MscHeadBanking Regulations UnitFinancial Stability, Banking Regulations and Methodology DepartmentNational Bank of the Republic of [email protected]

macroprudential measures (nbrm) - world bank

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