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Mrs. Gordana Baltovska

By Mrs. Gordana Baltovska– member of the Stopanska Banka a.d. Bitola board in charge of risk, finance and accounting.

Financial stability is crucial for an economy and its disruption may cause many side effects, as it was witnessed during the global financial crisis, which was triggered by the high rate of indebtedness and the inadequate risk management. In Macedonia, the financial stability,to a large extent depends on the banking system, while other segments such as leasing, pension funds, investment funds and insurance sector, have smaller share and modest impact. The stability of the banking system is in a relatively good level, primarily because of the caution and capitalization of banks, the low level of inter-sectoral linkagesof individual financial institutions, as well as, the absence of cross-ownership and large financial groups which minimize the risks of spilloversfrom one segment to another .

Mrs. Gordana Baltovska

Mrs. Gordana Baltovska

However, the banking system and Macedonia did not remain immune to the events on the world scene. As a result of the negative effect of crisis on the real economy, the credit risk and the uncertainty of recovering of the investments increased, and also the credit exposure in riskier categories and the number of non-performing loans registered growth. In order to improve the resilience of the financial system and create conditions for overcoming the weaknesses, the National Bank of The Republic of Macedonia, continually innovated the regulatory reforms, whose implementation meant taking a deeper approach to risk management.

Risk management involves the activities such as: identification of risk exposure for all categories of assets with estimate of their potential losses, risk assessment including measurement and analysis of losses in the past in order to estimate the variables that will affect the future,  control of the risk in terms of reducing or eliminating the risks of losses using all types of collaterals, financing risks by providing reservations, insurance, development of administrative techniques and use of expert knowledge and practices, and finally, monitoring of the risks.

Risk management in the banking sector in Macedonia is in accordance with regulatory requirements and the risk profile of banks, and each bank is obliged by its internal policies, to cover all material risks that the bank is exposed to,while performing certain or all types of financial activities , thereby achieving the suitable indicators such as the rate of capital adequacy, liquidity indicators, indicators for the credit risk, interest rate risk, foreign exchange risk, operational and other risks on a consolidated basis.

So far, the progress in the approach to risks in the banking system of The Republic of Macedonia can be seen from the following table.

Table: Indicators of financial stability of the banking system in the Republic of Macedonia

Indicators (in %) 2013 2014
Liquid assets to total assets 31,2 29,8
Rate of capital adequacy 16,8 15,7
The net open foreign exchange position / own funds 15,6 17,5
Non-performing loans / gross loans 10,9 10,8
RОАА 0,6 0,8
RОАЕ 5,7 7,4

The indicators show that the liquidity of banks is satisfactory, the capitalization is high and the rate of capital adequacy is twice higher than the legally prescribed one. The exchange rate’s risk is controlled by maintaining the net open foreign currency position at the lowest level, while non-performing loans to gross loans are slightly increased.

Considering the importance of the process of risk management for long-term stability and profitability of the Bank, as well as the expected further changes in the regulation of the Central Bank in accordance with changes in the Basel Capital Accord – Basel 3, Stopanska banka a.d. Bitola managed to significantly improve the performance in the area of risk management during the year 2014.

Thus, credit risk indicators point to quantitative and qualitative strengthening of the credit exposure. The growth rate of 16.76% of total credit exposure in 2014 was followed by simultaneous improvement of the qualitative structure so that exposure to clients classified in A risk category increased from 81.56% in 2013 to 84.89% in 2014. Credit exposure to clients classified in B risk category also registered an annual growth from 1.10% to 2.44%, while exposure to clients in C, D and E risk category decreased from 17.34% in 2013 to 12.67% in 2014. In parallel with the positive trend in these indicators, impairment provisions as a percentage of total credit exposure decreased from 16.32% to 12.22%.

