UNMIK/FR/030/01
FEATURE RELEASE - 27 April 2001

Kosovo's money
How to get Euro-ready? Become Bank-Friendly, says BPK

A rare good news story concerning Kosovo last week describes how hundreds of Kosovo-Albanians have recovered their life savings from heaps of Deutschmark notes.  Previously thought worthless because they were so badly damaged during the 1999 conflicts they were beyond redemption, they were taken by their owners to 'money detectives' at Germany's Federal Bank in Frankfurt.  If there was the merest hint of a genuine serial number, their replacement was authorized.  Since June 1999, upwards of DM 90 million flowed back into Kosovo's economy from this source, the Bundesbank estimates.

But the reason Kosovars faced that predicament was not only that they had hidden their savings in houses and barns that were blown up or burned down during the war. It was also their long-standing reliance on the Deutsche Mark as the inflation-proof currency of choice, and, more important for the future, their deep-rooted distrust of Kosovo's domestic banks.

This is why Kosovo today is arguably not only Europe's most underbanked territory, but also its poorest user of normal banking services, especially those concerned with savings and current transactions. It is a situation that the Banking and Payments Authority of Kosovo (BPK) is determined to change. It wants the majority of Kosovars to become bank-friendly, and it sees the coming switch from the Deutsche Mark to the euro on 1 January 2002 as the one time chance to make it happen.

Certainly by this time in 2002, Kosovo's long association with the Deutsche Mark will largely be over. By then no longer accepted for financial transactions, payment of tax and debts and settlement of other obligations, Deutschmarks, even those in mint condition, will be nearly as difficult to turn into useable money as their burnt-up and water-logged sisters that survived the 1999 war: after June 2002, their owners will also have to take them to Frankfurt to exchange them for euros.
There are, of course, easier ways. One of them, the BPK will be urging everyone, is to set up a bank account.

Whatever their station and prospects, all adults should think through the benefits of opening and/or sharing a savings account at one of Kosovo's three banks. And they should do it already this year-even though this may mean breaking the habits, traditions and suspicions of a lifetime.

It is normal for young Europeans, BPK's Managaging Director, Mohamed Bouaouaja points out, to open a bank account immediately they start their first formal job or first become a student. Running a company, without a bank account from which to receive and make payments, is virtually impossible. Wages and salaries in the formal sector are invariably paid through the banking system. Wage earners, employees and companies, in turn, normally spend most of those earnings by writing cheques, arranging bank transfers and increasingly through credit card purchases.

This, broadly, is the medium-term future that the BPK foresees for Kosovo-credit card and cash dispensing machines included. How quickly its vision is realized will depend however not only on acceptance of Kosovo's banks by the majority of Kosovars as the place to keep their savings. It will also hinge on how fast the banking system sets up branches around Kosovo so that customers enjoy reasonable convenience when they decide to use their service.

The small number of banks licensed so far, and the small number of branches outside Pristina is clearly a constraint.  But this also reflects the stringent conditions applied by the BPK before bank applicants are finally approved-a consumer protection measure that should encourage potential account holders to place their trust in Kosovo's new-generation banks. Together with daily controls on bank operations undertaken by BPK as the bank regulator, they ensure that customer's savings are as safe as anywhere else in Europe, BPK insists.

One alternative to developing the commercial banks as a major place outside the home for consumers to keep their savings is Kosovo's post offices. This however is unlikely in the foreseeable future.  Post offices in many countries do engage in retail banking, and contribute particular convenience in rural areas.  Here, the PTK presently lacks funds to provide strong rooms to hold the amounts of cash involved.

Another option would be for the BPK itself to extend its services to the public.  BPK outlets already pay Kosovo's civil and public servants and will share with the banks the task of exchanging euros for marks next year. BPK refuses, nevertheless, to expand into retail banking, deeming such a move incompatible with its role as bank regulator.
 
 
Contact: P. Ellwood
(038) 505 604 Ext. 5471
E-mail:ellwood@un.org