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BANKING
capital would have an impact in the 3 are in this regard.
direction of reduction of the return on
equity ratio. In order to maintain the Microeconomic effects
ROE at an acceptable level, the banks In addition to the impact of in-
would attempt to improve the finan-
cial result after taxation through an creased capital on the economy as a
increase of the interest rates of loans. whole, regardless of whether it is a
Such changes would cause growth of matter of positive or negative effects,
the prices of loans (transfer of the in- what is of particular interest for the
creased cost for financing from banks very banks is the connection between
to the private sector) and reduced the increased capital and the profit-
availability of loans which ultimately ability in operations. Numerous re-
would act in the direction of decel- searches conducted in this direction
eration of the economic activity, that came to a conclusion that recapital-
is, reduction of the GDP. The reduced ization has a positive impact on the
availability of loans could also be a re- profitability of banks. Namely, the
sult of the banks’ aversion to under- increase of capital acts in the direc-
take risk in conditions when the stake tion of improvement of the efficiency
of the shareholders is higher. This phe- of operations which is a result of the
nomenon usually happens in periods motive that banks have for enhanced
of economic shocks and increased un- monitoring and caution in the approv-
certainty. A good example is the case al of credit exposures in a situation
of the Macedonian economy which, when the stake of shareholders i.e.
although it was not hit hard by the capital is greater. The marginal util-
world financial crisis (with an excep- ity of each additional unit reduces not
tion of the exporters, mostly from the only when it is being analyzed in terms
metal industry), still statistics shows a of an economy but also in terms of the
specific deceleration of the economic very banks. In this regard, and regard-
activity. The rate of real growth of the less of the economic cycle, it has been
GDP of 6.5% in 2007 decreased to 5.5% determined that there’s a strong neg-
in 2008 so that in 2009 it would en- ative connection between profitabil-
ter a negative zone. At the same time, ity and capital above the determined
well capitalized Macedonian banks regulatory limits. For this reason, the
showed a high rate of aversion to risk reduction of the capital level to the
which resulted in reduced crediting of regulatory minimum would be an op-
the private sector whereby the annual timal strategy in terms of the banks’
rate of growth of the credit activity of profitability.
39.2% in 2007 and 34.4% in 2008, re-
duced to only 3.5% in 2009. This ad- When we speak of the positive ef-
ditionally hampered the operation of fect of banks’ recapitalization, the
the companies and the settlement of influence of capital on the exposure
their obligations to the banks and the of banks to system risk β is also im-
other creditors, which had a negative portant. Part of the research that ana-
reflection of the consumption, and ul- lyzed the connection between capital
timately on GDP. and system risk provides data that
better capitalized banks are more re-
Another negative macroeconomic sistant to negative economic changes,
effect is that capital which distin- whereby the effect of increased stabil-
guishes as a security margin due to ity of individual banks contributes for
prevention of the unfavorable impact strengthening of the stability of the
of eventual future negative shocks is entire banking system. Here we would
an economic expense in good econom- also mention the banking system in
ic conditions. The last requirements the Republic of Macedonia which very
for capital increase imposed by Basel well and without major turbulences
overcame the global financial crisis,
60 October 2016
