National Bank of The Republic of Macedonia

National Bank of the Republic of Macedonia
Supervision, Banking Regulation and Financial Stability Sector

Financial Stability and Banking Regulations Department
REPORT ON RISKS IN THE BANKING SYSTEM

OF THE REPUBLIC OF MACEDONIA
IN THE FIRST QUARTER OF 2014
July 2014
NATIONAL BANK OF THE REPUBLIC OF MACEDONIA
Contents
SUMMARY ...................................................................................................................3
Part 1 Risks in banking operations ............................................................................4
I. Risks in banking operations ............................................................................5
1. Credit risk ................................................................................................................ 5
1.1 Banking system's loan portfolio quality .................................................................... 5

1.2 Stress test simulation of the resilience of the banking system to increasing credit risk 14
2. Liquidity risk ...........................................................................................................15
3. Currency risk ..........................................................................................................24
4. Interest rate risk in the banking book .......................................................................26
5. Insolvency risk ........................................................................................................28
5.1 Indicators for the solvency and capitalization of the banking system .........................29
5.2 Movements and quality of the own funds of the banking system ..............................29
5.3 Developments and structure of capital requirements and available capital of the
banking system ....................................................................................................30
5.4 Stress test of the resilience of the banking system to hypothetical shocks .................32
Part 2 Structural features, significant balance sheet changes and efficiency and
profitability of the banking system ...........................................................................34
II. Structure of the banking system ..................................................................35
1. Number of banks and ownership structure of the banking system ...............................35
2. Banks’ activities.......................................................................................................36
2.1 Loans to nonfinancial entities ................................................................................41

2.2 Deposits of nonfinancial entities ............................................................................43
3. Profitability .............................................................................................................45
3.1 Movement and structure of income and expenses of the banking system and
profitability and efficiency indicators ......................................................................46
3.2 Movements in interest rates and the interest rate spread .........................................50
ANNEXES ...................................................................................................................52
2
Report on risks in the banking system of the Republic of Macedonia in the first quarter of 2014
SUMMARY
In the first quarter of 2014, the banking system retained the high and stable liquidity
and solvency position. The total assets of the banking system grew on both the quarterly and
annual basis, although with different intensity. Despite the lower quarterly growth rate of bank
loans, on annual level lending accelerated, which was primarily registered in the credit support
to the corporate sector. Also, as of March 2014, monthly changes in the lending activity show
acceleration, mainly with the corporate sector, which remained in the subsequent months. This
indicates gradual improvement of the perceptions of domestic banks about the risk profile of
the credit demand. Denarization in the main banking activities continued also in this quarter.
Denar long-term deposits of the household sector were the generator of the growth of the
deposit activity whereby the trend of positive changes continued, in the currency, but also in
the maturity profile of the banks' sources of funds. The increased interest in long-term savings
is on the one hand an indicator of public confidence in the banks, but it is also associated with
the higher interest rates on long-term deposits.
In the first quarter of 2014, the banking system registered profit, thus interrupting the
several-year trend of achieving negative financial results at this time of the year. The main
factors for the increased earnings were the reduced interest expenses due to the downward
trend in the deposit interest rates, and the lower impairment of financial assets (loans). On the
other hand, based on the changes in the regulations on foreclosures in 2013, the impairment of
non-financial assets increased and nearly equaled the amount of the impairment of financial
assets. Indicators of profitability of banks have improved significantly, and the operational
capability of banks of generating revenues that cover the costs of operation has increased, too.
The growth of the domestic economy, and further positive economic trends in the Euro-
zone as our most important trading partner, had a favorable impact on the quality of the loan
portfolio of the banking system in the first quarter of 2014. On a quarterly basis, non-
performing loans decreased. Their annual growth slowed significantly and for the first time
since 2011 they have registered a single-digit growth rate of 1.2%. The small annual growth of
non-performing loans is primarily based also on the collections of non-performing loans. As of
31 March 2014, the share of non-performing in total loans was reduced to 11.1%. However,
after the cut-off date of this Report, i.e. at the end of May 2013, the rate of non-performing
loans was back to the average level for 2013 (11.9%). Credit risk remains the most common
risk in the banking system of the Republic of Macedonia. However, the constant supervision by
the National Bank, good credit risk management systems of banks and full coverage of the non-
performing loans with total impairment, reduce the risk of their default for the solvency of
banks.
High and stable solvency and liquidity of the banking system are the pillars of its stability
and reliability, which contribute to the resilience of the system in the simulation of extreme
liquidity and credit shocks. As of 31 March 2014, the capital adequacy ratio was twice the
legally prescribed minimum and equaled 16.6%. Liquidity continues to strengthen, which is
mainly due to the increased investments of banks in treasury bills, which beside being low-risk,
also represent an appropriate liquidity management instrument. Nearly one-third of the banks'
assets are liquid assets that provide high coverage of short-term bank liabilities. It is
particularly significant that the Macedonian banks hardly depend on the use of loans from their
parent entities, whose amount decreased in the first quarter of 2014.
3
Part 1 Risks in banking operations
4
I. Risks in banking operations

1. Credit risk
The growth of the domestic economy and further positive economic trends in
the Euro zone as our most important trading partner, in the first quarter of 2014
contributed to the improvement of the banks' perception of the riskiness of the
corporate sector and its creditworthiness, as evidenced by the growth of the credit
exposure to this sector for the second consecutive quarter. The small annual growth
of non-performing loans is based on the collections of non-performing loans. Non-
performing loans to total loans ratio decreased by 0.4 percentage points in the first
quarter, and was reduced to 11.1%. However, the upward movement of non-
performing loans after the cut-off date of this Report caused the rate of non-
performing loans in May 2014 to return to the average level for 2013 (11.9%). The
threat for the own funds of the banking system from the non-collection of non-
performing loans is minimal, given that these loans have high coverage with
allocated impairment (81.4% with their own and over 100% with total
impairment).
1.1 Banking system's loan portfolio quality
In the first quarter of 2014, total credit

exposure1 of the banking system grew by Denar
Chart 1 9,092 million and reached Denar 396,044 million.
Quarterly growth of credit exposure, by This is an acceleration of the growth compared
item with the previous quarter by 0.6 percentage
in millions of Denars and in percentage points to 2.3%, mostly as a result of the growth
16,000 5
of the credit exposure to non-financial entities
4
12,000
and the government. Credit support to non-
3
financial entities continued, although at a slower
2.3
8,000
1.7
2
4,000 pace, also in the first quarter of 2014. Thus, this
1
0
1.7
exposure (excluding the exposure to financial
0
institutions and the government) registered a
-4,000 -1
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014 quarterly increase of Denar 5,023 million, or
Off-balance sheet items (left scale)
Other claims (left scale)
1.8% (2.7% as of 31 December 2013) and
Regular interest (left scale)
Non-performing loans (left scale)
contributed with 55.2% to the growth of the total
Regular loans (left scale)
Quarterly growth rate of total credit exposure (right scale) credit exposure. Guided by the more attractive
Source: NBRM's Credit Registry, based on data yields and wider offer of government securities,
submitted by banks. banks increased their credit exposure to the
Other claims, besides fees, commissions etc., also
include banks’ investments in CB and treasury
government (by Denar 3,753 million, or 9.6%)
bills and government bonds. with the investments in treasury bills and longer-
term government bonds.
1
The total credit exposure includes balance sheet (loans and deposits, financial leasing, payments made on the basis of given
guarantees, letters of credit, warrants and other off-balance sheet positions, interest, fees and commissions, investment in
securities and other financial instruments available for sale or held to maturity, etc.) and off-balance sheet claims (unused
irrevocable credit lines, unused irrevocable credits based on overdrafts and on credit cards, letters of credit, guarantees and other
contingent liabilities for the bank), which expose the bank to a credit risk.
5
Chart 2 Unlike last year, when the credit exposure

Quarterly growth of credit exposure, by to households caused most of the growth of the
sector exposure to the non-financial entities, in the first
in millions of Denars and in percentage quarter of 2014 two-thirds of this growth
20,000 50 resulted from the growth of the credit exposure
15,000 40 to companies and other customers2 (Denar 3.249
10,000 30 million or 1.9%). More active credit support from
5,000
8.1 9.6
20
banks was mostly provided to customers from
0
3.4 1.9
1.7
10
the activities "industry", "transport and storage",
"professional, scholar and technical activities"
-5,000 2.3 0
0.4
-10,000 -4.8 -10
-15,000 -20
and "electricity, gas, steam and air conditioning".
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
The intensification of lending to the corporate
sector points to improved banks' perceptions of
State (left scale)
Financial institutions (left scale)
Households (left scale)
Companies and other clients (left scale)
Companies and other clients - rate of change (right scale)
the riskiness of this segment, for a second
Households - rate of change (right scale)
Financial institutions - rate of change (right scale) consecutive quarter, but some of these changes
State - rate of change (right scale)
can be linked with the non-standard measures
Source: NBRM, based on data submitted by banks.
taken by the monetary authorities3 to encourage
lending and with the utilization of the funds from
the EIB4. The slower growth of the credit
Chart 3 exposure to households (Denar 1,774 million or
Quarterly (top) and annual (bottom) 1.7%) results from the slower growth in
growth rate of non-performing loans consumer and housing loans.
in percentage
20 In the first quarter of 2014, the quality of
15 18.5 the loan portfolio significantly improved. The
10
quarterly growth rate of non-performing loans
has a negative value of 1.5%, which comes
13.6
5 2.5
-0.1 entirely from the reduction of non-performing
0
0.0
0.8
-1.5
-2.0
loans to companies. The reduction of these loans
-5
-4.8
reflects the improved performance of some of
-10
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
the customers in the activities "construction" and
Companies Households Non-financial entities
"other processing industry". Non-performing
45 loans to households remained at the same level,
40
35 31.4
and within their framework a downward
30 movement was registered in all loan products,
22.7
25
20
with the exception of non-performing residential
15 22.1
16.7
loans and overdrafts on current accounts.
10
1.6
5
The annual growth rate of non-
-1.6 0.0 1.2
0
-0.1
-5
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
performing loans slowed significantly and for the
first time since 2011 it is a single digit (1.2%).
Source: NBRM, based on the data submitted by
banks.
Repayments of non-performing loans have the
largest contribution to the slowdown in their
2
Hereinafter: companies.
3
The non-standard measures of the National Bank were aimed at encouraging lending for net exporters and producers of
electricity. On this basis, in the first quarter of 2014, banks placed another Denar 2,035 million, with the overall amount of these
loans (since the introduction of the measure in January 2013) as of March 2014 equaling Denar 9,030 million.
4
In the first quarter of 2014, Euro 6.3 million from the credit line from EIB for financing small and medium enterprises were placed
(the credit line is placed through MBPR AD Skopje).
6
growth. Changes in the regulation on the credit

risk management, which enable exclusion of the
claims in which the full amount that is due more
than 31 days5 is collected from the non-
performing status, also give certain contribution.
The slower movement of non-performing loans
on an annual basis was terminated in the
following month and in May 2014 the annual
growth rate was 6.9%.
The analysis of the dynamics of the non-

performing loans should take into account the
share of the restructured and prolonged loans to
total loans to non-financial entities6, which at the
end of the first quarter of 2014 was 13.0%
(12.8% as of 31 December 2013 and 11.9% as
of 31 March 2013). In case they were not
Chart 4 restructured or prolonged, part of these loans
Restructured loans in the quarters would probably receive a non-performing status,
in millions of Denars and in percentage which would be appropriately reflected in the
movement of non-performing loans. The main
18,000 7.0
15.476
16,000 14.140
objective of the restructuring is the adjustment
6.5
14,000 6.7
6.2 6.0
12,000
10.042
5.5
of credit conditions to the current financial
10,000
8,000 5.0
conditions of customers, in order to facilitate the
6,000
4.5
settlement of their credit liabilities. The new
4,000 4.7
4.0
Decision on the credit risk management7 also
2,000
0 3.5
encourages timely restructuring of claims (before
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
non-performing
they get a non-performing status). But if the
past due
regular restructuring of credit liabilities of customers is
not realistically set, only a time delay of the
share in total loans to non-financial entities
Source: NBRM's Credit Registry, based on data

submitted by banks. recognition of the credit losses is made. The
increase in restructured loans in the first quarter
is entirely a result of restructured regular loans,
which suggests that banks perform the
restructuring of the claims upon noticing the
financial difficulties of the customer before they
get a non-performing status. After the expiration
of six months from the completed restructuring8
it could be seen if they were properly set.
Companies are still drivers of the increase of the
5
Decision on Credit Risk Management ("Official Gazette of RM" no. 50/13 and 157/13), which is effective starting from
1 December 2013. Detailed processing of the changes introduced by this Decision is given in the Report on the risks in the banking
system in the Republic of Macedonia in 2013, pages 21-23.
6
Source: Credit Registry of the National Bank. In the analyses where the source for the data for loans is the Credit Registry, loans
to non-financial entities include loans to companies and households.
7
The Decision provides at least 30% impairment for non-performing credit exposures.
8
According to the Decision, if the bank has made restructuring of a certain claim, it is required to classify that claim in the same risk
category for at least another six months and during this period it may not generate income based on release of impairment that is
not result of collection of the claim.
7
total restructured loans. At the end of the first

quarter, 10.9% of total corporate loans are
restructured (10% as of 31 December 2013,
7.3% as of 31 March 2013). The average level of
risk of total restructured loans decreased to
39.1% (39.7% as of 31 December 2013), due to
the slower growth of impairment for restructured
loans relative to the growth of the restructured
loans in the first quarter.
Prolonged loans registered a slight

downward movement (2.5%). Write-offs in the
Chart 5 first quarter are on almost identical (low) level
Share of non-performing to total loans of with the same period last year and do not affect
non-financial entities and by sectors the movement of non-performing loans.
in percentage Companies are the most common in the total
17
15.2 15.2
debts written off during the first quarter of 2014
with 69.8%, while the total collection of already
14.7
15
13
written off claims completely refers to collections
11.9 11.5
11.1 from natural persons.
11
9 Downward trend in the non-performing

7.0
7
6.4
6.3 loans contributed to a decline in their share in
total loans, where in the first quarter, this rate
5
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014 fell by 0.4 percentage points and was reduced to
Companies Households Non-financial entities 11.1%. With the companies, the share of non-
Source: NBRM, based on the data submitted by performing to total loans was reduced to 14.7%.
banks. This stems from the reduction of non-performing
loans amid moderate increase of the credit
Chart 6 support to companies. The rate of non-
Distribution of non-performing loans as performing loans to households decreased
of 31.03.2014, by period of approval slightly due to the growth of total loans, amid
and dynamics of banks’ lending activity almost unchanged level of non-performing loans.
in percentage
50 40 The rate of non-performing loans
45
40
46.5 35
registered an upward movement after the cut-off
30
35
30 25
date of this Report and in May 2014, it returned
25 20 to the average level for 2013 (11.9%).
20 15
15
10
According to the approval period, only
6.0 6.4
10
10.5 10.9 5
5
0
before 2006 2007 2008 2009 2010 2011
4.8
2012
2.8
2013
0 2.8% of the total non-performing loans as of 31
2006
Non-performing loans to non-financial entities on 31.3.2014 by period of
March 2014 were approved during 2013. Most of
approval (left scale)
Annual growth rate of the lending activity to non-financial entities (right scale) the loans (or 78.3%) approved during the
previous year that received a non-performing
submitted by banks.
status by the end of the first quarter of 2014
refer to the sector "companies"9, more precisely
9
The average level of risk of these loans is 57.2%.
8
customers from the activities "wholesale and

retail trade" and "manufacturing". As of 31 March
2014, nearly half of the non-performing loans
originate from the years before the massive
credit growth (before 2006).
Chart 7
Quarterly change of impairment for The decrease of non-performing loans
invididual sectors was followed by a quarterly growth of total
in millions of Denars and in percentage
2,000 7
impairment of Denar 626 million, or 2.1%. This
1,500 6
growth comes entirely from the impairment for
1,000
5.8 5 regular loans to enterprises and to a lesser
500
4
extent from the off-balance sheet exposure to
companies. According to the activity, the growth
3
2.1
0
2
-500
1
of overall impairment is due to the impairment
-1,000 0 for the activities that show the highest growth of
credit exposure, but also of the activity
-0.3
-1,500 -1
3.2013 6.2013 9.2013 12.2013 3.2014
Impairment of credit exposure to state

