The Banking and Credit System and its Impact on Economic Development

Abstract

The banking system in Republic of Kosovo is new. The functioning of this system began one year after the war. Approximately 90% of bank assets primarily belong to the foreign capital. Apart from the Central Bank there are also 8 commercial banks operating in Kosovo, and only two of them are with domestic capital. The required products for a financial institution to fulfill the main conditions for being a bank are deposits and credit operations, as well as other products and services which have recently increased. Functioning of the banking system has been characterized by a rapid development of deposits and credits. While at the end of the year 2000 the amount of client deposits was 93 million Euros, at the end of 2010 the growth of deposits marked a value of 1. 952 billion Euros. At the end of 2000 the amount of the allowed loans for individuals and businesses reached the amount of 3 million Euros, while in December of 2010, we have an amount of 1. 439 billion Euro. In Kosovo’s banks during 2006 and 2007 the bad loans were at a level of 4.1%, in 2008 there was a recession of 3.3%, in 2009 it was 4.3 %, and in the first half of 2010 the percentage of entire loans was 4.5 %. The interest rates for loans are extremely high in comparison to commercial banks in the region and beyond. The banking system is poor; the demands for loans and other bank services are huge.