Last week, we had the opportunity to meet with Komercijalna Banka Skopje in Belgrade where we discussed a couple of topics.
Komercijalna Banka Skopje is the largest bank in North Macedonia with 22.1% market share by total assets and is therefore a bank of systemic importance for the country.
In our meeting with the company’s representatives, we discussed a couple of topics. When looking at the company’s balance sheet, one can notice that as of Q3, the company MKD 118.12bn, showing solid increase of 3.3% YoY. The increase in total assets is largely due to the increase in loans to banks, loans to customers and the increase in investments in securities. The change was driven by the strengthening of the capital position, which enabled the Bank to offer on the market modified credit products for individuals and legal entities. Of the total assets, the loans and advances to customers accounts for 40.7% (RSD 48.07m). This item noted an increase of 3.6%, mainly as a result of increased gross loans to individuals (consumer and housing loans with EUR clause).
When breaking down the company’s loans by segment, corporate loans represent roughly 70%, while retail loans account for 30%. In our meeting, the company stated the growth of retail loans is expected to continue, as they are expecting a shift towards retail lending. To put things into a perspective, retail loans increased by 10% in 9M 2019. Such loans (especially consumer loans), come with higher margins, therefore showing room for the improvement of NIM which currently stands at 2.3%. However, it is important to note that the intention of the shift in loan structure does come with the constrain of keeping the capital adequacy ratio within the legal boundaries. The constrain comes from the fact that retail loans carry a higher weighted risk than corporate loans. In turn, this would result with a decrease of CAR, as risk weighted assets would rise. As of FY 2018, the company operated with a CAR of 16.88%, while the OCR for banks in North Macedonia stands at 8%. However, since Komercijalna Banka Skopje represents a systemic importance for the country, their CAR needs to be at a minimum of 16.5%.
On the asset side, Komercijalna Banka Skopje holds a large amount of cash and cash equivalents of MKD 46.54bn, which account for 39.4% of total assets. Such a high cash position comes from the fact that the company has a large deposit base, which has been increasing and currently stands at MKD 102.75bn (+3.7% YoY). To put things into a perspective, deposits from customers account for 98% of the total liabilities. Besides that, the company states that they are cautious with the placement of the assets, as they have to maintain a high CAR, as above stated. As a result, the company stands with a very low L/D ratio of 46.8%, showing room for further loan growth.
On the asset side, the company also holds MKD 14.28bn in the item investments in securities. This item recorded an increase of 15.9% YoY in 9M 2019, as a result of a purchased Eurobond issued by the RSM Ministry of Finance, purchased corporate bonds issued by foreign banks, as well as due to purchased continuous government bonds in MKD. This item mostly consists of government bills and bonds and the company stated that they do not expect to witness a shift in their portfolio structure, however we should not expect it to increase significantly either.
Turning our attention to the net interest margin, as stated above, the bank’s NIM currently stands at 2.3%, which is a result of the loan structure. The shift from corporate to retail loans could show potential for the improvement of the NIM, as these loans usually come with higher margins. The company stated that they do not have a strict target of the NIM for the future periods.
When looking at operating expenses, the banks stated that they are not experiencing wage pressure and that they are experiencing a stable trend of CIR being below 40%, which they intend to keep in the coming period.
NPL ratio of the banking system stands roughly at 5-6%, while Komerijalna Banka Skopje has a higher NPL ratio of roughly 10%, which mostly comes from corporate loans. The company expects to see a decrease of NPLs in the future with the shift towards retail loans.
Regarding the dividend policy, the company does not have a strict policy in place, but they stated that they would target a cca. 40% payout ratio, subject to maintaining the capital adequacy ratio within the legal frame.