Impairment of credit exposure to financial institutions "wholesale and retail trade", in which one third of
Impairment of other credit exposure to households
Impairment of non-performing loans to households
Impairment of regular loans to households
the total credit exposure to companies is
concentrated.
Impairment of other credit exposure to companies
Impairment of non-performing loans to companies
Impairment of regular loans to companies
Change rate of total impairment and special reserve

submitted by banks.
Given the downward movement of non-
Chart 8 performing loans, growth of impairment caused
Coverage of non-performing loans and an increased coverage of non-performing loans
share of net non-performing loans in with total impairment by 4.1 percentage point.
banks' own funds As of 31 March 2014, the coverage of non-
in percentage performing loans with impairment calculated for
110 30
them increased to 81.4%.
105 25
100.6 107.4
100 103.3
In conditions of improved quality of the

20
95 14.1
loan portfolio, the already low share of the

15
11.6 10.8
90
10
85
80.1 81.4
5
uncollateralized part of the non-performing loans
80
75
75,8
0
in the own funds of the banking system was
70
-0.3
-1.9
-5 further reduced. Thus, under assumption of full
non-collectability of non-performing loans, at the
-4.3
65 -10
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
Coverage of non-performing loans with total calculated impairment and special reserve (left
end of this quarter, own funds would decrease
scale)
Coverage of non-performing loans with total calculated impairment and special reserve for
non-performing loans (left scale)
by 10.8% (0.8 percentage points less compared
Non-performing loans, net of total calculated impairment / own funds (right scale)
to the assumed decrease at the end of 2013).
Non-performing loans, net of calculated impairment for non-performing loans / own funds
(right scale)

submitted by banks.
9
Chart 9 Indicators of the coverage of credit

Coverage of loans to customers who pay exposure indicate a satisfactory capacity of the
their liabilities irregularly (top) and banking system to absorb potential credit losses.
coverage of loans to customers who pay Thus, 66.4% of the amount of loans to non-
their liabilities regularly (bottom) financial entities that do not repay the liabilities10
in percentage regularly is covered by the impairment
140
131.7 126.5
determined for them. Additionally, 82.1% of
120 loans to non-financial entities (whether they
100
82.6 82.8
regularly pay their liabilities or not) are covered
80
66.9 66.4 by some type of collateral. The own funds of the
60
banking system fully cover the total amount of
40
loans that are irregularly repaid or are not repaid
at all, while 23.0% of the loans to non-financial
20
0
3.2013 6.2013 9.2013 12.2013 3.2014 entities that are regularly paid off, are covered
Impairment losses / total credit exposure
Credit exposure covered with colateral / total credit exposure with own funds. Coverage of loans that are
90
Regulatory capital / total credit exposure
regularly repaid with impairment, or the level of
80
81.9 82.0
expected losses from these loans is usually set
70 relatively low, and at the end of the first quarter
60
50
of 2014 it was 2.1%.
40
30 23.6 23.0 In the first quarter of 2014, the average

risk level of the loan portfolio of the banking
20
10
2.1 2.1
0 system remained unchanged as a result of the
3.2013 6.2013 9.2013 12.2013 3.2014
almost identical growth rate of impairment and
submitted by banks.
of total credit exposure. In contrast, the average
risk level of regular loans has increased due to
Chart 10 the quarterly growth of impairment for them (by
Average risk level for the total credit Denar 630 million or 10.2%), given the increase
exposure and for regular loans of the impairment of exposures in risk category
in percentage "C regular" (by 21.2%), amid moderate increase
8 of the total regular loans (by Denar 4,767 million,
7 7.6 7.6 7.6 or 1.9%)
6
5 Past due loans with a period of delay in

4 repayment of 61 to 90 days are a potential risk
3 2.6 2.5 2.7 for increasing the non-performing loans in the
2 next month. The average level of risk of these
1 loans reached 21.7%, which corresponds to the
0 risk category "C". The increase in the average
level of risk arises from the growth of impairment
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
Coverage of total credit exposure with calculated impairment
Coverage of regular loans with calculated impairment for regular loans
due to the reduction in loans overdue 61 to 90
submitted by banks.
days, which means that for part of these loans
customers repaid the debt past due over 31 days
and began to settle their liabilities regularly while
10
The analysis included non-performing loans, regular restructured loans, past due restructured loans and past due but
unrestructured loans overdue 61 to 90 days to non-financial entities. The analysis excludes prolonged loans because it is assumed
that the extension of the maturity of these loans is not a consequence of the worsening financial condition of the customers (which
is consistent with the regulatory requirements in this area).
10
Chart 11 the rest of these loans further deteriorated in

Average risk level for loans with due quality, resulting in higher impairment and
part of 61 to 90 days coverage. The deterioration in the credit quality
in percentage of the loans containing part that is past due 61 to
4.5 25
90 days, on the one hand suggests a greater
4.0
20 likelihood for their migration to a non-performing
3.5 status, but on the other hand emphasizes the
15
3.0
2.9
willingness of banks to cover the potential losses
2.5
2.5 2.4
10 from these loans. Assuming that all loans
5
containing part that is past due 61 to 90 days will
not be collected in the following month, 2.4% of
2.0
16.1 14.5 21.7
1.5
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
0
the total regular loans as of 31 March 2014,
Average level of risk for loans to non-financial entities with due part from 61 to 90
days (right scale)
would migrate to non-performing, making the
Share of loans with due part from 61 to 90 days in total regular loans to non-
financial entities (left scale)
non-performing loans rise to Denar 4,927 million,
Source: NBRM's Credit Registry, based on data or 18.9%. But the growth registered in the
submitted by banks. following month (April 2014) is significantly
lower, and equals 2.4% or Denar 617 million.
The quarterly growth of total credit

exposure arises entirely from the exposure with a
regular status, mostly (61.0%) from the
Chart 12 exposure in risk category "A". The increased
Credit exposure, amount (top) and exposure in this risk category (by Denar 5,545
absolute annual growth (bottom), by million, or 1.7%) often presents the new credit
risk category exposures approved during the quarter.
in millions of Denars and in percentage Reclassification to a better risk category of
340,000
23,281
25,000
certain credit exposures that previously had a
330,000 332,386 20,000 non-performing status partly contributed to the
growth of the exposure in the risk categories "C
19,712
320,000
regular" (by Denar 2,180 million, or 20.7%) and

15,000
12,715
310,000
300,000
10,000 "B" (by Denar 1,796 million or 8.4%). The
decrease in the non-performing credit exposure
5,824
5,000
is driven by the downward movement in the risk

290,000
2,127
280,000
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
0
category "C non-performing", mainly to
A (left scale)
C (regular) (right scale)
B (right scale)
C (non-performing) (right scale) companies, which besides the improved
classification of certain credit exposures arises
D (right scale) E (right scale)
20,000 4.0
15,000
3.5 also from the collections of some non-performing
claims.
10,000
2,180 3.0
1,796
5,000
5,545 2.5
0
2.3
2.0
According to individual activities in the

-5,000
-10,000 1.5
1.7
-15,000 1.7
1.0 corporate sector, the credit risk is the highest in
"industry" and "construction", while according to
-20,000
0.5
-25,000
-30,000
0.0
individual products of the household sector, it is
the highest in credit cards and consumer loans
-35,000 -0.5
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
(Annexes 24 and 25). According to the currency

A (left scale) B (left scale)
C (regular) (left scale) C (non-performing) (left scale)
D (left scale) E (left scale)
Total credit exposure (right scale)
structure, the highest risk-bearing credit
submitted by banks. exposure is that in Denars with foreign currency
clause (Annex 16).
11
Chart 13 The percentage of credit exposure with

Quarterly shift of credit exposure to regular status, which for a period of one quarter
companies (top) and natural persons receives a status of a non-performing exposure11
(bottom) from regular to non- increased at the end of the first quarter of 2014
performing status (to 0.4% from 1.6% at the end of 2013).
in percentage Analyzed by individual sectors, 0.5% of the
25
regular exposures to natural persons and 0.4%
20 of these exposures to companies received a non-
15
performing status in one quarter. In the first
quarter of 2014, the share of the credit
10
exposures to companies that within one quarter
5 received a non-performing status was reduced
significantly. Thus, only 1.8% of the exposures to
0
Q1 Q2 Q3 Q4 Q1 companies in risk category "C" received a non-
from A from B
2013
from C (regular)
2014
from ABC (regular)

performing status at the end of the quarter
35 (24.2% at end-2013). This movement confirms
30 the improvement of the quality of banks' loan
25 portfolio, but it is also an effect of the performed
20 restructuring.
15
10
0
Q1 Q2 Q3 Q4 Q1
2013 2014

submitted by banks. The analysis of the credit exposure to
non-financial entities according to the maturity of
Chart 14 the principal, as of 31 March 2014, showed that
Structure of credit exposure to non- 21.9% of the amount falls due by the end of
financial entities, by maturity of principal 2014, and more than half falls due after 2016.
in percentage The exposure with an average risk level of up to
35
20% (risk categories "A" and "B") accounts for
30
95.3% of the total credit exposure which falls
25
due by the end of the next quarter and the
20
7.9
largest proportion of which (69.2%) refers to
15 30.9 companies, i.e. customers from the activities
10 6.6 "wholesale and retail trade" and "industry",
whose average risk level is in the risk category
16.0
5 9.4
7.5 7.3 8.1
0
6.4
"B".
in 2014 in 2015 in 2016 in 2017 in 2018 in 2019 after 2019
until 31.12. until 30.9. until 30.6.

submitted by banks.
11
The shift of a credit exposure with a performing status in an exposure with a non-performing status is calculated as the ratio
between the credit exposure which received non-performing status at the end of the quarter and the credit exposure at the
beginning of the analyzed quarter. The analysis does not include the credit exposure which was closed due to restructuring and
prolonging and the credit exposure approved during the quarter.
12
The share of uncollateralized credit

Chart 15 exposure in the total credit exposure to non-
Share of uncollateralized exposure in financial entities in the first quarter of 2014
total credit exposure of non-financial remained almost unchanged. In individual
entities and of sectors sectors, reduced share of the uncollateralized
in percentage part is registered with natural persons, primarily
in consumer loans (although in the Lending
40
32.5 31.8 31.4
30 Survey from April 2014, banks estimated the

requirement for allocating collateral as
20
14.1 14.1 14.0
unchanged compared to the previous quarter).
10
The share of the uncollateralized exposure to
3.7 3.3 3.4 natural persons was reduced to 14.5% (if the
0
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014
exposure based on overdrafts on current
Companies
accounts and credit cards is excluded12).
Natural persons
Non-financial entities
Source: NBRM's Credit Registry, based on data At the end of the first quarter of 2014,
submitted by banks. there was an increase in the concentration of
credit risk, measured by the share of large
exposures in the banks' own funds. Analyzed by
Chart 16 bank, the share of large exposures in the own
Share of large exposures in banks’ own funds ranges between 11.8% and 738.0% and is
funds within the maximum prescribed limit13 (including
in percentage the exposures to financial institutions)14. If the
220 exposures of banks to financial institutions and
210
208.0 placements in CB bills and government securities
are excluded, the concentration is clearly lower,
200 197.8
i.e. the share of large exposures to non-financial
190
entities in the banks' own funds was reduced to
188.5
69.9%15. Analyzed by bank, the share of large
180 exposures to non-financial entities in the own
170
funds ranges from 10.8% to 358.6%. Moreover,
3.2012 6.2012 9.2012 12.2012 3.2013 6.2013 9.2013 12.2013 3.2014 little less than half of the large exposures at the
Source: NBRM, based on the data submitted by system level account for one bank.
banks.
In conditions of slower growth in the
credit support to households, the average debt
per person (only for persons who are indebted)
remained at the same level as in the previous
quarter. As of 31 March 2014, most indebted are
the persons with monthly income of up to Denar
30.000, constituting two thirds of the total banks'
exposure to natural persons and 73.6% of the
total exposure intended for consumption (Annex
25). Analyzed by individual persons, most
12
Most collections of this credit exposure are covered by the monthly income of borrowers.
13
The total amount of large exposures must not exceed eight times the amount of bank's own funds.
14
Large exposure to a related person or persons is an exposure equal to or higher than 10% of bank's own funds.
15
Five banks have no large exposures to non-financial entities.
13
Chart 17 indebted are natural persons with monthly

Structure of credit exposure to individual income above Denar 100,000 (average debt of
credit products, by monthly income of Denar 629 thousand per person), which is a
borrowers (natural persons) result of the banks' adjustments of the amount of
in percentage and in Denars debt to the amount of the monthly income of
100 12,000
natural persons. The average monthly liability,
80
11,262
8,156
10,000
depending on the loan product ranges between
60 8,000 Denar 3.5 thousand (for credit cards and
40 6,000 overdrafts on current accounts) and Denar 11.3
20
3,480 3,685
4,000 thousand (for loans for purchasing and
0
12.2013 3.2014 12.2013 3.2014 12.2013 3.2014 12.2013 3.2014
2,000 renovation of residential and commercial
Residential and Car loans Credit cards and Consumer loans properties). According to the type of credit
commercial real overdrafts
estate loans
product, persons with monthly income of over
Denar 30,000 have a share of 75.7% in the
above 100,000 Denars (left scale)
from 50,000 to 100,000 Denars (left scale)
up to 7,000 Denars (left scale)
credit exposure based on residential loans, while
average monthly liability by loan product (right scale)
those with monthly income up to Denar 30,000
Source: NBRM, based on the data submitted by have the largest share in the credit exposure
banks.
based on consumer loans and credit cards and
overdrafts on current accounts (75.2% and
75.3%, respectively).
Chart 18
Share of the exposure with higher risk 1.2 Stress test simulation of the resilience
level in the total credit exposure (top) of the banking system to increasing credit
and the average level of risk (bottom) risk
by individual activities, after the first and
second simulation Regular stress tests are aimed at
in percentage examining the sensitivity of the banking system
40
35.8
43.1
50
45
during the deterioration of the quality of certain
35
30 34.6
40 segments of the loan portfolio. They consist of
simulations of hypothetical migration of 10%
25.9 32.5 35
25 23.3 31.9 30
22.3
(first simulation) and 30% (second simulation) of

30.2
20.6 24.2
20 25
19.3
credit exposure to companies (by activity) and

19.3 20
15
15
14.1
10
10
households (by credit product), separately, and
to the two sectors jointly, to the following two
5 5
3.2013 6.2013 9.2013 12.2013 3.2014 3.2013 6.2013 9.2013 12.2013 3.2014
I simulation II simulation
% of "C", "D" and "E" in the total credit exposure to companies and other clients before shock (up)
Industry
Agriculture, forestry and fishing
higher risk categories. The results of the
Construction
Wholesale and retail trade
Transport and storage
simulations show that the banking system
remains resilient to simulated shocks. However,
Accommodation facilities and catering services
Average risk level of credit exposure to companies and other clients before shock (down)
21 30
19
18.7 compared with the previous quarter, there is
17
17.5
17.4
23.4
22.1
25
some deterioration in the results of individual
15
14.9
14.1
21.4
19.2
18.3
20
banks. In both simulations for the different
13 13.6
13.6 15 activities, the greatest reduction in the capital
11
9.6
13.1
10
adequacy ratio is noticeable in the deterioration
9
of the creditworthiness of the customers from
"industry" and "wholesale and retail trade",
7 5
3.2013 6.2013 9.2013 12.2013 3.2014 3.2013 6.2013 9.2013 12.2013 3.2014
I simulation II simulation
followed by "construction" (Annex 26).

