Skopje, 5 September 2022 (MIA) - The stability of the financial system was successfully maintained in 2021 as well, with almost all segments of the financial sector achieving accelerated growth and the banking system, as the main part of the financial system, has maintained its reliability and introduction of a macro-prudential measures into the domain of countercyclical capital buffer of banks, further strengthened its resilience to shocks, reads the 2021 financial stability report, which was adopted at regular meeting of the National Bank Council. The stability of the exchange rate, as a key prerequisite for financial stability, was successfully maintained, which once again confirmed the firm determination of the National Bank to consistently implement the strategy of a fixed exchange rate, which is guaranteed by the adequate foreign exchange reserve levels, the report added. According to the report, after the gradual economic recovery from the pandemic last year, which positively contributed to the operations of the domestic financial sector and financial stability, the war in Ukraine created new challenges. Although the crisis in Ukraine has no direct impact on the domestic financial sector, its consequences spilled over into the domestic economy through movements in the global energy and basic products market, which created pressure on domestic inflation. From March 2022, the National Bank started with a gradual increase of the basic interest rate, which contributes to calming down inflationary expectations and maintaining medium-term price stability. During 2021, the domestic corporate sector normalized operations and began to recover from the consequences of the pandemic, ending the year overall with improved profitability, a moderate level of indebtedness and a relatively stable, albeit traditionally low, liquidity position. The risks related to the "households" sector are still within controlled limits, they even saw a certain decrease. This was supported by the post-pandemic recovery of the economy, which contributed to the stabilization of the labor market and the growth of disposable income, the report reads. Major source of risks from the environment includes the war in Ukraine, which, depending on the duration and intensity of the geopolitical shock, can deteriorate the perspectives for the domestic economic activity and for the inflation. This would adversely affect the operations of companies and the standard of living and the purchasing power of households, which can influence the ability for regular repayment of credit liabilities and the level of credit risk of banks. The real estate market proved resilient to the adverse impact of the pandemic. The volume of real estate transactions in 2021 significantly exceeded the pre-pandemic level, and housing price growth accelerated and is above the long-term average and long-term trend. The banks' capital positions are stable, and the loan portfolio quality is currently good. The banks' profitability is at a solid level, which means that banks have sufficient internal potential to meet the capital requirements. The capital-funded private pension insurance during 2021 achieved a growth in the accumulated funds and recorded a better return than the investment, but the real return for a period of seven years decreased. In the structure of the assets of the pension funds, investments in debt financial instruments still prevail, and the exposure to risks emphasizes the importance of credit risk and the risk of changes in the prices of foreign equity instruments. In 2021, the insurance sector recovered from the pandemic shock and achieved activity growth, while maintaining high solvency. The insurance sector is exposed to possible indirect impacts from the Russian-Ukrainian crisis related to price growth and worsening economic performance that may be transmitted through increased claims costs and possibly worsened availability of insurance. The other financial institutions (savings banks, leasing companies, investment funds and financial companies) still have a small volume of activities and for the time being have a very limited significance as a source of systemic risk for financial stability. The risks to the overall macroeconomic context are still pronounced and are predominantly associated with the external environment, and the main risk still includes the uncertainty related to the course and duration of the military conflict between Russia and Ukraine and its impact on prices and economic activity globally. The National Bank continues to carefully monitor the trends and potential risks from the domestic and external environment and to further normalize monetary policy, in order to maintain price stability in the medium run. The National Bank remains committed to take appropriate measures in the next period if it deems it necessary to maintain the stability of the banking sector as well as the overall financial stability, the report reads.