Macroprudential policy in the Western Balkans: the last five years and COVID-19 crisis response

This study takes stock of macroprudential policy instruments and their recent development (since 2015) in Western Balkan3 economies. Banks in the region, which are dominated by institutions headquartered in the EU, tend to be in good shape, profitable and well capitalized. All countries under review are oriented toward EU macroprudential policies, given that they strive to join the European Union. However, the pace at which the required policy frameworks are being put into place differs across countries. Preparatory work for the creation of large parts or entire macroprudential and prudential toolkits is still ongoing in Kosovo and Montenegro, while Serbia and North Macedonia have already accumulated some experience in using related instruments (including capital buffers, reserve requirements, risk weights, etc.). Albania and Bosnia and Herzegovina are situated somewhere in between these two groups of economies in terms of the range and the timing of measures put in place. The biggest remaining challenges include elevated growth rates of partly unsecured consumer loans, and still high shares of foreign currency loans in total loans – notwithstanding de-euroization measures. The COVID-19 crisis triggered the immediate relaxation of some macroprudential measures and regulatory standards. Yet, the bulk of COVID-19 response steps is situated outside the macroprudential realm and includes moratoria on loan repayments, adjustments in loan classification and provisioning rules, which in turn, may (temporarily) undermine the economic substance of capital buffers.