banks.
14
In terms of the indicators of the loan

portfolio quality, the largest increase of the
indicator of share of the exposure with higher
risk level (classified in risk categories "C", "D"
and "E") in the total credit exposure is registered
with the activities which had highest growth of
credit exposure, "industry" and "transport and
storage", while the average level of risk registers
the greatest deterioration in the activities
"agriculture, forestry and fishing" and "activities
related to real estate."
2. Liquidity risk
In the first quarter of 2014, the level of liquid assets that banks in the
Republic of Macedonia had at their disposal remained high. Liquid assets have
increased on a quarterly basis, mainly due to the growth of banks' investments in
treasury bills. Observed annually, liquid assets were stagnant, which corresponds to
the acceleration of the annual rate of credit growth. Liquidity indicators registered a
stable movement. Reduction of the banks' sources of funding originating from their
parent entities continued in the first quarter of 2014, so that the deposits of non-
financial entities were generators of the quarterly increase in the sources of funding
for banks. In the first quarter of 2014, the positive changes in the maturity profile of
assets and liabilities of banks continued. Driver of this phenomenon was the
stronger preference for saving in the long run, especially among the households,
which resulted in more rapid growth of liabilities with greater residual maturity,
amid growth of the assets with shorter remaining maturity due to the gradual
maturity of the banks' portfolio of low-risk securities. Stress-test shows that the
banking system is resilient to liquidity shocks. According to the latest available data,
as of May 2014, the banking system has maintained the high liquidity position, as
evidenced by the share of the liquid in the total assets of over 30% and the
coverage of short-term liabilities of almost 55%.
At the end of the first quarter of 2014, the

liquid assets16 of the banking system amounted
to Denar 114,138 million which is by Denar 227
million, or 0.2% more, on annual basis.
According to the latest available data, as of May
2014, liquid assets are growing by 1.4%,
annually. On a quarterly basis, liquid assets
increased by Denar 2,874 million, or 2.6%,
compared to the decline in the fourth quarter of
2013 by 1.5%. Annually, the modest growth of
banks' liquid assets mainly arises from the
increased banks' propensity to take credit risk, as
16
Liquid assets include cash and assets on accounts with the National Bank, CB bills, correspondent accounts and short-term
deposits with foreign banks and investments in short-term securities issued by the government. For the purposes of analyzing
liquidity, assets and liabilities in Denar with FX clause are being regarded as Denar assets and liabilities.
15
Chart 19 evident from the gradual acceleration of the

Banks' liquid assets structure growth in lending to the private sector. The
in millions of Denars and in percentage change in the manner the NBRM conducts
125,000 15%
auctions of CB bills (limiting the amount offered)
also has a moderate impact on the growth in the
100,000 28,114 12%
28,054
banks' liquid assets. It actually prevents
75,000 9%
unlimited placement of banks’ funds in this
31,192 34,147 instrument in order to redirect them toward
50,000 6%
support of the economy. It should also be borne
25,466 25,480
in mind that liquid financial instruments,
25,000 3% especially those denominated in foreign currency,
26,552
26,397 carry relatively low yield compared to other
0.3%
0
0.2%
0% financial instruments, which reduces the
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1
propensity of banks to make larger investments
Accounts and short term deposits with foreign banks (left scale)
Treasury bills (left scale) in liquid financial instruments in foreign currency.
Central bank bills (left scale)
Cash, accounts and deposits with NBRM (left scale)
By bank, liquid assets in the first quarter of 2014
Annual rate of change (right scale) increased in eight banks (in the interval from
Source: NBRM, based on data submitted by banks. 0.6% to 26.9%), whose share in the total assets
at the level of the banking system as of 31 March
2014 was 62.0%. In the other eight banks, liquid
Chart 20 assets in the first quarter of 2014 decreased in a
Quarterly absolute (top) and relative range between 0.7% and 11.1%.
(bottom) change in the positions comprising
liquid assets The growth of liquid assets in the first
in millions of Denars quarter of 2014 was mainly determined by the
6000
dynamics of banks' investment in treasury bills.
4000
Namely, as of 31 March 2014, the banks'
2000 investment in treasury bills grew by 9.5% on a
0 quarterly basis (11.1% on an annual basis),
-2000 determining the overall growth of total liquid
-4000
assets. Amid small changes in the investment in
other liquid instruments, the share of treasury
-6000
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 bills in the structure of liquid assets increased on
a quarterly basis by 1.9 percentage points and as
Accounts and short term deposits with foreign banks
Treasury bills
Central bank bills
Cash, accounts and deposits with NBRM
of 31 March 2014, it was 29.9%, which makes
12
9.5
them the most common instrument in banks'
9
liquid assets. For two quarters in a row, CB bills
6
have registered minor changes, while short-term
3
0
0.2
0.1
deposits placed with foreign banks, after the
-3
-0.6
perceived decline in the last quarter of 2013,
-6 register a modest quarterly growth of 0.2% in
-9 the first quarter of 2014.
-12
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1
Cash, accounts and deposits with NBRM

Central bank bills
Treasury bills
Accounts and short term deposits with foreign banks
16
Chart 21 As of 31 March 2014, the banks have

Quarterly and annual growth of liquid government bonds in the amount of Denar 6,511
assets, by currency million, representing 1.7% of total assets17. At
in millions of Denars and in percentage the end of the first quarter of 2014, government
6,000 30% bonds registered quarterly growth of Denar 755
4,000 20%
million, i.e. 13.1%.
14.1%
2,000 10% In the first quarter of 2014, changes in the

2.4%
2.3%
currency structure of liquid assets were in the
0 2.4% 0%
-4.5%
-1.6% direction of growth of Denar liquid assets, while
-2,000 -10% liquid assets in foreign currency decreased.
Hence, at the end of the first quarter of 2014,
-4,000 -20%
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 the share of the Denar component in the
Quarterly change of liquid assets in foreign currency (left scale) currency structure of liquid assets was 73.1%,
Quarterly change of Denar liquid assets (left scale)
which compared with the end of 2013, is an
Annual change of Denar liquid assets (right scale)
Annual change of liquid assets in foreign currency (right scale) increase of 1.6 percentage points.
In the first quarter of 2014, the downward
Chart 22 trend in the share of the change in liquid assets
Change of liquid assets by currency / change in the change in total sources continued. Thus, in
of total sources of funds the first quarter of 2014, banks have invested
in percentage only a little bit over 4% of their new funding
70 sources in liquid financial instruments. Also, the
downward trend in the twelve-month moving
57.8
60
49.3
53.4
average of the share of the annual change in
50
40 36.9
liquid assets in the annual change in the total

41.4
28.1
30
20
54.1
sources of funds, continued as well. These trends
10
3.8
11.1 4.1
2.9
illustrate the gradual intensification of the credit
2.1
0 1.2
-1.7 activity and the increase in the propensity of
-10
-20
-9.0
banks to take credit risk. During the first quarter
of 2014, the change in the total sources of funds
6.2013
10.2013
11.2013
12.2013
3.2013
4.2013
5.2013
7.2013
8.2013
9.2013
1.2014
2.2014
3.2014
Annual change of Denar liquid assets / annual change of total sources of funds
was a result of the positive contribution of the
Annual change of liquid assets in foreign currency / annual change of total sources of funds growth of Denar liquid instruments, as opposed
Annual change of liquid assets / annual change of total sources of funds to the growth of foreign currency liquid
Qurterly average of the share of changes in liquid assets in changes of total sources of funds
instruments, where there is a tendency for banks'
disinvestment.
Twelve-month average of the share of changes in liquid assets in changes of total sources of funds
Indicators of liquidity of the banking

system18 in the first quarter of 2014 remained
satisfactory. Different categories of banks'
liabilities have relatively high levels of coverage
with liquid assets, which is the highest among
the liabilities with residual maturity of up to 30
days. Stable liquidity position of domestic banks
17
According to the list of securities for implementing monetary operations ("Official Gazette" no. 26/11), government bonds are
accepted by the National Bank as an instrument for ensuring the implementation of monetary operations. Given their maturity (over
1 year), they are not covered under the liquid assets.
18
The calculation of the liquidity of the banking system does not take into account the resident interbank assets and liabilities.
17
Chart 23 is confirmed by the dynamics of the twelve-

Liquidity ratios of the banking system – levels month moving average of liquidity indicators.
(top) and twelve-month moving average Thus, the twelve-month moving average of the
(bottom) share of liquid assets to total assets in the first
in percentage quarter of 2014 is more than 30%, and the
100
coverage of household deposits with liquid assets
90.9
80
62.8
88.8 89.8
is about 60%. By individual bank, the coverage
58.7 58.8
60
54.9 54.5 55.5
of short-term liabilities with liquid assets on a
40 45.7 43.9 44.8 quarterly basis, decreased in six banks whose
33.1 31.5
20 31.2 share in the total assets of the banking system
0
amounted to 27.9% as of 31 March 2014. The
3.2013
4.2013
5.2013
6.2013
7.2013
8.2013
9.2013
10.2013
11.2013
12.2013
1.2014
2.2014
3.2014
4.2014
coverage of liabilities with residual maturity of up
Liquid assets / total assets to 30 days, decreased in four banks, while the
Liquid assets / short term liabilities coverage of household deposits with liquid assets
Liquid assets / households deposits decreased in ten banks.
Liquid assets / liabilities with residual maturity up to
1 year
Liquid assets / liabilities with residual maturity up to
30 days
The indicator of the loans to deposits ratio
100 also shows stability in the dynamics, and its
89.5
93.0 92.8 twelve-month average has been maintained
80
60.9 59.9
below 90% for three years in a row. In the first
59.7
60
50.9
54.9 55.2
quarter of 2014, this indicator decreased by 0.7
40 43.4 44.9 44.8 percentage points, due to the more dynamic
20
31.3 32.2 31.9 quarterly growth in deposits (2.5%) compared
with the quarterly credit growth (1.7%). On a
0
quarterly basis, this indicator increased in five
3.2013
4.2013
5.2013
6.2013
7.2013
8.2013
9.2013
10.2013
11.2013
12.2013
1.2014
2.2014
3.2014
4.2014
banks, while full use of the deposits for lending

to the private sector, i.e. indicator value of over
100%, was recorded with four banks, with a
share in total assets of the banking system by
Chart 24 14.7%.
Loan to deposit ratio
in percentage
95
92
88.5 88.8 88.9
89
88.7
86 87.5 88.1
83 Loans /deposits
Twelve-month moving average
80
12.2013
3.2013
6.2013
9.2013
3.2014
18
Chart 25
In this quarter, a slight decrease in the
Liquidity ratios of the banking system by
liquidity indicators in terms of currency, was
currency - Denar (top) and foreign currency
registered. Amid more dynamic quarterly growth
(bottom)
in percentage
of the Denar component of banks' liabilities,
140 compared with the foreign currency component,
123.7 122.8 121.4 the reduction is more notable in the Denar
120
95.3 liquidity indicators. This is particularly evident in
100 84.8
80.2
81.7 the coverage of household deposits and short-
80
74.0 72.4 term liabilities with appropriate liquid assets,
60 66.0
59.7 61.8 where the decline in the Denar indicators in the
40 first quarter of 2014 is significantly faster than
20 33.5 30.5 29.7 the fall in the foreign currency indicators. The
0 moderate quarterly growth of the foreign
3.2013 6.2013 9.2013 12.2013 3.2014 currency component of the banks' liabilities, amid
55
simultaneously declining foreign currency
50 47.2 47.0
46.6 liquidity, caused the reduction of liquidity
45
indicators in foreign currency in the first quarter
40
35 32.9 33.1 33.4 33.3 of 2014 to be significantly lower compared with
30
32.1 32.9
32.6 that in Denars. The loan to deposit ratio declined
32.3
25
29.8 on a quarterly basis in both Denars and in
26.3 25.7
20
25.1 foreign currency. The decrease was slightly more
3.2013 6.2013 9.2013 12.2013 3.2014 pronounced in the indicator in Denars due to the
Liquid assets / total assets
more dynamic quarterly growth of Denar
Liquid assets / short term liabilities deposits, but also because of the small share of
Liquid assets / households deposits foreign currency lending in total quarterly credit
Loans/deposits
growth.
Source: NBRM, based on data submitted by banks. Banking system liquidity ratios19, presented
as ratios between assets and liabilities that
Chart 26 mature in the next 30 days or 180 days, during
Liquidity ratios the first quarter of 2014 demonstrated stable
in percentage movement and are at a higher level compared to
3 the average level of these ratios over 201320.
2.4 2.4
2.1
2
1.6 1.6
1.3
up to 30 days
up to 180 days
During the first quarter of 2014, most of
0 the inflow of new sources of funding for the
05.2013
10.2013
03.2014
03.2013
04.2013
06.2013
07.2013
08.2013
09.2013
11.2013
12.2013
01.2014
02.2014
04.2014
banking system arises from the growth of

deposits of non-financial entities. Thus, the
Source: NBRM, based on data submitted by banks. growth of deposits accounted for 88.9% of the
19
The method of calculation of liquidity ratios of banks is determined by the Decision on liquidity risk management of banks
("Official Gazette" no. 126/11, no. 19/12 and no. 151/13) and the respective guidelines.
20
This stems from the changes in the regulations (in force starting from December 2013), which reduced the percentage of
deposits that should be covered by liquid assets, from 80% to 60%.
19
Chart 27 cash flow structure21 of the banks in the first

Structure of cash inflows and outflows of the quarter of 2014. On the other hand, predominant
banking system in the structure of the cash outflows of banks
in percentage was lending to non-financial entities, with a share
cash outflows
100 9.8
5.2
6.5 of 53.6%, followed by banks' investment in
80
60 53.6 financial instruments. Analyzed on annual basis,
40 85.0 the share of the growth of deposits in the
structure of cash inflows and the share of loans
20 39.9
0
-20 in the structure of cash outflows is over 90%,
-40 78.7
-60
88.9
which clearly shows that banks are mostly
-80
21.3 11.1
financed by inflows from the domestic deposit
-100
Q1 2013 Q2 2013 Q3 2013 Q4.2013 Q1 2014 market and that are oriented toward placing the
cash inflows newly-collected sources of funds in loans to the
Growth of liquid assets Growth of gross loans
Growth of other assets Decline in other sources of funds domestic private sector, with a gradual reduction
Decline in deposits
Growth of other sources of funds
Growth of deposits
Decline in liquid assets
of their credit risk aversion.
Decline in other assets
Source: NBRM, based on data submitted by banks. In the first quarter of 2014, funding
The category of “other assets” includes assets that are
sources based on borrowings, interbank
not loans to nonfinancial entities and are not included
in the category of liquid assets (long-term loans in transactions and deposits from financial
foreign and domestic banks, foreign exchange reserve institutions decreased, mainly as a result of the
requirement, foreclosures, fixed assets, etc.) as well fall of the liabilities to parent entities. Regarding
as the decrease of impairment of financial and the currency, the largest contribution (81.6%) in
nonfinancial assets.
The category of “other sources of funds” includes all
the quarterly increase in banks' total sources of
sources of funding which are not deposits of funding was that of long-term sources, mainly
nonfinancial entities (equity and reserves, deposits of due to the growth of deposits of non-financial
financial institutions, loans, subordinated instruments entities, and within these the household deposits.
etc.) and the increase of impairment of financial and
In the first quarter of 2014, short-term sources
nonfinancial assets.
of funding have demonstrated a minimal growth
of 0.1%, mainly due to the reduction of liabilities
to parent entities. Households' preference for
saving in the long run also had its share in the
decline of short-term funding sources, thus
changing the maturity profile of household
deposits in order to increase the long-term
component, at the expense of short-term
deposits.
The sources of funding of banks originating

from their foreign parent entities decreased for
the third consecutive quarter. Thus the trend of
gradual deleveraging of the domestic banks to
their parent entities continued, followed by a
reduction of their already minor importance for
21
Cash inflows and cash outflows of banks are obtained in an indirect way, i.e. by changing the balances of individual accounts of
the banks' balance sheet. The effect on the cash flows of the banks, which is due to the income and expenditures that do not
represent cash outflow or inflow (e.g. write-offs of loans, revaluation of securities available for sale or held for trading, depreciation
of fixed assets, net exchange differences, etc.) is an integral part of the change in the corresponding balance sheet items, the
respective inflow or outflow refers to.
20
Chart 28 the banks' total sources of funding. Thus, the

