The performance of commercial banks and the financial soundness indicators – Evidence from Kosovo

Abstract

Financial intermediaries perform indirect financing, and in this context the commercial banks are very important 
participants. They carry out the bulk of indirect financing transactions. On the other hand, the implementation 
mechanism of monetary policy is closely linked to the functioning of the banking system.   
Kosovo’s Commercial Banks performance is satisfactory compared with regional. In this paper we provide some 
of the performance indicators. The rates of return of commercial banks are greatly and directly affected by the 
net interest margin, provisions for loan losses, revenues and expenses by the non-interest, taxes and the equity 
multiplier. In this context, liquid assets do not appear to be of high impact in determining and variability the rate of 
return, high liquidity with low returns.     
Also, we will address the impact of the global financial crisis 2008-20012 in the commercial banks performance in 
Kosovo, mainly through the impact of the decline in the asset use ratio.  We think that was a positive approach 
that banks have followed the the course of returns fall by thereduction in interest-expenditures, while the costs of 
provisions for loan losses to total average assets marked constant level throughout the period, despite the 
increasing ratio of nonperforming loans.     
Drawing on these findings it is recommended that banks even further engage in reducing operational costs, 
diversify income sources in order not to rely exclusively on the interests of loans, and to strengthen credit risk 
management in order to minimize the credit risk.