Republic of North Macedonia Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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Given the dominant position of the banking system within the overall financial system, banking represents a key pillar of financial and macroeconomic stability in North Macedonia. Sound prudential regulation and supervisory practices in the pre-crisis period were key factors that contributed to the system's resilience and shielded us from major adverse effects during the global crisis. Against this background, in the decade following the crisis, we have continued to enhance the regulatory and supervisory framework.

For a period, the bulk of the regulatory and supervisory efforts were dedicated to the smooth implementation of Basel III capital requirements by introducing capital buffers, strengthening own funds requirements and widening the Pillar 2 risks under the Supervisory Review and Evaluation Process (SREP).

Following this period and over the past few years, the National Bank of the Republic of North Macedonia's (NBRNM) activities have been focused on improving corporate governance and risk management. Banks were called on to enhance their corporate governance by deepening the involvement of the board in strategic issues and risk oversight, and putting a greater emphasis on internal control functions: risk management, compliance and internal audits.

In addition, banks are now required to annually assess the adequacy of their board members against 'fit and proper' criteria to ensure compliance with licensing requirements. Focus has also moved to: risk management structures and monitoring tools; customised stress-testing; the embedding of the formal Internal Liquidity Adequacy Assessment Process; and the development of adequate safeguards for outsourcing activities. The enriched corporate governance and risk management practices should foster public trust and confidence, and promote the safety and soundness of the entire banking system.

Along with these general risk management requirements, the NBRNM amended the regulations for managing credit, IT and money laundering risks, with an impetus of aligning them with international standards and best practice resulting from the global financial crisis.

Harmonisation with international standards reduces the regulatory and supervisory burden and enhances banks' abilities to tackle shocks, leading to more stable and sound banking and financial systems. However, when transposing these requirements, the most important challenge is to find a way to implement the international standards without any unwarranted distortion of banks' business models or their abilities to grow. This challenge is especially apparent, from regulatory and organisational standpoint, in the efforts to implement the rest of the Basel requirements (IRB, securitisation, liquidity ratios, etc.) and establish an adequate resolution framework.

The growth in innovation and the introduction of new technology-based financial products is an important area that requires vigilant monitoring and regulatory policies that strike the right balance between promoting innovation and financial inclusiveness on the one hand, and preventing an excessive accumulation of risks, on the other. In this light we have established an Innovation Hub to support fintech development and raise awareness of fintech in regulatory bodies and the public. The Hub will also build the internal capacity to adequately implement new technology, monitor associated risks and recalibrate the regulatory framework, if needed.