Sources of funding originating from parent share of liabilities to parent entities in the total
entities (top) and their relative importance banks' liabilities reduced, and at the end of the
to the banking system (bottom) first quarter of 2014 it was 4.3%. The decline in
in millions of Denars and in percentage the used sources of funding from parent entities
20,000
16,372 15,009 14,162
32 (which on a quarterly basis amounted to Denar
15,000 24 846 million, i.e. 5.6%), almost entirely derived
10,000 18.7 16 from the withdrawal of short-term deposits in
5,000 8 domestic banks by foreign parent entities.
0 0
-10.4 Given the intensified growth of the long-
-5,000 -13.5 -8
-10,000 -16 term component of the deposits as the main
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 source of funding for banks in the first quarter of
2014, the trend of growing average maturity of
Liabilities to parent entities (left scale)
the banks' liabilities analyzed by the contractual
Annual rate of change of liabilities to parent residual maturity, continued. The highest annual
entities (right scale)
10 50
growth rate of 16.4%, was recorded in the
8 40 liabilities with residual maturity of over one year,
42.5
6
39.7 37.6 30 which corresponds to the more intensive growth
4 5.2 20 of long-term household deposits. In the first
4.6 4.3
2 10 quarter of 2014, in the structure of the liabilities
0 0 under the remaining contractual maturity, a
-2 -10
reduction was registered in the liabilities with
-4 -20
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 residual maturity of one month to three months,
at the expense of the increase in the shares of
Liabilities to parent entities / total liabilities (left
scale)
the liabilities of the other maturity buckets. In
Liabilities to parent entities / total liabilities to the structure of bank assets according to the
nonresidents (right scale) contractual residual maturity in the first quarter
of 2014, an increase was registered in the funds
Source: NBRM, based on data submitted by banks. with residual maturity of up to one month at the
expense of the decline in the assets in the
maturity bucket of three months to one year,
which was primarily due to the gradual
"maturing" of long-term securities held by banks.
Changes in the maturity profile of the claims on
other domestic and foreign banks also had their
influence on this phenomenon. As a result of
such structure of assets and liabilities of banks
according to the remaining contractual maturities
at the end of the first quarter of 2014, only in the
maturity bucket from 8 to 30 days, there is a
positive difference between banks' assets and
liabilities according to their contractual residual
maturity (Annex 28).
Improved maturity profile of banks' assets

and liabilities and hence the satisfactory level of
liquidity they have at their disposal, is evident
21
Chart 29
Assets and liabilities of banks according to also from the change in the indicators for the
the contractual residual maturity - absolute relative importance of the cumulative negative
amount (top) and structure (bottom) gap between assets and liabilities. The
in millions of Denars and in percentage cumulative negative gap between assets and
400,000
360,000
liabilities of banks with residual maturity of up to
320,000
162,811
73,228 30 days, expressed as a percentage of
cumulative assets of the same contractual
280,000 147,351 65,290 76,046
160,744
240,000
93,081
maturity, decreased by 11.1 percentage points in
89,794
89,357
66,920
200,000 81,523
90,663
160,000
34,626 38,636 34,655 the first quarter of 2014. This positive movement
120,000 29,999
80,000
22,119 25,174
127,048
was caused primarily by the quarterly growth of
95,979
40,000 111,381 105,103
125,324 125,288
the assets with contractual residual maturity of
up to 30 days by Denar 9,124 million, as
0
12.2013
12.2013
3.2014
3.2013
6.2013
9.2013
3.2013
6.2013
9.2013
3.2014
opposed to the liabilities with same residual
Assets Liabilities
contractual maturity that rose by Denar 1,760
100
90 20.8 22.4 23.0

million. Generator of these changes is the Denar
80 41.4 43.5 43.5 component of the aggregate difference between
assets and liabilities with residual maturity of up
70
28.4 27.5 28.1
60
50 18.8
24.5 21.8 11.0 11.8 10.5
to 30 days, where this reduction is far stronger
40
30
8.4
6.7
(on a quarterly basis it is almost 20 percentage
20
31.3
39.8 38.3 38.4 points). On the other hand, with the cumulative
28.1
difference between the foreign assets and
26.0
10
0
liabilities with residual maturity of up to 30 days
9.2013
12.2013
3.2013
12.2013
3.2013
6.2013
3.2014
6.2013
9.2013
3.2014
Assets Liabilities
in the first quarter of 2014, the negative gap
Up to 1 month From 1 month to 3 months
widened by more than 7.0 percentage points.
From 3 months to 1 year Over 1 year Also, the relative importance of the cumulative
difference between banks' assets and liabilities
Source: NBRM, based on data submitted by banks. with residual maturity of up to 90 days
significantly improved in the first quarter of 2014.
Chart 30
Cumulative difference between banks' assets According to expected maturity, the
and liabilities according to the contractual cumulative difference between assets and
residual maturity liabilities of banks in all maturity segments is
as percentage of cumulative assets with the same positive (Annex 29), which is due to the banks'
contractual residual maturity expectations for stability of deposits as the main
0
source of funding for their activities. Namely,
-10
-12.8 according to the banks' expectations, as of 31
-20
-29.1 -31.3
March 2013, 78.8% of deposits with residual
-30 -29.4 -37.0 maturity of up to three months (83.0% as of 31
-40 -34.9
-36.5
-40.6
December 2013) are stable and should remain in
-50
-51.7 -42.3 the banks in the next three months.
-51.2
-52.5
-60
-63.7 -59.0
Foreign currency, up to 30 days
-59.0
-59.6 In the first quarter of 2014, the resilience
-70
Denar, up to 30 days
Total, up to 30 days
of the Macedonian banking system to simulated
-80
Total up to 90 days
Total, up to 1 year
liquidity shocks was satisfactory, due to the
-90
3.2013 6.2013 9.2013 12.2013 3.2014
relatively high amount of liquid assets that banks
Source: NBRM, based on data submitted by banks. have. The largest decrease in the liquid assets of
the banking system would be noticed in the
simulated withdrawal of deposits of the 20
22
Chart 31
Results from the simulations for withdrawal largest depositors. Thus, in this simulation, liquid
of: assets would decrease by 39.5%, the share of
- 20% of households’ deposits (top) and liquid assets in the total assets of the banking
- deposits of twenty largest depositors system would be reduced from 31.1%22 to
(bottom) 21.5%, and the coverage of short-term
as a percentage of reduction in liquid assets liabilities23 would reduce from 54.1% to 41.6%.
70
60 Amid simulation for withdrawal of 20% of

the household deposits, liquid assets would
50
decrease by 34.7%, their share in total assets
40 would be 22.8% and the coverage of short-term
34.6 34.7
30
32.4 33.5 33.4
liabilities would decrease by 10.6 percentage
points.
20
10 Liquid assets are sufficient to cover a more

0 extreme simulation for withdrawal of 50% of the
3.2013 6.2013 9.2013 12.2013 3.2014 household deposits, when they would decline by
140 86.6%, and their share in total assets would be
120 5.7%.
100
The stable liquidity position of Macedonian
80 banks is confirmed also by the results of the
60 simulation of outflow of the sources of funding
40 41.0 40.8 39.8 39.5
used by the foreign parent entities of domestic
37.7
banks24, in which case the reduction in the liquid
20
assets of the banking system would be 6.8%,
0 and the share of the liquid assets in total assets
3.2013 6.2013 9.2013 12.2013 3.2014
Individual bank Banking system
would be lower by only 2.6 percentage points.
A simulation is made also for full use of
certain categories of banks' off-balance sheet
liabilities25 and their conversion into claims,
which would cause an appropriate liquidity
outflow for banks. Here, the liquid assets of the
banking system would be reduced by 19.6%,
while the share of liquid assets in total assets
and coverage of short-term liabilities with liquid
assets would be lower by 6.1 and 10.7
percentage points respectively.
22
The initial level of all indicators in the presentation of the results of the simulations is without the effect of the Macedonian Bank
for Development Promotion AD Skopje, which is excluded from the simulated liquidity shocks due to the legal limit for participation
in the deposit market.
23
The simulations assume that deposits that are flowing out of the banks are of short-term maturity and are included in the short-
term liabilities.
24
Banks' liabilities to parent entities based on subordinated instruments and hybrid capital instruments are excluded from the
simulation, because, according to the regulations for determining capital adequacy, the possibility for their early repayment is
limited.
25
This simulation includes off-balance sheet liabilities of banks based on unused limits on credit cards, irrevocable credit limits and
unsecured letters of credit.
23
3. Currency risk
In the first quarter of 2014, banks maintained low exposure to currency risk,
which as measured by the share of the gap between assets and liabilities with
foreign currency component in the banks' own funds, declined further.
Deeuroization continued, which is evident from the further reduction in the share of
the currency component in both the assets and the liabilities of the banking system.
Chart 32
Quarterly (left and middle) and annual (right) growth of assets and liabilities with currency
component
in millions of Denars and in %
8000 3 assets 8
6,557 with 5.3
1.8 6
6000 5,107 2 currency
1.4 4
compone 4.7
4000 1 0.2 0.4 nt 2
0.2 0.3
567
2000 liabilities
346
0 0
100 with
0 0.1 -2 -1.1 -1.2
-1 currency
-0.9 -4
-2000 compone
-1,534 -2
nt -6
-4000 -3 total
-8
3.2013 6.2013 09.2013 12.2013 3.2014 assets
assets with currency component
liabilities with currency component
total assets
In the first quarter of 2014, the gap

Chart 33 between assets and liabilities with currency
Structure of the gap between assets component26 amounted to Denar 4,803 million,
and liabilities with currency component and compared to 31 December 2013, it declined
in millions of denars by Denar 2,101 million or 30.4%.
80000
60000
59,737 61,019 62,753 63,456 63,265
This reduction mostly stems from the foreign
40000 assets, which in this quarter are lower by Denar
20000
2,456 5,276 7,150 6,903 4,803 1,662 million27. Liabilities with currency
0
-20000
component increased by Denar 567 million, so
-40000 their contribution to the reduction of the gap
-60000
-57,281 -55,742 -55,603 -56,552 -58,462
between assets and liabilities with foreign
-80000
3.2013 6.2013 9.2013 12.2013 3.2014
currency component is lower. The composition of
Gap between the assets and liabilities in foreign currency
assets and liabilities with a currency component
Gap between the assets and liabilities in Denars with FX clause
Gap between the assets and liabilities with currency component
is shown in Annexes 30 and 31.
Source: NBRM, based on data submitted by
banks.
Source:
26
The gap between assets and liabilities with a currency component is the difference between assets and liabilities with a currency
component as determined in the regulation for managing currency risk, where the assets with currency component are presented
on a net basis, i.e. less the impairment of assets with currency component classified in C, D and E risk categories.
27
This reduction comes mostly from foreign currency cash (Denar 1,090 million) and current accounts in foreign banks (Denar
1,963 million). On the other hand, banks' deposits in foreign currency increased by Denar 1,805 million.
24
Chart 34 By reducing the gap between assets and

Share of the gap between assets and liabilities with foreign currency component its
liabilities with a currency component in share in the capital of the banks also lowered (by
the banks' own funds 4.6 percentage points), which reduced the
in percentages
200
already low exposure of banks to currency risk.
140.3 140.6 143.0 145.3 146.9
150
100
50 12.2 16.3 15.8 11.2
5.8
0
-50
-100 -128.4 -126.8 -129.5 -135.7
-134.5
-150
3.2013 6.2013 9.2013 12.2013 3.2014
Gap between the assets and liabilities in foreign currency / own
funds
Gap between the assets and liabilities in Denars with FX clause /
own funds
Gap between the assets and liabilities with currency component
/ own funds
banks.
Table 1
Share of the assets and liabilities with a The share of assets and liabilities with
currency component* in the total assets currency component in the total assets of the
of banks banking system continued to decline.
in percentages
Item 12.2013 3.2014
Assets in foreign currency 27.0 26.1
Assets in Denars with FX clause 18.7 18.5
Assets with currency component 45.7 44.6
Liabilities in foreign currency 43.1 42.6
Liabilities in Denars with FX clause 1.1 1.2
Liabilities with currency component 44.2 43.8
banks.
*In the structure of the assets with a currency The euro dominates the structure of
component, loans and interest receivables are assets and liabilities with a currency component,
on a net basis (adjusted for impairment). accounting for nearly 90%.
“MBPR” AD Skopje is not included.
Table 2
Currency
Source: structure of assets and liabilities with currency component
in percentages
30.3.2013 31.12.2013 31.3.2014
Currency
A ssets Liabilities A ssets Liabilities A ssets Liabilities
Euro 88.6 88.1 88.8 88.4 88.8 88.4
US dollar 6.9 7.6 6.8 7.3 6.8 7.2
Swiss franc 2.0 2.0 2.3 2.1 2.1 2.1
Other 2.4 2.3 2.2 2.2 2.4 2.4
Total 100.0 100.0 100.0 100.0 100.0 100.0
As of 31 March 2014, the aggregate

currency position of all banks was within the
prescribed limit (30% of own funds).
25
Source:
Table 3
Distribution of banks by share of open foreign currency position and aggregate foreign
position in own funds (by currency)
Number of banks
Open foreign currency by currency/own funds A ggregate
foreign
Description Euro US Dollar Swiss Franc Other
currency
position/own
Long Short Long Short Long Short Long Short funds
under 5% 4 3 11 3 10 3 13 1 7
from 5% to 10% 2 1
from 10% to 20% 2 1 4
from 20% to 30% 3 3
over 30%
4. Interest rate risk in the banking book
The exposure of the banks in the Republic of Macedonia to interest rate risk
in the banking book is small. The reason for the modest role of this risk arises from
the practice of banks to apply adjustable interest rates28 in most of the contracts for
loans and deposits (which are the dominant banking products).
By avoiding this risk, banks transfer it to the borrowers, turning it into indirect
credit risk.
In the first quarter of 2014, items with

Chart 35 adjustable interest rates, with a share of 47.2%,
Structure of interest sensitive assets and took over the dominance over the items with
liabilities, by type of interest rates fixed interest rates (44.3%) in the structure of
in percentages
100
interest rate-sensitive assets, primarily due to the
90 increased presence of the adjustable interest
80 43.5 47.2 rates in loans and the exclusion of the allocated
70
60
66.2 67.1
reserve requirement as an interest rate-sensitive
Source:
50 9.0
8.5 item, which was with fixed interest rates29. Loans
40
30 4.4 4.4
are the most numerous financial instruments in
20
47.5 44.3 the structure of interest rate-sensitive assets,
29.4
with 68.2%. Loans with adjustable interest rate
28.5
10
have a share of 69.0% in the total loans and

0
3.2013 6.2013 9.2013 12.2013 3.2014 3.2013 6.2013 9.2013 12.2013 3.2014
Interest sensitive assets Interest sensitive liabilities
cover almost all assets (99.8%) with adjustable
Fixed interest rate
Adjustable interest rate

Variable interest rate
interest rates. Despite the decrease, the
presence of the items with fixed interest rates
banks.
remains high (44.3%) and is due to the high
presence of these interest rates in the
28
Interest rates are adjusted unilaterally because of the changes in interest rate policy of the bank, rather than due to a particular
interest rate or index. The use of adjustable interest rates ensures transfer of the interest rate risk to customers and could serve as
an instrument for managing liquidity and profitability.
29
With the Decision amending the Decision on the reserve requirement ("Official Gazette of the Republic of Macedonia" no.
166/2013) starting from 1 January 2014, the NBRM is exempted from paying reserve requirement remuneration (previously, this
remuneration equaled 1% for the Denar reserve requirement and 0.1% for the reserve requirement in Euros).
26
Chart 36 placements in securities (99.2%) and placements

Gap between interest sensitive assets in deposits (95,0%).
and liabilities, by type of interest rate
in millions of denars On the other hand, the adjustable interest
70000
rates further strengthened their role in the
50000
structure of interest rate-sensitive liabilities
30000
(67.1%). All sight deposits are with adjustable
10000
interest rates (100%) and a significant presence
-10000
of the adjustable interest rates is registered in
-30000
also in time deposits (68.2%)30.
-50000
-70000
3.2013 6.2013 9.2013 12.2013 3.2014
The gap between interest sensitive assets
Fixed interest rate
and liabilities is positive in the positions with
Variable interest rate fixed and variable interest rate31, and negative in
Adjustable interest rate
Total interest sensitive assets and liabilities

the positions with adjustable interest rate32. In
the first quarter of 2014, the gap expanded only
banks. with the adjustable interest rates, generally
because of the faster increase in the liabilities on
demand and time deposits relative to the claims
on loans with adjustable interest rates.
However, this expansion does not imply greater
exposure of the banking system to interest rate
risk because of the nature of this kind of interest
rates, i.e. the possibility for banks to change
interest rates in accordance with their needs.
Due to the exclusion of the reserve requirement
Chart 37
from the interest sensitive assets with fixed
Interest sensitive assets and liabilities,
by maturity and type of interest rate interest rates and the decline in the assets on
in millions of denars demand with variable interest rates, the gap
120000 between interest sensitive assets and liabilities
100000
80000
Assets
with fixed and floating rates narrowed.
60000
40000
In the first quarter of 2014, the adjustable

20000
0
interest rates play the leading role in most

-20000
-40000
-60000
-80000 maturity buckets of interest sensitive assets and
-100000
-120000
Liabilities liabilities, with the most pronounced share being
-140000
up to 1 month 1-3 months 3-6 months 6-12 months over one year that of the interest sensitive liabilities with lower
Adjustable interest rate maturities, due to the demand deposits. Banks'
Variable interest rate
Fixed interest rate expectations for the period until the next
Gap between interest-sensitive assets and liabilities
"adjustment" of the level of interest rates,
banks.
represented by the maturity structure of the
positions with adjustable interest rates, are from
30
Sight deposits and time deposits with adjustable interest rate account for 5.4% and 61.3%, respectively, in the total interest rate-
sensitive liabilities with adjustable interest rates.
31
The positive gap of fixed interest rate positions arises from the fact that this type of interest rate prevails in securities and banks'
investments in deposits. The positive gap of positions with variable rate is a result of sight deposits which are mostly with variable
interest rates.
32
The negative gap in the positions with adjustable interest rates stems from the fact that significant portion of time deposits and
almost all sight liabilities have adjustable interest rates.
27
Chart 38 six to twelve months for assets with adjustable

Weighted value (left scale) and total interest rates and up to one month for liabilities
weighted value of banking book to own with adjustable interest rates.
assets ratio (right scale), by type of
interest rate The moderate presence of the risk of
in millions of denars and in %
800 2.5
changing interest rates in the banking book of
700
2.4 2.4
the banks in the Republic of Macedonia is
600
2.0
confirmed by the share of the total weighted
500 1.5 value of the banking book33 in their own funds,
400
which in the first quarter of 2014 remained
1.0
300
relatively low (2.4%). Analyzing by banks, the
200
100
0.5 ratio between the total weighted value of the
0 0.0
banking book and own funds ranges from 0.1%
3.2013 6.2013 9.2013 12.2013 3.2014
to 10.4% with a median of 2.4% and a third
fixed interest rate (left scale)
variable interest rate (left scale) quartile of 4.4%, with the highest ratio being
adjustable interest rate (left scale)
fixed interest rate (right scale) registered in one bank that does not apply
variable interest scale (right scale)
adjustable interest rate (right scale) adjustable interest rates.
total weighted value (right scale)

banks.
5. Insolvency risk
In the first quarter of 2014, the solvency of the banking system remained high,
despite the minimal reduction of the indicators for solvency and capitalization of the
banking system. The amount of own funds of the banking system is smaller due to
the loss recognized in some banks in the first three months of 2014, but also due to
the proper application of the accounting rules in determining the solvency position
of two banks on a consolidated basis34. The regulatory capital required to cover the
risks of the banking system declined, which is entirely due to the decline in the
capital requirements for currency risk. Capital requirements for credit risk increased
(albeit modestly) that mostly stems from the increased claims on other companies
and claims covered by residential buildings. However, the slower growth of the risk-
weighted assets, compared with the growth of total assets, suggests that banks are
still cautious when taking risks. The results of the stress test conducted on 31 March
2014 are somewhat worse than at the end of 2013, but the banking system retained
the resilience to hypothetical shocks.
33
The total weighted value of the banking book shows the change of the economic value of this portfolio as a result of the
assessment of the change in the interest rates by using a standard interest rate shock (parallel positive or negative change in
interest rates by 200 basis points). The total weighted value of the banking book of the banking system is obtained by aggregating
the weighted values of the banking book of individual banks. For an individual bank, the ratio between the weighted value of the
banking book and the bank's own funds may equal up to 20%.
34
In this section of the Report, the two banks from the group of small banks, Eurostandard Banka AD Skopje and Post Bank AD
Skopje, are treated as a single entity, i.e. in the presented data and analyzes, as of 31 March 2014, these two banks are included
on consolidated basis. Namely, after Eurostandard Banka AD Skopje acquired 100% stake in Post Bank AD Skopje (in January,
2014), the appropriate authorities of the two banks adopted Decisions on initiating a procedure for status change (in February and
March, 2014) - acquisition of Post Bank AD Skopje to Eurostandard Banka, which ended on 30 June 2014.
28
Chart 39 5.1 Indicators for the solvency and

Solvency ratios capitalization of the banking system
in percentage
18
17.3 In the first quarter of 2014, all analyzed
16.8
17 16.6
indicators of solvency and capitalization of the
16 banking system declined by 0.2 percentage
15 points. This stems from the quarterly decline in
14
14.7 the capital positions of the banking system amid
14.4
13
14.2
simultaneous increase in its activities (excluding
risk weighted assets which recorded minimum
12
11.1 11.3
11.1 quarterly decline of 0.1%). Quarterly changes in
11 10.6
10.1
the individual components of the indicators of
9.9
10
9.6 solvency of the banking system are largely
9.7
9
3.2013 6.2013 9.2013 12.2013 3.2014
9.5
determined by the conducted capital investment
Capital adequacy ratio
of one bank into another (from the group of
Tier 1 capital/risk-weighted assets
small banks) and the determination of the
Equity and reserves/total activities solvency position of the two banks on a
Nominal value of common shares and premiums based on these shares/risk- consolidated basis.
weighted assets
Equity and reserves/assets
Source: NBRM, based on data submitted by banks. In the first quarter of 2014, the growth
rates in all components of the solvency indicators
Chart 40 noted downward movement, and the quarterly
Quarterly growth of solvency ratios change in capital positions entered into negative
components zone. Risk weighted assets recorded minimal
in percentage adverse change, which in conditions of growth
3
2.3
(though slower) of the total balance sheet and
2 2.2
off-balance sheet activities suggests further
1.8 1.6
1.2 1.2
caution of banks in taking risks.
1 1.2
5.2 Movements and quality of the own

0 funds of the banking system
-0.1
-0.4 -0.4
-1
In the first quarter of 2014, the own funds
-1.5 of the banking system declined by Denar 671
-1.7
-2
million, or 1.5%. Amid complete absence of new
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
issues of shares, modest amount of reinvested

Activities Capital positions
earnings35 and relatively small amount of new
Risk-weighted assets
Assets
Total balance and off-balance sheet activities
subordinated instruments issued (total Denar 11
Own funds (regulatory capital)
Tier 1 capital (core capital) million, with one bank from the group of small
Equity and reserves
banks), the current loss for the first three months
of 2014 (in banks who realized loss) had the
highest contribution to the quarterly decline of
own funds of the banking system. On the other
hand, more than half of the quarterly reduction
in own funds of the banking system stemmed
35
At the end of 2013, 13 banks showed a profit from operations in the amount of Denar 2,486 million. As of 31 March 2014, only
three banks reinvested the profits earned in 2013 in own funds, totaling Denar 140 million. In the coming months of 2014,
reinvestment of part of the profit from 2013 by other banks can be expected.
29
Chart 41
Structure of quarterly growth of own funds from the equity investment performed by one
in millions of denars bank into another and determining the own
1500
funds of the two banks on a consolidated basis.
1000
The structure of the own funds of the
banking system remained unchanged in the first
500
1 quarter of 2014, with a share of the core capital
11
140
(before deductions from core capital and
0
supplementary capital) of 85.5% in the total own
-419
funds. It could be expected that in the coming
months of 2014, a larger number of banks will
-500 -119
-284
also reinvest their profits earned during 2013,
making positive effect on the amount and quality
-1000
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1
Other changes
of own funds of the banking system.
Revaluation reserves
Allowed amount of subordinated imstruments that may be included in the calculation of own
funds*
Issued new subordinated instruments More details about the level of own funds
Loss in current year
of individual groups of banks are presented in
Retained profit from previous year
Issued new shares

Annex 33.
Note: *Refers to the change in the amount of already
issued subordinated instruments arising from fulfilling
(or failure to fulfill) of the regulatory rules for
inclusion of these instruments in the calculation of
own funds.
Chart 42 5.3 Developments and structure of capital
Structure of quarterly growth of own funds, requirements and available capital of the
by the purpose for covering risks banking system
in millions of denars
1000
Most of the quarterly reduction of own
funds was covered by "free" capital of the
500
banking system. However, the regulatory capital
518
0.5
required to cover the risks of the banking system
199
0 53
-11
-40
79 (or capital requirements)36 dropped, although
minimally, by 0.1% (or by Denar 28 million).
-173 -108
-186
-668
-642
Reduction of the capital requirements for
covering risks is entirely due to the lower amount
-500
of regulatory capital required to cover currency

-1000 risk (by Denar 108 million or 16.2%), which was
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1
most evident with three banks37. At the same
Regulatory capital exceeding capital requirements
time, capital requirements for credit risk
Capital requirements for currency risk
Capital requirements for operational risk

increased by 0.4% (or by Denar 79 million),
Capital requirements for credit risk
mostly as a result of the growth of claims on
other companies and claims covered by
36
Capital requirements are determined at the level of 8% of risk weighted assets.
37
The reasons are different for the three banks. So as of 31 March 2014, one of the banks met the requirement according to which
it is not required to determine and dispose of capital requirement for currency risk (as opposed to 31 December 2013, when it was
obliged to determine and dispose of the capital), with another bank the quarterly growth of liabilities in foreign currency exceeded
the growth in assets and also there was a reduction of the open currency position in off-balance sheet items, and in a third bank
the quarterly decline in bank assets in foreign currency is greater than the fall of liabilities.
30
Chart 43
residential buildings. Despite the quarterly
Structure of own funds according to usage
decline in the part of the own funds that exceeds
for covering risks
in percentage the minimum level necessary to cover the risks,
100 "excess capital" still dominates the structure of
total own funds, with 51.9%.
75 52.5 51.9
53.8
50 1.1 1.5 1.2
5.2 5.1 5.1
25
39.9 41.0 41.8
0
3.2013 6.2013 9.2013 12.2013 3.2014
Regulatory capital exceeding capital requirements

Capital requirements for currency risk
Capital requirements for operational risk
Capital requirements for credit risk
Table 4
Capital requirements for credit risk, by categories of exposure
in millions of denars, unless stated otherwise
Changes
Quarterly (31.12.2013- Annual (31.3.2013-

Capital requirements for credit risk arising from certain categories of
31.3.2013 31.12.2013 31.3.2014 31.3.2014) 31.3.2014)
exposure:
in millions of in millions of
in % in %
Denars Denars
Claims on central banks and central governments 0 0 0 0 0.0% 0 0.0%
Claims on local self-government and regional government 37 45 48 3 6.3% 11 30.0%
Claims on public institutions 105 152 130 -22 -14.3% 25 23.9%
Claims on multilateral development banks and international
0 0 0 0 0.0% 0 0.0%
organizations
Claims on banks 1,011 1,124 1,102 -22 -1.9% 91 9.0%
Claims on other companies 7,404 7,824 7,924 100 1.3% 521 7.0%
Retail credit portfolio 5,103 5,745 5,761 15 0.3% 658 12.9%
Claims secured by residential property 420 365 426 61 16.6% 6 1.4%
Claims secured by commercial real estate 2,090 1,898 1,892 -6 -0.3% -197 -9.4%
Holdings in investment funds 0.73 0.79 0.80 0.01 1.8% 0.1 9.0%
Other positions 1,540 1,504 1,453 -51 -3.4% -87 -5.7%
Total capital requirements for credit risk: 17,710 18,658 18,737 79 0.4% 1,027 5.8%
The quarterly growth rate of credit risk

Source: weighted assets (0.4%) is several times smaller
than the growth of assets (1.2%) and total
balance sheet and off-balance sheet activities
(1.6%) of banks. At the same time, the average
risk weight of the total balance sheet and off-
balance sheet exposure of the banking system,
measured as the ratio between credit risk
weighted assets and total balance sheet and off-
31
Chart 44
Structure of the quarterly growth in credit balance sheet exposures, registered a decrease
risk weighted assets and average risk weight of 0.7 percentage points, indicating that banks
in millions of denars in percentage are still cautious in taking risks.
15000 55
54.1
53.4 More details on capital requirements for
Total: 6,473 mil.
10000
53.4
of Denars
Total: 985 mil. of
53 covering risks and on the capital adequacy ratio,
Denars
by groups of banks, are provided in Annex 34.
Total: -2,161 mil.
of Denars
5000 51
0 49
-5000 47
-10000 45
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1
Level of assumed credit risk (left scale) - increase (+)/decrease (-)
Materialization of credit risk (left scale) - increase (-)/decrease (+)
Volume of total activities (left scale) - increase (+)/decrease (-)
Average risk weight (right scale)

Note: The change in the total volume of activity is
measured by the change in the gross amount of total
balance sheet and off-balance sheet exposure of
banks.
The change in the materialization of the credit risk is
measured by the change in the impairment of the
overall balance sheet and off-balance sheet exposure
of banks
The change in the level of assumed credit risk is
measured by the change in the difference between
credit risk weighted assets and total net balance sheet
and off-balance sheet exposure of banks.
The average risk weight is calculated as a ratio
between credit risk weighted assets and total on-
balance and off-balance sheet exposure of banks
5.4 Stress test of the resilience of the

banking system to hypothetical shocks
Conducted testing of the resilience of the

banking system and of individual banks in the
Republic of Macedonia to simulated shocks
indicates slightly weaker results compared with
the end of 2013. They are partly due to the
quarterly reduction of the capital adequacy of the
banking system, but also arise from the
somewhat more emphasized sensitivity of
individual banks to assumed shocks, compared
with the end of 2013. Capital adequacy of the
banking system does not go below 8% in any of
32
Source:
Chart 45 the simulations, although individual banks reveal

