The annual inflation rate amounted to 7.2%, measured by the cost-of-living index (average January-December 2008 in comparison to January-December 2008). The reasons for this high inflation are both internal and external. The most important external reasons are connected with the increase in oil and food prices on the world markets. On the one hand, the internal reasons are the result of removing price disparities (increases in electric power prices and fixed telephone service charges), and on the other, the immediate consequence of significantly increased aggregate demand. It should be also taken into account that anti-monopolistic policy still does not function satisfactorily.  However, it should be also borne in mind that the inflation rate was on the increase in almost all countries in 2008, both developed and in transition.

According to Monstat, annual inflation was 6.9% in 2008, calculated based on the CPI index. The first inflation rate measured by CPI was published in July of 2008. This is the internationality comparable index used by the Europen Union, which will also be used in the forthcoming period as the main inflation indicator.

Monetary development in 2008 took place during the financial world crises. The three quarters of 2008 was characterized by:

• More moderate credit activities according to the limits predicted by measurements of the Central Bank;

• In additional to the slowing down of credit growth, deposits increased slower than credits during the eight months of 2008

• Insignificant oscillation of the interest rate. Stagnation or mild growth of the lending interest rates are expected, contributed to by the pressure on the increase of the reference interest rate by the European Central Bank. In regard to the deposit interest rate, a mild growth is expected primarily due to an increase in competitiveness on the banking sector.

At the end of the third quarter, the banks` assets amounted to almost EUR 3,509.7 million, which is 38.7% higher than in the same period or 18% higher compared with eight months of last year. Deposits exceeded the amount of EUR 2,325.9 million, which is 27.9 % higher than in same period last year.

In addition to an unsatisfactory loan/deposit ratio and maturity mismatch, the banking sector is characterized by liquidity and safety, as well as a high level of performing assets.  The maturity structure of deposits improved but it is still not satisfactory.  Total money in circulation (Monetary aggregate M21) amounted to EUR 2,968 million at the end of September. For the first eight months, it increased by 8.8%, while the annual growth amounted to 18.7%.

According to the main liquidity indicators, during the first eight months of 2008 the banks regularly settled their current liabilities and maintained their liquidity above the prescribed minimum. Total banks’ assets available for payments were EUR 453 million, while the average realized payment was EUR 46.4 million. On the basis of development in available funds and effected payments, which were constantly lower than the available funds for payments, the average surplus was EUR 406.6 million.

The three quarters of 2008 were characterized by a more moderate growth in all bank loans as a result of the Central Bank credit limits measures. At the end of September total loans amounted to EUR 2,852.3, which is 27% higher than at the previous yearend, while the annual amount increased to 81%.

Credit growth slowed in the eight months of 2008 compared to the same period of the previous one, affecting all sector. 
 

Total bank deposits amounted to EUR 2,325.9 million at the end September, reaching an amount which is 11.2% higher than end of previous year, while 27.8% higher than same period of previous year. Of the total amount on deposit, 8.3% related to non-interest deposits, while 91.7% referred to interest bearing deposits. In additional to the reduction in credit growth, deposits increased slower than credits during the eight months of 2008. Observed by sector more deposits are from households – 47.9% and it is not satisfactory as it indicates less diversification, and thus larger exposure of banks to certain sectors.

For more information, or to set up an initial consultation, contact

Charles T. Dillon, Esq.
100 West Road, Suite 300
Towson, Maryland 21204
Tel: (410) 459-8644
Email: cdillon@dillonlegal.com 
Tax, Business, Estate Planning and International Attorney