As a complementary feature of the credit risk management, Stopanska banka a.d. Bitola paid proper attention to non-performing loans management and sale of foreclosed property. The Bank’s activities in this area have contributed to the reduction of the share of non-performing loans in the gross loan portfolio of non-financial entities from 24.65% in 2013 to 17.43% in 2014, and recovery of previously written-off interest receivables in the amount of 4.00 million euros. The share of foreclosed properties in total assets was reduced by 4.92 percentage points annually and were realized capital gains in the amount of 59.51 million euros. The improvement in the stated indicators had a positive reflectionon the financial results of the Bank.

As to liquidity risk as one of the risks to which banks are exposed, during the 2014 Stopanska banka a.d. Bitola continued to successfully manage the assets and liabilities while ensuring timely and regular settlement of the Bank’s liabilities i.e. optimal liquidity. In that context, the liquidity ratio up to 30 days, as the ratio between assets and liabilities falling due in the next 30 days was 2.77. Liquidity ratio up to 180 days, as an indicator of the coverage of liabilities falling due within the next 180 days with assets maturing within the same period, was 1.69. The share of liquid assets in total assets during the whole of 2014 was higher than 30% so that as of 31.12.2014 this indicator amounted 37.57%.Such indicators have a large contribution in providing long-term financial stability and further strengthening of the customers’ confidence as a precondition for improving the market position under the Bank’s strategic objectives.

Besides credit and liquidity risk management, the Bank placed an appropriate emphasis on management of other risks (market, operational, strategic, reputational risk) while maintaining the appropriate capital levelsin accordancewith the regulation. During 2013 and 2014, currency risk-weighted assetsamounted less than 2.00% of the total risk-weighted assets, while the share of operational risk-weighted assets amounted about 8.00% in two consecutive years. The rest of the risk-weighted assets is attributed to credit risk.

Speaking of risk management, maintenance of proper capital adequacy ratio is crucial for the Bank. As of 31.12.2014, this indicator amounted up to 20.20% which is significantly higher than the legally prescribed minimum of 8%. The capital adequacy ratio was also higher than 20% and amounted up to 20.77%, as of 31.12.2013. The indicator for the coverage of risk-weighted assets with core capital (Tier 1 Ratio) at the end of 2014 stood at 19.71%, which indicates the high quality of the structure of the Bank’s own funds in which the core capital accounts for 97.57%.

Such realization will facilitate the Bank’s transition towards the Basel 3 capital requirements that predict further strengthening the capital framework especially the core capital, aiming to increase the resilience of the banking sector and creating conditions for achieving sustainable economic growth in the short and long term. In this context, the Basel 3 requires an increase in the minimum rate of core capital from 4% to 6%, and introduces two additional amounts of capital:capital conservation buffer (min 2,5% of the risk-weighted assets) and countercyclical buffer (0 to 2.5% of therisk-weighted assets). Although Basel 3 does not predict changes in the minimum capital adequacy ratio of 8%, however with the introduction of the two additional capital buffers the real capital adequacy ratio will increase by at least 2.5 percentage points.

Considering the Basel 3 innovations in the area of capital base strengthening, the Central Bank’s activities for migration from Basel 2 to Basel 3, as well as the current performance of Stopanska banka a.d. Bitola in this segment, we can expected relatively easy and quick adjustment of the Bank to the new bank capital requirements.

To sum up, the risk management data for Stopanska banka a.d. Bitola represent an image of healthy and stable bank, which successfully balances between optimizing the risks on one hand and profitable operation on the other hand, while acting in accordance with existing regulation. In the future, the Bank’s efforts will be directed towards improving the risk management processes in accordance with the expected changes in regulation and internal evaluations, aiming to maintain financial stability as a prerequisite for profitable operations in the long term.


Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society



Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 1
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

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The Next Evolution in Banking



The Next Evolution in Banking 2

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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Banks talk a good game, but are bankrupt when it comes to change and innovation



Banks talk a good game, but are bankrupt when it comes to change and innovation 3

By Erich Gerber, SVP EMEA & APJ, TIBCO Software

You hear all the time about the incredible pace of change in technology and the way that it affects business, but sometimes we kid ourselves about the real speed of that change and the depth of its effects. Retail banking is a perfect example to illustrate the yawning chasm between the illusion and the less attractive reality. In this article, I want to provide a critique of the banking sector and its failure to change fundamentally and to modernise.

