Banking in Kosovo Overview of the Market

The banking market in Kosovo is still developing, with a relatively small number of banks operating in the country. There are currently 14 commercial banks in Kosovo.

The banking sector in Kosovo is regulated by the Kosovo Central Bank, which was established in 2008. The Central Bank's main goal is to maintain price stability and ensure the stability of the financial system.

The majority of banks in Kosovo are foreign-owned, with several major international banks operating in the country. Some of the largest banks in Kosovo include Raiffeisen Bank, UniCredit Bank, and NLB Bank.

Kosovo uses the euro as its national currency, even though it's not a member of the Eurozone. This means the country has no independent monetary policy.

The Central Bank of Kosovo (CBK) is an independent public agency that regulates financial institutions and insurance companies in Kosovo. It's well-regulated, profitable, and liquid.

Twelve commercial banks operate in Kosovo, with nine of them being foreign-owned. This represents 68.4 percent of total assets in the financial sector.

Foreign commercial banks account for about 84.9 percent of total banking system assets, while three domestic banks account for 15.1 percent. Pension funds represent 24.5 percent of financial system assets.

The banking sector in Kosovo faces a challenge in financing large investment projects, as neither the banking sector nor local commercial enterprises are sufficiently capitalized. In 2022, new investment loaned to enterprises represented 58.9 percent of total new loans issued.

Approximately 85 percent of bank loans in Kosovo have maturities of over two years, with maturities of two to five years accounting for approximately 61 percent of loans.

U.S. Banks and Correspondent Banks in Kosovo are limited, to say the least. There are no U.S. banks operating in the market.

Local correspondent banks are also scarce, and it's worth noting that there are no local correspondent banks in Kosovo either. This can make it difficult for international businesses and individuals to access banking services.

The lack of U.S. banks and local correspondent banks in Kosovo means that financial transactions and services may require alternative arrangements, which can be more complicated and time-consuming.

Kosovo's banking market is well-regulated, with the Central Bank of Kosovo (CBK) overseeing financial institutions and insurance companies. The CBK has adopted banking rules and regulations in line with the Basel Accords and EU directives.

Twelve commercial banks operate in Kosovo, with nine of them being foreign-owned, accounting for 68.4 percent of total assets in the financial sector. Foreign commercial banks hold about 84.9 percent of total banking system assets.

The banking sector in Kosovo is profitable and liquid, with financial sector assets amounting to €11.9 billion in June 2023, recording an annual growth rate of about 10.5 percent.

The Kosovo banking network system is an informal and complex network that ensures the flow of financial transactions and macroeconomic stability in the country.

The central hub of the network is the Central Bank of Kosovo (CBK), which is an independent legal entity that reports directly to the Kosovo Assembly.

The CBK is considered a central hub because all other micro financial institutions are connected to it and under its supervision.

The nodes of the Kosovo Network Banking system are mainly commercial banks and other micro financial institutions.

There are eight commercial banks, ten saving and credit associations, 12 micro-finance institutions, four other non-banking financial institutions, and eight insurance companies that make up the network.

Each commercial bank has its headquarters in the capital city of Pristina and regional headquarters in the regions, with branches in other cities.

Kosovo is administratively divided into six regions: Pristina, Mitrovica, Gjilan, Prizren, Ferizaj, and Peja, with each institution having regional bases/branches in their respective regions.

There are several independent networks of banks and other micro financial institutions within the Kosovo Banking Network System, all connected to the Central Bank.

Each banking network has its own central hub, the headquarters, and nodes, other banks across the country, directly linked to their central hub.

The interbank network is also present and functional in Kosovo, with ATMs functional for foreign transactions and withdrawal of cash among banks.

The banking sector in Kosovo has experienced significant growth in recent years, with the number of banks increasing from 11 in 2001 to 24 in 2020.

Kosovo's banking system is relatively small, with total assets of around €4.5 billion in 2020.

The banking sector in Kosovo is characterized by a high level of foreign ownership, with most banks being subsidiaries of foreign banks.

Foreign banks have invested heavily in Kosovo, bringing in new technologies and best practices that have improved the overall efficiency of the banking system.

Kosovo has a relatively high level of financial inclusion, with around 70% of the population having a bank account.

The country's banking system is also relatively stable, with low levels of non-performing loans and a strong regulatory framework in place.

Kosovo uses the euro as a de facto domestic currency, despite not being an EU member or a member of the eurozone.

Currency tensions have flared in Kosovo's north, where ethnic Serbs have continued to favour the dinar, and tensions between Kosovo and Serbia remain over cash payments.

The EU has reprimanded Kosovo over the unilateral closure of six branches of a Serbia-licensed bank, which would negatively impact Serbs living in northern Kosovo and damage Kosovo-Serbia 'normalisation' talks.

The Central Bank of Kosovo is working to advance digitalisation, improve market infrastructure, and enhance access to finance, with the support of the International Finance Corporation and Switzerland.

Accelerating Critical Reforms is a key aspect of Kosovo's economic strategy, with digital transformation being a cornerstone of this plan.

The Central Bank of Kosovo is working to advance digitalisation, improve market infrastructure, and enhance access to finance, all while promoting financial education.

This is a significant step forward in their strategic plan, with the collaboration between the Central Bank and the IFC expected to be instrumental in advancing their digital financial ecosystem.

Digital transformation is not only creating new opportunities for development, but also accelerating critical reforms and enhancing transparency and accountability.

The Swiss Embassy Cooperation Office in Pristina is supporting Kosovo in these efforts, recognizing the potential for digital transformation to drive inclusive growth.

Kosovo is the first of four Western Balkans countries to sign a cooperation agreement with the IFC, with Serbia, Albania, and Bosnia and Herzegovina to follow.

Kosovo has been enforcing a euro-only policy for cash payments, causing tensions with Serbia, which has continued to make payments to Kosovo Serbs in dinars.

The EU reprimanded Kosovo in May over the unilateral closure of six branches of a Serbia-licensed bank, which negatively impacted Serbs living in northern Kosovo.

SECO has supported economic development programmes and projects in Kosovo since 1998, and Switzerland is not itself in the EU.

The number of transactions by bank cards, ATM, and POS terminals in Kosovo has increased significantly, with POS transactions surpassing ATM transactions a couple of years ago.

Dardan Fusha, CBK deputy governor for banking operations, highlighted the benefits of fintech innovation, including reduced remittance costs and more service choices for consumers.

The new draft law on payment services, aligned with EU directives, aims to create a more competitive and inclusive environment in Kosovo.

Kosovo is working on strengthening the supervision of the payment system and consumer protection to mitigate the risks of rapid technological change.

The draft law also supports Kosovo's strategic goal to join the Single Euro Payments Area (SEPA).

The Central Bank of the Republic of Kosovo has joined the Sustainable Banking and Finance Network (SBFN), a move aimed at advancing sustainable finance practices and addressing climate-related risks.

CBK regulates and supervises a range of financial institutions, including banks, insurers, pension funds, microfinance institutions, non-bank financial institutions, and insurance intermediaries.

CBK has developed a strategy on climate and environmental risks, integrated with its Strategic Plan for 2024-2028, focusing on key areas such as financial stability, banking regulation and supervision, and insurance supervision and regulation.

The Central Bank's Governor, Ahmet Ismaili, welcomed the membership, stating that it provides an excellent opportunity for capacity building, experience sharing, and networking to achieve their common objectives for sustainable finance.

CBK's dedication to environmental and climate risk management aligns with SBFN's commitment to advancing sustainable financial practices across emerging markets.

Here are some key areas that CBK's strategy on climate and environmental risks will focus on: