ANALYSIS OF THE FINANCIAL SECTOR IN MACEDONIA BEFORE AND DURING THE GLOBAL FINANCIAL CRISIS (2007–2009)

Abstract

This paper analyzes the financial sector in the Republic of North Macedonia before and during the global financial crisis that began in 2007 and escalated in 2008 following the collapse of Lehman Brothers. The purpose of this research is to evaluate how an emerging and relatively isolated financial system responded to global economic shocks, particularly in terms of banking sector performance, credit distribution, and monetary policy. The methodology includes both a qualitative narrative and a quantitative approach, applying linear regression analysis using data from 2004 to 2024 (National Bank of the Republic of North Macedonia, 2009–2023). The regression focuses on the relationship between key financial indicators – cost-to-income ratio, employee - related expenses, and interest margins and their effect on return on assets as a measure of banking efficiency. The results reveal that operational efficiency, as measured by cost-to-income ratio, is the most influential factor affecting bank profitability. Unexpectedly, the interest margin shows a statistically significant negative relationship with profitability, which may reflect structural challenges and regulatory constraints. The employee cost ratio, in contrast, has a positive and significant impact, suggesting that investment in human capital correlates with improved financial performance. The findings conclude that the Macedonian financial sector, though not deeply integrated into global financial markets, showed resilience due to conservative lending practices and proactive central bank intervention. However, vulnerabilities emerged in the form of reduced lending activity, increased market uncertainty, and a slowdown in investment. The study recommends the adoption of proactive risk management strategies, further diversification of income sources beyond interest - based revenue and enhanced transparency in financial reporting. Additional data from the National Bank of the Republic of North Macedonia supports the regression model and is available upon request for further verification and replication.