Capital adequacy ratio of the banking system, hypothetical need for recapitalization in the event
prior to and after the simulations of credit of possible materialization of the simulated
shocks extreme shocks.
in percentage
18 The hypothetical shocks on the part of the
credit risk have the greatest impact on the
16.8 16.6
16
stability of the banking system. In the most
extreme simulations presented in this report
14.1
13.8
14
13.9
13.6 (increased credit exposure in risk categories "C",
12
11.9
"D" and "E" by 80% and migration of 10% of the
11.5
credit exposure classified in each of the risk
categories "A" and "B" to higher risk categories),
10
8.6
8 8.6
8.2
8.1
the capital adequacy of the banking system is
reduced to a level (of 8.1% and 8.2%
6
3.2013 6.2013 9.2013 12.2013 3.2014 respectively), which is close to the statutory
Increase in the credit risk exposure classified in the risk categories C, D and E by 30%
minimum of 8%. The simulations show that the
reduction of the capital adequacy of the banking
system to the statutory minimum level of 8%
Transfer of 10% of the credit exposure classified in the risk categories A and B to the
risk categories C, D and E, where the transferred credit exposure is distributed requires an increase of 81.3% (85.2% as of 13
equally
Simultaneous reclassification in the risk category C of the five largest credit exposures
to nonfinancial entities (including the connected persons) December 2013) of the credit exposure with a
Source: NBRM, based on data submitted by banks. higher risk level, i.e. migration of 10.2% (10.6%
as of 13 December 2013) of the credit exposure
Figure 46
classified in each of the risk categories "A" and
Capital adequacy ratio at the level of the "B" to higher risk categories (these simulations
banking system, before and after would lead to a doubling of the share of non-
simulations of combined shocks performing loans in total loans, from the current
in percentage
10.6% to 20.8%).
18
16.8 16.6
Isolated shocks on the side of currency risk
16
and interest rate risk have no significant impact
on the level of capital adequacy. However, their
14
materialization would cause shocks on the part of
11.8 the credit risk, whose impact on the capital
12 11.5
adequacy of the banking system was already
presented above.
10
8.6
8.2
8 8.6
8.2
6
3.2013 6.2013 9.2013 12.2013 3.2014
Increase in the credit risk exposure in the risk categories C, D and E by 50% and
depreciation of the foreign exchange rate of the Denar relative to the Euro by 20%
Source:
Increase in the credit risk exposure in the risk categories C, D and E by 80% and
increase in the interest rates of individual on-balance sheet and off-balance sheet
positions by 1 - 5 percentage points
Increase in C, D and E by 80%, depreciation of the foreign exchange rate of the
Denar relative to the Euro by 30% and increase in the interest rates of individual on-
balance sheet and off-balance sheet positions by 1 - 5 percentage points
Capital adequacy ratio, before simulations
33
Part 2 Structural features, significant balance sheet

changes and efficiency and profitability of the banking
system
34
II. Structure of the banking system

1. Number of banks and ownership structure of the banking system
As of 31 March 2014, the banking system in the Republic of Macedonia

consisted of sixteen banks and relative to 31 December 2013, this situation remained
unchanged. In July 2014, as a result of the completion of the procedure for acquisition of one
domestic bank by another, the number of banks reduced to fifteen.
Chart 47 Eleven banks are predominantly

Foreign bank subsidiaries, number and owned by foreign shareholders, and seven
share in total assets of them are foreign bank subsidiaries.
Number of subsidiaries in % Compared with the previous quarter, this
10 70 situation remained unchanged. The share of
59.0 58.5 58.6 58.8 59.2
8
60 subsidiaries of foreign banks in the total assets of
50 the banking system increased by 0.4 percentage
6 40 points38 .
4 30
7 7 7 7 7
20
2
10
0 0
3.2013 6.2013 9.2013 12.2013 3.2014
Number of banks (left scale)
Share in total assets (right scale)
Chart 48
Market share (assets) of banks by country Predominantly foreign owned banks
of origin of the dominant foreign retained the lead role in the major balance sheet
shareholder* positions of the banking system. Their market
in percentages share (by asset size) increased by 0.4 percentage
70
60
points and at the end of the first quarter it was
3.2013 12.2013 3.2014
50 68.7%. The individual market share of these
40 banks ranges from 0.5% to 21.2%. The market
30 share of banks predominantly owned by
20
shareholders from the European Union accounted
10
0
for 59.7%.
Bulgaria
Austria
Total
Slovenia
Turkey
Greece
Germany
France

*Banks in domestic ownership and banks without
major owner are not included in the figure.
Source:
38
Four subsidiaries of foreign banks increased their activities in the first quarter of 2014 and fully participated in the growth of total
assets of the banking system.
35
Chart 49 Concentration in the banking system

Herfindahl index in the first quarter of 2014 decreased, but
in index points
remains high. The level of concentration above
2100
2000
the acceptable level according to the Herfindahl
1900 index39 is typical for household loans and
1800 deposits, but the value of the indicator is
1700 constantly decreasing.
1600
1500
1400
3.2013 6.2013 9.2013 12.2013 3.2014
Total assets Household credits

Enterprises credits Household deposits
Enterprises deposits
Chart 50 The share of individual banks in

Share of individual banks in the total total bank assets also indicates a
assets of the banking system concentration in the banking system. Ten
in percentages out of sixteen banks, banks have an individual
25
12.2013 3.2014
share below 4%, and these banks account for
20
20.8% of the total assets of the banking system.
15
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
2. Banks’ activities
In the first quarter of 2014, total assets of the banking system grew at a
slower pace, while annually their growth accelerated, as observed primarily in
lending. Thus, compared with December and March 2013, the annual growth rate of
loans increased by 1.2 and 2.4 percentage points, respectively, and reached 7.6%.
Moreover, in the period from March to May 2014, lending to non-financial entities
intensified, indicating a gradual improvement in the perceptions of domestic banks
regarding the risk profile of the credit demand.
n
39
Herfindahl index is calculated according to the formula HI   ( S j ) 2 , where S is the share of each bank in the total amount of
j 1
the analyzed category (e.g., total assets, total deposits, etc.), where n is the total number of banks in the system. When the
Herfindahl index ranges from 1,000 to 1,800 units, the concentration ratio in the banking system is considered to be acceptable.
Source:
36
In addition, banks have increased their investments in instruments issued by

the government, which despite being low-risk, also represent an appropriate
instrument for liquidity management. Denarization continued, in both loans and
deposits. Generators of the growth of deposit activity were Denar long-term
deposits of the household sector.
Table 5
Structure of the assets and liabilities of the banking system
Amount in millions of Denars Structure (in percent) Change 3.2014/12.2013 Change 3.2014/3.2013
Balance sheet In millions In millions
31.3.2013 31.12.2013 31.3.2014 31.3.2013 31.12.2013 31.3.2014 In percent In percent
of Denars of Denars
Cash and balances with NBRM 44,104 38,783 38,719 11.9 10.5 10.3 -64 -0.2 -5,384 -12.2
Securities portfolio 57,899 63,767 67,724 16.3 17.3 18.1 3,957 6.2 9,825 17.0
Placements with banks and other financial
43,473 44,442 43,500 12.2 12.0 11.6 -942 -2.1 27 0.1
institutions
Loans of nonfinancial entities (net) 190,533 201,835 205,064 53.6 54.6 54.7 3,228 1.6 14,530 7.6
Gross loans of nonfinancial entities 217,407 230,132 233,994 61.1 62.3 62.5 3,863 1.7 16,587 7.6
Accumulated amortization of loans of
-957 -935 -919 0.0 0.0 0.0 16 -1.7 38 -4.0
nonfinancial entities
Impairment (provisions) of loans to nonfinancial
-25,917 -27,362 -28,012 0.0 0.0 0.0 650 -2.4 2,095 -8.1
entities
Accrued interest and other assets 9,802 9,209 8,076 2.8 2.5 2.2 -1,133 -12.3 -1,725 -17.6
Fixed assets 9,841 11,469 11,529 2.8 3.1 3.1 60 0.5 1,688 17.2
Unallocated loan loss provisions 0 0 0 0.0 0.0 0.0 0 0.0 0 0.0
Total assets 355,652 369,505 374,612 100.0 100.0 100.0 5,107 1.4 18,961 5.3
Deposits from banks and other financial
17,669 17,143 15,547 5.0 4.6 4.2 -1,596 -9.3 -2,122 -12.0
institutions
Deposits from nonfinancial entities 248,328 259,299 265,704 69.8 70.2 70.9 6,405 2.5 17,377 7.0
Borrowings (short-term and long-term) 34,812 34,910 34,998 9.8 9.4 9.3 87 0.2 186 0.5
Liability component of hybrid and subordinated
7,739 7,991 7,970 2.2 2.2 2.1 -20 -0.3 232 3.0
instruments
Other liabilities 6,582 7,591 7,434 1.9 2.1 2.0 -158 -2.1 852 12.9
Provisions for off-balance sheet items 924 913 958 0.3 0.2 0.3 45 4.9 34 3.7
Capital and reserves 39,598 41,657 42,001 11.1 11.3 11.2 344 0.8 2,403 6.1
Total liabilities 355,652 369,505 374,612 100.0 100.0 100.0 5,107 1.4 18,961 5.3
Source: NBRM, based on the data submitted by banks.

Note: The position "placements with the central bank" of Annex 1, is included in the position "Cash and balances with
the NBRM" in this table.
Chart 51 As of 31 March 2014, the financial

Level of financial intermediation, by country intermediation of the domestic banking system,
in percentages measured by the ratios of assets, loans and
450 300 deposits to GDP, was 78.2%, 48.8% and 55.5%,
400
350
Assets/GDP (left scale) 250 respectively (as compared to the first quarter of
300
Loans/GDP (right scale)
200 2013 it is an increase of 0.5, 1.3 and 1.2
250
Deposits/GDP (right scale)
150
percentage points, respectively). The level of
200
financial intermediation in the country is still
150 100
100
lower than in most of the analyzed EU member
50
50
states, but it is at a similar level compared to
0 0 some of the new EU member states, as well as
countries in the region (regarding the ratio of
deposits and loans to GDP).

Note: Data for the Republic of Macedonia are as of 31
March 2014, while for the other analyzed countries as
of 31 December 2013.
37
Chart 52 As of 31 March 2014, the total assets of

Quarterly and annual growth of assets of the the banking system amounted to Denar 374,612
banking system million. In the first quarter of 2014, they grew at
in millions of denars and in % a slower pace compared with the growth in the
25000
7.0
8
previous quarter (Q4 2013), as opposed to the
23000
annual growth, which has accelerated. In
7
21000 5.9
6
19000
17000
5.3
4.7 5.3
5
conditions of slower quarterly growth of the
15000
13000 4
credit activity40, the growth of deposits41 of non-
11000 3 financial entities, as a category that determines
9000
7000
1.6 1.8
1.4
2 the movement of assets, reflected in the growth
5000
3000
0.8 0.4 1 of banks' investments in liquid securities.
1000 0
3.2013 6.2013 9.2013 12.2013 3.2014
Absolute quarterly growth of total assets

In the first quarter of 2014, the growth of
Absolute annual growth of total assets
Quarterly growth rate of total assets
investments in government securities was a
Annual growth rate of total assets
driving force of growth of the banks' overall
Source: NBRM, based on the data submitted by banks. securities portfolio. Compared with the end of
2013, banks increased their investments in
Chart 53 government securities by Denar 3,694 million, or
Quarterly (top) and annual (bottom) growth 10.0%, with 80.0% of this growth being due to
rate of securities investments in short-term treasury bills, and the
in percentages rest to investments in government bonds.
60
6.2
7
Most (or 61.0%) of the investments in
50 6 government bonds are in the two-year
40
5 government bonds in Denars and in Denars with
4.9
30
4 foreign currency clause. Banks' placements in CB
20
9.3 8.7
13.9
3
bills on a quarterly basis were almost unchanged.
10
1.4 7.2
9.5
0.1 2
These developments contributed to a further
0
1.2
-0.1 increase in the share of government securities in
1
-10 -7.6
3.2013 6.2013 9.2013 12.2013 3.2014 the banks' securities portfolio at the expense of
-20 0
the reduced share of CB bills.
200 20
17.0
150 128.0 156.2 15

109.7
100
11.4 10
50
10.9 11.1
5
-13.2
0
-2.0 6.2
-40.6
0
-50 -1.4
3.2013 6.2013 9.2013 12.2013 3.2014
-100 -5
Placements in CB bills (left scale)

Placements in Treasury bills (left scale)
Other placements (left scale)
Total placements in securities (right scale)

Most of the other investments (80.4%) are
investments in government bonds).
40
For more details, see section 2.1. Loans to nonfinancial entities
41
For more details, see section 2.2. Deposits of non-financial entities.
38
Chart 54
Chart 55
Banks' investments in government bonds
Structure of the securities portfolio
(nominal value), by currency and maturity in percentages
in thousands of denars and in %
500000 16
60
13.6 53.1
450000
51.5 50.4
13.0 14 47.2 48.9
400000 50
12 41.9
350000 41.4 41.2
39.9
300000 10 40 37.6
250000 8
200000 6
30
150000
4
100000 20
1.2 2
50000 10.9 11.1 12.0
0 0 10 7.3
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 5.5
5 year government bonds with FX clause (left scale)
0
5 year government bonds without FX clause (left scale)
3 year government bonds with FX clause (left scale) 3.2013 6.2013 9.2013 12.2013 3.2014
3 year government bonds without FX clause (left scale)
2 year government bonds with FX clause (left scale)
Placements in CB bils
2 year government bonds without FX clause (left scale) Placements in Treasury bills
Share of government bonds in total government securities owned by banks (right scale)
Other placements
Chart 56 Placements with banks and other financial

Placements with banks and other financial institutions account for 11.6% of the total assets
institutions (quarterly change) of banks and decreased in the first quarter of
in percentages 2014. This change stems from the reduction in
60
50
7
6
short-term deposits in domestic banks42 in
40 5 Denars and in foreign currency and the reduction
30
of long-term loans to domestic banks (by "MBPR"
4
21.3
20 3
10.9
10
0
4.8 0.1
2
1
AD Skopje43) in foreign currency. On the
-10
-1.5
0.8 -9.2
-3.0 0 liabilities side, this was reflected in the reduction
-20
-30 3.2013 6.2013 9.2013 12.2013
-23.3
3.2014
-1
-2
of long-term loans in foreign currency to
-40
-3.9
-2.1
-3 domestic banks (to MBPR).
-50 -4
-49.0
-60 -5
Accounts and deposits with domestic banks (left scale)
Accounts and deposits with foreign banks (left scale)
Loans to domestic baks (left scale)
Total placements with banks and other financial institutions (right scale)
42
Assets in domestic banks declined by Denar 448 million and determined 47.6% of the reduction in the placements with banks and
other financial institutions. This decrease stems from the decline of short-term time deposits in foreign currency (by about Denar
241 million) in one large and one small bank, and the reduction of short-term time deposits with domestic banks in Denars in one
small bank (by Denar 130 million).
43
Loans to domestic banks declined by Denar 399 million (and determined 42.4% of the decrease in placements with banks and
other financial institutions), entirely due to the reduction of long-term loans in foreign currency of "MBPR" AD Skopje to other
domestic banks due to the regular repayment of due liabilities based on the used credit line from EIB.
39
Chart 57 However, the total liabilities on the basis

Credit liabilities, quarterly growth of loans registered a small increase of 0.2%,
in percentages primarily due to increased liabilities based on
20
long-term loans in foreign currency to non-
15 residents in one medium-sized bank.
8.5
10
6.8 Deposits from banks and other financial
5
3.2 1.0
2.4 institutions have declined, mostly because of the
0 0.5
0.2
withdrawal of short-term deposits by the parent
-5 -3.7
-2.3
entity of a medium-sized bank and to a lesser
3.2013 6.2013 9.2013 12.2013 3.2014
extent due to the lower short-term deposits of
-10
Credit liabilities to financial institutions (residents)

domestic banks.
Credit liabilities to nonresidents
Total credit liabilities
Macedonian banks perform most of their

Chart 58 44
Liabilities to (top) and claims on (bottom) activities in the domestic market. The share of
nonresidents banks' liabilities to and claims on nonresidents in
in millions of denars and in % total assets is not high, and usually moves
42000 12
around 10.0%. In the first quarter of 2014, these
39000
36000
11.6
shares further reduced45.
33000
30000 10.8 11
27000
24000 10.8
21000 10.2
18000
15000 10
12000 10.1
9000
6000
3000
0 9
3.2013 6.2013 9.2013 12.2013 3.2014
Liabilities to nonresidents (left scale)
Share of the liabilities to nonresidents in total liabilities (right

scale)
36000 10
33000
30000
27000
24000 9.2
21000
18000 8.9 9
15000
8.6
12000
9000 8.3
6000
8.1
3000
0 8
3.2013 6.2013 9.2013 12.2013 3.2014
Claims on nonresidents (left scale)
Share of the claims on nonresidents in total assets (right scale)
44
Analyzed by individual banks (with the exception of "MBPR" AD), the share of banks 'claims on non-residents in total assets
ranges from 1.6% to 18.7%, while the share of banks' liabilities to non-residents in the total liabilities ranges from 0.3% to 32.9%.
45
Banks’ claims on non-residents fell by Denar 133 million, or 0.4%. In their framework, more significant changes are noted in
regular current accounts with foreign banks (reduction by Denar 1,945 million) and in term deposits abroad (increase of Denar
2,044 million). Other changes are minor but contribute to the reduction of claims on non-residents.
Liabilities to non-residents decreased by Denar 146 million, fully as a result of the above mentioned withdrawal of deposits by the
parent entity of one medium-size bank.
40
2.1 Loans to nonfinancial entities46