Banking is an old sector: the Banca Monte dei Paschi di Siena has its roots in the 15th century and the oldest UK banks go back to the 17th century. We often talk about legacy holding companies back, restricting their speed of operations and hampering their ability to adapt. Well, established banks have legacy in spades.

They also have cultural challenges. The old saying has it that something is “safe as the Bank of England” and that is a standard for security. But today we need banks to be more dynamic and represent something more than being a deposit box for our wealth. Consumers are accustomed to the superb customer experiences in entertainment (Spotify), devices (Apple), retail (Amazon), travel (Uber) and much else. Surveys show that they want their banks to be responsive, easy to use and available across multiple channels. They’d like banks to be secure but also to be advisors, enable flexible movement of assets between accounts, provide useful data analytics, be cloud- and mobile-friendly and offer deals that are specifically targeted at their interests.

S-l-o-w progress

At their core, banks now must become digital enterprises but, frankly, it has been slow going. As Deloitte observed: “While many banks are experimenting with digital, most have yet to make consistent, sustained and bold moves toward thorough, technology-enabled transformation.”

Erich Gerber

Erich Gerber

We all know that retail banking has changed significantly: you can see that in the proliferation of apps and the fact that, in pre-pandemic times, the morning and evening commute are peak times for transactions as people arrange their finances while sitting in trains, buses and subways. Banking has become a virtual, often mobile business, thanks to new tech-literate consumers pushing banks in that direction. But my fear is that the banks aren’t moving even nearly fast enough and that’s bad for us as consumers and bad for the banks themselves.

Banks are under pressure to change because challengers don’t have the legacy constraints of incumbents and because PSD2 and open banking regulations are having the intended effect of promoting banking as a service, delivering transparency and greater competition.

Attend any business technology conference and banks will talk about their digital transformations and customer experience breakthroughs, but it’s my contention that a lot of this work is more window-dressing than platform building. Or, to put it another way, banks are injecting Botox, rather than undergoing the open-heart surgery that they really need. It’s a case of ‘look: fluffy kittens and shiny baubles’ in the form of apps and websites, but the underlying platforms remain old and creaking and that means that the banking incumbents are hampered.

To be fair, I have lots of sympathy here. They simply can’t move as fast as the challenger banks that have had the luxury of starting their infrastructure from scratch and sooner or later that will come back and bite them. Look, for example, at cloud platforms where only 10 or 20 percent of infrastructure has been migrated despite promises of cloud-first strategies and the banking data centres where monolithic on-prem hardware still reigns.

You feel that slowness of action in your interactions with banks that communicate only via issued statements, letters notifying you of changes to Ts and Cs, and threats when you go into the red. Inertia is nothing new in banking either: we like to think that technology change happens in the blink of an eye but in banking contactless NFC took the best part of 20 years to go mainstream.

This is the dirty secret of banks. They see the need to change but remain shackled. Why are the banks so slow? Historically, because it was hard for competitors to gain banking licences and the capital to really challenge so there was no catalyst or mandate for change. Also, because change is tough and fear of downtime or a security compromise to critical systems is very real. More recently, because internal wars in organisations set roundheads against cavaliers, the risk-averse against the bold, resulting in impasse and frustration.

I said change is tough and that’s why banks need to power through on the basis of Winston Churchill’s wisdom that ‘if you’re going through hell, keep going.” How? By a combination of maniacal focus on expunging legacy systems, placing maximum emphasis on superb customer interaction experiences and digitally enabling anything that moves.

Right now, the banks are surviving, not thriving; they’re rabbits blinking into the headlights of approaching traffic, frozen in the moment. But they need to disrupt themselves before others do it to them: change is painful but not as painful as the alternative. They have to do much more or they will see a decline in their fortunes due to their bankrupt capacity for innovation and their inflexible infrastructures.

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