At the same time, solid domestic savings rates rationalize the needs of the economy for external funding, which means reduced exposure to sudden changes in the capital flows dynamics, i.e. reduced sensitivity to shocks from the external sector. The latest economic crisis clearly illustrates the risks of excessive indebtedness and excessive dependence on external financing, which further emphasizes the importance of domestic savings, which has proven to be a more stable source of funding. Having in mind all the benefits of saving, it is my pleasure to conclude that Macedonian citizens are cultivating a savings culture in the banking sector. In the last 10 years, total deposits have grown at a rate of around 8%, on average, on an annual basis, which contributed to an increase in savings1 by about 10 p.p. at the level of 55% of GDP in 2017. The fact that the deposit growth was registered in conditions of the global crisis and more economic and political shocks proves the high confidence of the citizens in the banking sector, which remained stable, sound, highly capitalized and liquid throughout the entire period, showing high capability for successful handling of shocks. Higher growth in the denar deposits and the acceleration of growth of the long-term savings is especially positive, which strengthens the banks' capacity for long-term placements and the support for investment projects. The deposit growth provided a solid basis for increase in the lending activity and deepening of financial intermediation2 by around 8 p.p.
For all that can be said, the current turmoil is a powerful manifestation of the risk and the complexities that could come with financial globalization. For me, the turmoil points to three important observations. First and foremost, it shows that financial turmoil can happen in any market regardless of whether it is large or small, or whether it is emerging or developed. Once the imbalance is allowed to occur, financial distress will likely happen and there is no exception to it. Second, the turmoil highlights the central role that the financial sector plays in a boom-bust cycle. First is the role that it plays as a mechanism that can contribute to and trigger a crisis. This is because a bubble usually cannot happen without excessive credit growth. Therefore, without proper regulation, a combination of strong capital inflows, easy credit, and the procyclicality of the financial system can set the stage for a build-up of serious economic and financial imbalances. The financial sector also plays an important second role in that its strength and resilience can significantly help cushion the real economy from the impact of external shock. The fact that a majority of emerging markets in Asia at this time have been in a better position to weather the first round impact of the turmoil, both the direct impact on banks and the impact on financial markets from de-leveraging and capital flow reversals, is a clear testimony to the importance of this second role.