Chart 59
Loans In the first quarter of 2014, loans to non-
in millions of denars financial entities continued their growth on both
236000 233,994
quarterly and annual basis, albeit with different
232000
230,132
dynamics. Loans to nonfinancial entities47
228000
increased quarterly by Denar 3,863 million, at a
224000
217,407 rate which is by 1.4 percentage points lower
220000
216000
compared to the growth rate in the previous
212000
quarter (Q4 2013). The slowdown of credit
208000 activity was most pronounced in the corporate
204000 sector, and to a lesser extent it was present also
200000
3.2013 6.2013 9.2013 12.2013 3.2014
with the loans to households. However,
Total loans to nonfinancial entities observed on a monthly basis, the slowdown in
credit growth was registered only in the first two
months of the quarter, while in March, lending
accelerated, particularly in the corporate sector.
Chart 60 This trend of faster monthly growth in lending
Quarterly (top) and annual (bottom) growth remained also in May 2014.
rate of loans to non-financial entities
in millions of denars and in % Moreover, the annual growth rate of loans
7000 4
as of 31 March 2014 was higher than the annual
6000 3.1 rate of growth at the end of the last quarter of
3
5000
2013. This movement represents the more
4000 2.0
2 favorable expectations of banks about the risks,
3000
1.7
but it is also an effect of the current monetary
2000
1 loosening on banks' lending. The
macroprudential measure of the National Bank in
1000
0.5 0.7
0 0
3.2013 6.2013 9.2013 12.2013 3.2014 the regulation governing the liquidity risk
Absolute quarterly change of total loans (left scale) management, from the end of 2013, encourages
Quartely change rate of total loans (right scale)
the increase of the credit support to the real
18000
7.6
8 sector48.
16000
14000 7
12000 6.4 In the first quarter of 2014, contributions
of the household sector (49.7%) and corporate
10000
6
8000
6000
5.2
4.6
sector (50.6%) to the total growth in lending
5
activity are almost equal. Lending to companies
4000 4.6
2000
0 4 registered quarterly growth of Denar 1,953
3.2013 6.2013 9.2013 12.2013 3.2014
Absolute annual change of total loans (right scale) million (or 1.4%), which was mostly a result of
Annual growth rate of total loans (left scale) the activity "industry" (Annex 15). Quarterly
Source: NBRM, based on the data submitted by banks. growth of loans to households amounted to
46
Loans to non-financial entities include the loans to resident and non-resident non-financial entities, including loans to private and
public nonfinancial companies (corporate loans), central government, local government, non-profit institutions serving households
(loans to other clients), sole proprietors and natural persons (loans to households).
47
Analyzed by individual bank, thirteen banks reported a quarterly increase of loans to non-financial entities (ranging from 0.9% to
31.8%), while other banks reported a quarterly reduction of loans (ranging from 0.9% to 2.6%).
48
According to the amendments to the Decision on liquidity risk management, which have been applied since December 2013, in
the calculation of the liquidity ratio up to 30 days and up 180 days, the percentage of term deposits which are assumed to flow out
of the banks and which should be covered with liquid assets, reduced (from 80% to 60%).
41
Denar 1,920 million (or 2.1%), with the most

popular loan products still being consumer loans
and loans for the purchase and renovation of
residential and commercial properties (Annex
15).
Chart 61
Quarterly (top) and annual (bottom) growth of loans by sector, currency and maturity
in percentages
4 6 50 6
4.9 45 45.1
3.3 5 4.8
40 5
3 4 35
2.5 3.3 30 4
2.9 3 3.2
25
2.1 20.9
2 2 1.4
20 3
15 13.6
1 0.4 2.2
1.4 0.6 0.5 10 2
1.1 0 5 0.8
1 0.05 1.6
0 1
-1 -5 -1.5
-0.7
0.5 0
-2 -10 3.2013 6.2013 9.2013 12.2013 3.2014
0 3.2013 6.2013 9.2013 12.2013 3.2014 -15 -15.5
-3 -20 -1
-1.2
-4 -25 -1.5
-1 -30 -2
3.2013 6.2013 9.2013 12.2013 3.2014 -5
14 30 12
15 14.9
11.8 25
12 13.9 22.1 16.7 10.1 10
10.7 20
11 12.8
10 15 15.9 8.4 8
10
8 6.1
7.1 7 5 1.2 6
5.1 3.8 0
6 3.1 3.5 5.4
2.3 4
4.1 3 -5
3.0 -7.4
4 -10
2.5 2
-15 3.2013 6.2013 9.2013 12.2013 3.2014
2 -1
-0.8 -0.8 -20 0
-4.3 -22.8
0 -25
-5 3.2013 6.2013 9.2013 12.2013 3.2014
3.2013 6.2013 9.2013 12.2013 3.2014 -30 -2
Denar loans Past due loans (left scale) Non-performing loans (left scale)
Households Enterprises Denar loans with FX clause
Short-term loans (right scale) Long-term loans (right scale)
Foreign currency loans
Denar loans49 registered the fastest

quarterly growth (of Denar 3,549 million or
3.3%) and gave the largest contribution (91.9%)
to the growth of lending in the first quarter of
2014. Denarization of loans mirrors the same
process as with deposits, which are the main
source of funding of the banks' activities.
Additional confirmation of denarization is the
slower growth of loans in Denars with foreign
exchange clause, which resulted from the
reduction of these loans with the corporate
sector. Foreign currency loans registered modest
growth of Denar 284 million, which is solely due
to loans to enterprises (Annexes 5 and 6).
49
The corporate sector had higher contribution (67.7%) in the growth of Denar loans compared to the household sector (32.0%).
42
Chart 62
Structure of loans by sector, currency and maturity
in percentages
100 100 100
1.3 1.4 1.3 1.3 11.9 12.3 11.8 11.5 11.1
1.4 25.4 24.5 23.8 23.5
25.5 1.0
1.4 1.3 0.8 1.2
80 80 80
60.0 59.4 58.6 58.7 58.6
60 60 29.5 29.2 29.1 28.9 28.4 60
67.4 66.8 67.9 68.0 67.9

40 40 40
45.0 45.4 46.5 47.3 48.0 20

20 38.6 39.2 40.0 40.0 40.1 20
19.3 19.7 19.3 19.7 19.8
0 0 0
3.2013 6.2013 9.2013 12.2013 3.2014 3.2013 6.2013 9.2013 12.2013 3.2014 3.2013 6.2013 9.2013 12.2013 3.2014
Denar loans Denar loans with FX clause Foreign currency loans Short-term loans Long-term loans Past due loans Non-performing loans
Households Enterprises Other clients
Long-term loans are most common in the

structure of loans to non-financial entities, and in
the first quarter of 2014 they had the largest
contribution (62.9%) to the growth of total
loans. The quarterly growth of long-term loans
amounted to Denar 2,429 million (or 1.6%) and
mostly (60.3%) comes from the household
sector.
Non-performing50 loans recorded

quarterly decrease of Denar 407 million (or
1.5%).
2.2 Deposits of nonfinancial entities
Chart 63 In the first quarter of 2014, deposits of

Deposits nonfinancial entities registered a quarterly
in millions of denars growth of Denar 6,405 million, while their growth
270000
rate of 2.5%51 remained unchanged compared to
265000
265,704
the previous quarter. On annual basis, deposit
260000
259,299 activity grew at an accelerated pace (the annual
252,963 growth rate is higher by 1.3 percentage points
255000
248,328
compared to December 2013). The accelerated
250000
245,680
growth of deposits continued in April and May
245000
2014 (as of May 2014, the annual deposit growth
240000
rate was 8.7%).
235000
3.2013 6.2013 9.2013 12.2013 3.2014
Deposits of households are generators of
Total deposits of nonfinancial entities
the growth of deposit activity in the first quarter
Source: NBRM, based on the data submitted by banks. of 2014 and they registered quarterly growth of
Denar 4,569 million. Most (72.9%) of this growth
50
See more detail in Section I.1. Credit risk
51
Analyzing by individual banks, twelve banks reported a quarterly increase of deposits (the increasing interval ranged from 0.08%
to 12.1%, by bank), whereas other banks reported a quarterly reduction of deposits (the reduction ranged from 0.8% to 2.3%, by
bank).
43
Chart 64 is due to households’ Denar deposits, whose

Quarterly (top) and annual (bottom) growth growth was mostly driven by long-term deposits
rate of deposits of non-financial entities (64.8%), while the contribution of short-term
in millions of denars and in % deposits was 35.9% (Annex 10).
9000
3.0 4
7000 2.5 2.5 Corporate deposits recorded quarterly
5000
3 growth of Denar 1,204 million, and their
1.2 2 contribution to the total growth of the deposit
3000
base is 18.8%, which in most part (41.6%)
1
1000
results from the corporate Denar deposits with
-1000 3.2013 6.2013 9.2013 12.2013 3.2014 -1 foreign currency clause52 , and to a lesser extent
-3000
-1.1
-2
(37.9%) from the corporate Denar53 deposits.
Absolute quarterly change of total deposits (left scale)
In the first quarter of 2014, depositors’
Quarterly change rate of total deposits (right scale)
18000 8
interest in keeping deposits in domestic currency
6.0
7.0 continued to increase. Denar deposits increased
15000
6 by Denar 4,173 million, on a quarterly basis, and
12000 4.6 5.7
3.6
increased their share in the total deposit base.
9000 4
Most (79.8%) of the growth of Denar deposits
6000
2 was due to the household sector. The quarterly
3000
growth of foreign currency deposits amounted to
0 0
3.2013 6.2013 9.2013 12.2013 3.2014 Denar 1,731 million and most of it results from
Absolute annual change of total deposits (left scale) the long-term household deposits54. Denar
Annual change rate of total deposits (right scale)
deposits with FX clause noted a quarterly growth
Source: NBRM, based on the data submitted by banks. of Denar 502 million.
Chart 65
Quarterly (top) and annual (bottom) deposit growth by sector, currency and maturity
in percentages
10 5 40 5 8
3.8 34.9 4.5
8 4 30 4
3 7.2 3.0
6 3.0 20 3
21.0 2.4 7
3.2 2 1.4
4 1.5 10 2
2.4 1.3 1.3
2.1 1
2 0.7 0 1
2.4 2.0 0 0.1 6
-0.6 0
0 -13.0 -10
-1 5.8
3.2013 6.2013 9.2013 12.2013 3.2014 -1
-2 -20 3.2013 6.2013 9.2013 12.2013 3.2014
-2 3.2013 6.2013 9.2013 12.2013 3.2014 5
-4 -2
-3 -30
4.8
-6 -3
-4 -40 -3.8
-8 -4 4
-5 -50
15 0 12 30
7.4 13.1 10.0
8 7.0 13 10
6.7 10.9 -10.2 -10 28.3 8,3
11 8
6 11.4 6.7
5.9 9 6
-20
7 4
4
5 -30 2 24.7 25
3.2 -0.7
2 3 0
0.9 -42.1 0.4 0.6 23.0
-40 -2
1
0 -4 3.2013 6.2013 9.2013 12.2013 3.2014
-1
3.2013 6.2013 9.2013 12.2013 3.2014 -50 -4.5
-6
-3 -55.6 -7.2
-2 -8 20
-2.6 -5 3.2013 6.2013 9.2013 12.2013 3.2014 -60
-4 Sight deposits (left scale)
Denar deposits (left scale) Short-term deposits (left scale)
Enterprises Households Foreign deposits (left scale)
Long-term deposits (right scale)
Denar deposits with FX clause (right scale)
52
Corporate Denar deposits with foreign currency clause increased by Denar 501 million, entirely due to the growth of short-term
corporate Denar deposits with foreign currency clause in one medium-size bank.
53
Corporate Denar deposits increased by Denar 457 million, entirely due to the growth of corporate sight Denar deposits.
54
Foreign currency deposits of households rose by Denar 1,237 million and determined 71.5% of the growth of total foreign
currency deposits. Long-term foreign currency deposits of households had the highest contribution (79.9%) in the growth of
foreign currency deposits of households.
44
Long-term deposits were the main drivers

of growth in the deposit base in the first quarter
of 2014. The increased interest in long-term
savings is an indicator of the confidence in the
domestic banking system, but it is also
associated with the higher interest rates on long-
term deposits. Quarterly growth in long-term
deposits (of Denar 3,708 million) is largely due to
the growth of long-term savings of households in
local currency55. Sight deposits grew by Denar
2,592 million, which was conditioned by the
growth of Denar sight deposits (contribution of
households is 54.6%, while the contribution of
companies is 32.1%). Short-term deposits
registered a modest quarterly increase of Denar
104 million.
Chart 66
Deposit structure by sector, currency and maturity
in percentages
100 3.4 3.5 3.5 3.4 3.6 100 100
22.1 23.5 24.1 24.7 25.5
80 80 80
47.3 45.8 45.7 44.9 44.5
60 73.0 74.5 73.2 73.1 73.1 60 0.5 0.6 0.7

60
0.9 0.5 44.7 44.2 43.0 42.5 41.5
40 40
40
51.8 53.8 53.8 54.5 54.8

20
20 33.1 32.3 32.9 32.9 33.0
20
23.6 22.0 23.3 23.4 23.3
0
0
0 3.2013 6.2013 9.2013 12.2012 3.2014
3.2013 6.2013 9.2013 12.2013 3.2014
3.2013 6.2013 9.2013 12.2013 3.2014 Sight deposits
Short-term deposits
Other clients Households Enterprises Foreign currency deposits Denar deposits with FX clause Denar deposits
Long-term deposits
3. Profitability
In the first quarter of 2014, the banking system registered profit in the
amount of Denar 414.5 million, thus interrupting the several-year trend of achieving
negative financial results at this time of the year. Lower interest expenses and
lower impairment of financial assets (loans) of banks had the most pronounced
effect on increasing profits. Impairment of non-financial assets (foreclosures) is
rapidly growing, and operating costs of banks remained almost unchanged.
Profitability indicators have improved significantly, and the operational capability of
banks of generating revenues that cover the costs of operation has increased, too.
55
Denar long-term household deposits increased by Denar 2,160 million and had the largest contribution (58.3%) in the growth of
long-term deposits. The contribution of long-term foreign currency deposits of households in the growth of long-term deposits
amounted to 26.7%.
45
Compared with March 2013, the number of banks which registered profits
remained unchanged (nine banks), but due to a change in the composition of banks
which registered profits, the share of assets of these banks in the total assets of the
banking system declined by 2.6 percentage points, and at the end of March 2014 it
was 65.7%.
3.1 Movement and structure of income

and expenses of the banking system and
profitability and efficiency indicators
Chart 67 In the first quarter of 2014, the total income

