The Unassuming Economist

From the IMF’s latest report on North Macedonia:

“The authorities emphasized that the health and stability of the banking system has been preserved through the pandemic, and they continue to closely monitor risks. Regulatory flexibility, temporary restrictions on dividend payments, and economic policy support helped maintain credit to the economy during the pandemic. The NBRNM has strengthened the reporting frequency and data requirements for monitoring credit quality, introduced a comprehensive and consistent bottom-up stress testing, and increased the focus on risks such as cyber risks, which are being taken into account when setting bank-specific Pillar-II capital requirements. Given high growth in new mortgages and rising house prices, a targeted assessment is underway. Moreover, the NBRNM is closely monitoring deposit-driven euroization, which increased during the pandemic, against the plan set out in the denarization strategy.

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Banking system strength has held up well during the pandemic, but continued vigilance is essential. The banking system overall remains well capitalized and profitable. Initiatives to improve the framework for stress tests of banks are welcome, together with intensified supervisory efforts to ensure that banks recognize any problem assets and provision adequately for potential loan losses on a forward-looking basis. Given the still high share of FX or FX-linked loans in household loans, with possibly limited hedging of borrowers, the NBRNM should maintain carefully calibrated measures to limit FX lending. Moreover, rising private sector debt, albeit from low levels, and the high growth in mortgage lending, coupled with an acceleration in house prices, warrant further scrutiny.”