Growth of main income and expenses, of banks (total regular income56 and
compared to the same period last year extraordinary income) rose by Denar 189.7
in millions of denars million, i.e. 4.4% on an annual basis. Generator
of the increased income of banks is the higher
600
500
400 net interest income (by Denar 246.5 million, or
300
200
8.6%), which increased due to the lower interest
100 expenses (by Denar 239.3 million, or 11.7%).
0
-100 Net income from fees and commissions and
-200 extraordinary income increased by 6.4% and
-300
3.2012 3.2013 3.2014 21.2%, respectively, and a decline was
Impairment losses Operating expenses registered only in other regular income57.
Other regular income Interest income
Interest expenses Net fees and commissions income
Source: NBRM, based on the data submitted by Following these developments, minimal
banks. changes occurred in the structure of total
revenues, and net interest income strengthened
Chart 68 its already large share (of 68.7%).
Structure of total income
in percentages In the first quarter of 2014, compared with
100
11.8 12.5 9.4 the first quarter of 2013, interest income
90
80 21.9
recorded a small increase (of 7.1 million or
21.2 21.5
70 0.1%), and the interest income from non-
60 financial companies and households still had the
50
40
largest share in their formation. Despite the
30
67.0 66.0 68.7 annual credit expansion of banks to the
20 corporate sector, interest income from non-
10
financial companies declined by Denar 62.3
0
3.2012 3.2013 3.2014 million, or 2.9% on an annual basis, mainly due
Net interest income Net fees and commissions income Other regular income to the downward trend in lending interest rates.
Interest income from financial companies
Source: NBRM, based on the data submitted by dropped by Denar 23.9 million (or 6.3%), which
banks.
56
Total regular income includes: net interest income, net commission income and other regular income (net trading income, net
income from financial instruments carried at fair value, net income from exchange rate differentials, income from dividends and
equity investments, net gains from sale of financial assets available for sale, capital gains from assets sales, release of provisions
for off-balance sheet items, release of other provisions, income from other sources and income based on recovered claims
previously written off).
57
The decline in other regular income by Denar 115.9 million, or 21.5%, was due to the reduction of several components: net
income from trading in two banks, the release of special reserve for off-balance sheet exposure in one bank, income from previous
years in one bank and collected previously written-off claims based on claims from interest in one bank in the country.
46
Chart 69 is primarily attributed to the lower banks’ interest

Sector structure of interest expenses income from the reserve requirement58.
in percentages
100
90
5.2
10.7
8.7
7.9
9.1
7.5
Contrary to these movements, interest
80 income from households increased by Denar 52.4
70
60
37.0 38.4 39.6 million, or 2.9%, which corresponds to the
50 accelerated annual credit growth to this sector
40
30
(despite the lower interest rates on household
20
47.1 45.0 43.8 loans). Interest income from other entities in the
10
first quarter of this year grew also (by Denar
0
3.2012 3.2013 3.2014 19.9 million, or 4.8%), primarily reflecting the
Non-financial companies Households Financial institutions Other
increased banks' investments in government
securities59.
banks.
These developments caused an increase in
the share of interest income from other entities
and households in the sector structure of interest
income. Despite the decrease, interest income
from non-financial companies is still dominant,
while the lowest share is registered in the
interest income from financial companies.
Chart 70 Excluding interest expenses from financial

Sector structure of interest expenses companies, which registered minimal increase (of
in percentages Denar 3.7 million or 1.7%), interest expenses of
100
13.3
banks to all other sectors decreased. The
14.9 14.5
90
80 9.3 10.3 11.8
decrease in interest expenses of banks by Denar
70 239.4 million, or 11.7% annually, is almost
60
entirely (82.2%) due to the lower interest
50
40
63.5 65.4 63.2 expenses from the household sector (by Denar
30 196.8 million or 14.7%), amid a decline in the
20
10
interest rates on long-term time Denar deposits
0
12.3 11.0 10.5
(by 1.1 percentage point) and short-term time
3.2012 3.2013 3.2014
foreign currency deposits of the household sector
Non-financial companies Households Financial institutions Other (by 0.8 percentage points)60, and slower growth
of household deposits. However, interest
banks. expenses from the household sector still have the
largest share in the structure of the interest
expenses (63.2%). Additional contribution (of
14.7%) to the reduction in interest expenses of
58
A Decision amending the Decision on reserve requirement ("Official Gazette of the Republic of Macedonia" no.166/2013) was
adopted, which exempts the NBRM from paying reserve requirement remuneration (previously, this remuneration equaled 1% for
Denar reserve requirement and 0.1% for euro reserve requirement). This decision came into effect on 1 January 2014.
59
In the first three months of 2014, the interest income from investments in government securities, which is included in the
category of interest income from other entities, increased by Denar 37.1 million, or 12.3%. As of 31 March 2013, the amount of
treasury bills totaled Denar 30,740 million, and as of 31 March 2014 it was Denar 34,147 million. Also, investments in government
bonds continued to rise.
60
Most significant decline was registered in the interest rates on short-term time Denar deposits with FX clause (by 2.0 percentage
points), but the amount of these deposits is very small.
47
Chart 71 banks was given by the reduced interest

Structure of operating costs expenses of non-financial companies by Denar
in percentages 35.2 million, or 15.6% (amid most pronounced
100
90
6.0
11.6
8.5 7.6 reduction in the interest rates on long-term
12.9
Denar deposits of non-financial companies) and
12.2
80
70
60
33.7 31.1 31.1 the interest expenses to other entities decreased
50
10.6 9.8 9.3
by Denar 11.0 million or 4.0%.61
40
30
20 38.1 38.5 39.1 In the first three months of 2014, banks'
10
0
operating costs62 registered a slight increase (of
3.2012 3.2013 3.2014
Denar 17.2 million, or 0.7%) relative to the same
Costs for employees Depreciation
period of the previous year. In these frames, the
General and administrative costs Deposit insurance premiums
largest increase in absolute amounts was
Other operating expenditures
recorded in the expenses for employees (by
banks. Denar 24.3 million, or by 2.4%), while more
pronounced annual increase of Denar 21.4
million or 6.7% was registered in deposit
insurance premiums63. General and
administrative expenses remained almost
unchanged (minimum increase of 0.4%).
Conversely, depreciation decreased by Denar
11.5 million (or 4.5%), and the decline in the
Chart 72 category "other operating costs"64 by Denar 20.8
Usage of total income million, or 9.3%, is fully due to the high base
in percentages effect65. However, these movements had no
100
9.2
major impact on the structure of operating costs,
90
80
41.5
40.1
in which the costs for employees and general
70
32.1
and administrative expenses retained the main
60
50
share (70.2%).
40
30 64.1 60.9 58.7 Most of the total income of banks is still
20
10 spent to cover operating costs. However, their
0
-5.7
-1.0
share in the banks’ earnings decreased by 2.2
-10
3.2012 3.2013 3.2014 percentage points (amid more pronounced
Extraordinary expenses
Current profit before taxation
increase in total income and a minimal increase
Net-impairment of financial and non-financial assets
Operating costs
in operating costs), and a significant reduction
(by 8.0 percentage points) was registered also in
banks. the part for covering the impairment.
61
Mostly due to the reduction in the interest expenses for financial institutions - non-residents based on term deposits in two banks.
62
Banks' operating costs include: staff costs, depreciation, general and administrative expenses, deposit insurance premiums and
other operating costs, except extraordinary expenses.
63
In circumstances when banks' deposits grow by 7.0% annually.
64
Other operating costs include: special reserve for off-balance sheet exposure, other provisions and expenses on other grounds
(expenses from previous years, income taxes and contributions, expenses for fines, fees and court decisions and other costs).
65
As of 31 March 2013, the growth of the category "other operating expenses" was for the most part determined by the growth of
additional provisions for potential liabilities arising from litigations in one bank and increased expenditures on other basis in two
banks in the country. Special reserve for off-balance sheet exposure, which is also part of the category of other operating costs
continued to rise (by Denar 20.5 million, or 19.6%).
48
Chart 73 Improved operational efficiency of the

Efficiency indicators of banks banking system, measured by the lower amount
in percentages of total regular income that is spent to cover
110 4.5
100 4
operating costs, is confirmed by all other
90
85.4 3.5
indicators of the ratio between the different
80
3
types of costs and total regular income, which
2.8
70
2.5
decrease on annual basis (Table 6).
60
58.7
50 2
3.2011 3.2012 3.2013 3.2014 In the first quarter of 2014, net impairment
Operating expenses/Total regular income (cost-to-income) (left
scale) which banks recognize for the impairment of
Operating expenses/Net interest income (left scale)
Operating expenses/Average assets (right scale)

financial assets (amounting to Denar 790 million)
is twice smaller (by Denar 786 million, or
banks.
49.9%), compared to the same period previous
year66. Accordingly, the share of net interest
Chart 74 income which is spent to cover the impairment of
Impairment of financial and non-financial financial assets, of 55.2% (as of 31 March 2013),
assets reduced to 25.5% (as of 31 March 2014).
in millions of denars
3500
3000
On the other hand, in the first quarter of
2500 2014, impairment of non-financial assets
2000 (foreclosures) continued to grow at a significantly
1500 faster pace. Compared to March 2013, it
1000
registered a fourfold increase, amounting to
Denar 660 million, and became almost equal to
500
0
3.2012 3.2013 3.2014 the amount of the net impairment of financial
Net impairment losses of financial assets
assets.
Impairment losses of financial assets
Reversal of impairment losses of financial assets
Impairment losses of non-financial assets Unlike last year's negative values, rates of
Source: NBRM, based on the data submitted by return on assets and equity amounted to 0.4%
banks. and 4%, respectively.
Table 6
Profitability and efficiency ratios of the banking system
in percentages
3.2013 3.2014
Rate of return on average assets (ROAA) -0.05 0.4
Rate of return on average equity (ROAE) -0.4 4.0
Cost-to-income ratio 60.9 58.7
Non-interest expenses/Total regular income 66.4 64.4
Labor costs /Total regular income 23.4 23.0
Labor costs /Operating expenses 38.5 39.1
Impairment losses of financial and non-financial assets /Net interest income 60.7 46.8
Net interest income /Average assets 3.2 3.3
Net interest income /Total regular income 66.0 68.7
Net interest income /Non-interest expenses 99.4 106.6
Non-interest income/Total regular income 39.5 37.1
Financial result/Total regular income -1.0 9.2
Ratios by groups of banks are shown in Annex 35.
66
For comparison, as of 31 March 2013, net impairment of financial assets (loans and similar claims), decreased by only 3.0%, on
an annual basis.
49
Chart 75
Net interest margin67 increased by 0.3
Net interest margin
in percentages percentage points compared to March 2013, with
7 seven out of sixteen banks earning a higher net
6 interest margin than the net interest margin at
5 the level of the banking system.
3.8
4 3.5
3
2
1
0
Interest Interes Net interest margin
income/average expenses/average
interest-bearing interest-bearing
assets liabilities
3.2013 3.2014
Chart 76 3.2 Movements in interest rates and the

Lending interest rates interest rate spread
in percentages
10
The reduction in lending and deposit interest
9 8.7
rates continued in the first three months of 2014,
8 7.8 7.9 even though the key interest rate of the National
7.6
7.3
Bank and the one-month Euribor remained
7
7.2 unchanged68.
6.6 6.4
6
XII.12
II.13
XII.13
II.14
X.12
X.13
IV.12
VI.12
VII.12
VIII.12
I.13
IV.13
VI.13
VII.13
I.14
III.12
III.13
VIII.13
III.14
IX.12
XI.12
V.13
IX.13
XI.13
V.12
Compared to March last year, the most

Interest rates on denar loans
pronounced downward trend was registered in
Interest
Interest
rates
rates
on
on
denar loans with FX clause
foreign currency loans
the interest rates on Denar loans (by 0.8
Interest rates on total loans percentage points) and smallest decline was
Source: NBRM, based on the data submitted by banks. registered in the interest rates on foreign
Chart 77 currency loans (by 0.2 percentage points). On
Deposit interest rates the part of the sources of funding, most evident
in percentages decline was registered in the interest rates on
6 Denar deposits (by 0.7 percentage points),
5 4.6
followed by the interest rates on foreign currency
3.9
4 deposits (by 0.4 percentage points) and Denar
3.1
3 2.6 deposits with foreign currency clause (by 0.3
2
2.6
2.3 percentage points).
1.9
1 1.5
IV.12
VI.12
VII.12
I.13
IV.13
VI.13
VII.13
III.12
VIII.12
II.13
III.13
VIII.13
I.14
II.14
III.14
IX.12
X.12
XI.12
V.13
IX.13
X.13
XI.13
V.12
XII.12
XII.13
Interest rates on denar deposits

Interest rates on denar deposits with FX clause
Interest rates on foreign currency deposits
Interest rates on total deposits

67
Net interest margin is calculated as the ratio between net interest income and average interest-bearing assets. Average interest-
bearing assets are calculated as an arithmetic mean of the amounts of interest-bearing assets at the end of the analyzed quarter
and at the end of the previous year.
68
The interest rate on CB bills during the first three months of 2014 retained the level of the last change in July 2013 (when it
reduced to 3.25%).
50
Chart 78 Amid almost steady downward movements

Interest rates spread, by currency of lending and deposit interest rates, interest
in percentage points
6
rate spreads in all currencies remained stable
and without major changes compared to the
5.1
5 4.8
4.9 4.9 level registered in March 2013.
4.7 4.7
4
4.0
4.1
3
IV.12
VI.12
VII.12
I.13
IV.13
VI.13
VII.13
VIII.13
I.14
III.12
VIII.12
IX.12
II.13
III.13
II.14
III.14
X.12
XI.12
IX.13
X.13
XI.13
V.12
XII.12
V.13
XII.13
Denar interest rates spread
Denar interest rates spread with FX clause
Foreign currency interest rates spread
Total lonas and deposits interest rates spread

Calculations do not include loans on overdrafts and
credit cards.
51
ANNEXES
52

National Bank of The Republic of Macedonia

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

National Bank of The Republic of Macedonia

Caricato da

Copyright:

Formati disponibili

National Bank of the Republic of Macedonia

Supervision, Banking Regulation and Financial Stability Sector

REPORT ON RISKS IN THE BANKING SYSTEM

Part 1 Risks in banking operations ............................................................................4

I. Risks in banking operations ............................................................................5

1. Credit risk ................................................................................................................ 5

1.1 Banking system's loan portfolio quality .................................................................... 5

3. Currency risk ..........................................................................................................24

4. Interest rate risk in the banking book .......................................................................26

5. Insolvency risk ........................................................................................................28

II. Structure of the banking system ..................................................................35

1. Number of banks and ownership structure of the banking system ...............................35

2.1 Loans to nonfinancial entities ................................................................................41

Part 1 Risks in banking operations

I. Risks in banking operations

1.1 Banking system's loan portfolio quality

In the first quarter of 2014, total credit

Chart 2 Unlike last year, when the credit exposure

growth. Changes in the regulation on the credit

The analysis of the dynamics of the non-

Source: NBRM's Credit Registry, based on data

total restructured loans. At the end of the first

Prolonged loans registered a slight

9 Downward trend in the non-performing

customers from the activities "wholesale and

Impairment of credit exposure to state

Source: NBRM's Credit Registry, based on data

In conditions of improved quality of the

loan portfolio, the already low share of the

Source: NBRM's Credit Registry, based on data

Chart 9 Indicators of the coverage of credit

30 23.6 23.0 In the first quarter of 2014, the average

5 Past due loans with a period of delay in

Chart 11 the rest of these loans further deteriorated in

The quarterly growth of total credit

regular" (by Denar 2,180 million, or 20.7%) and

is driven by the downward movement in the risk

According to individual activities in the

(Annexes 24 and 25). According to the currency

Chart 13 The percentage of credit exposure with

from ABC (regular)

Source: NBRM's Credit Registry, based on data

until 31.12. until 30.9. until 30.6.

Source: NBRM's Credit Registry, based on data

The share of uncollateralized credit

30 Survey from April 2014, banks estimated the

Chart 17 indebted are natural persons with monthly

(first simulation) and 30% (second simulation) of

credit exposure to companies (by activity) and

followed by "construction" (Annex 26).

In terms of the indicators of the loan

At the end of the first quarter of 2014, the

Chart 19 evident from the gradual acceleration of the

Cash, accounts and deposits with NBRM

Source: NBRM, based on data submitted by banks.

Chart 21 As of 31 March 2014, the banks have

2,000 10% In the first quarter of 2014, changes in the

liquid assets in the annual change in the total

Source: NBRM, based on data submitted by banks.

Indicators of liquidity of the banking

Chart 23 is confirmed by the dynamics of the twelve-

banks, while full use of the deposits for lending

Source: NBRM, based on data submitted by banks.