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Internship Report at National Bank of Malaysia (BNM)

Info: 5401 words (22 pages) Dissertation
Published: 11th Dec 2019

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Tagged: Banking


My internship was performed in the Republic of Macedonia, more exactly, at its National Bank.

This institution is the one that deals with the macroeconomic policies applicable in the country. These policies allow a stable and long term economic development of one country.

I opted for Macedonia because it is the country of my origins, and also because I think one day I will be able to work for one of the Macedonians institutions. So this internship will help me find out how these kind of institutions really work, what is the aim of their work.

Macedonia is in a transition process, that undoubtedly is always characterized by numerous difficulties, which are, in general, very similar to other countries living these same processes.

The mail purpose of the government of Macedonia is the integration of the country in some international organizations such as NATO or the European Union.

While its integration in NATO would secure the borders of the country, and a long term stability (as we know that some under ethnic conflicts had risen in 2001), the integration in the EU, which is far more complicated and demands a very high responsibility of the government, will boost the economic development of this small country with a little bit more than 2 million citizens.

The importance of the National Bank, in terms of these integrations, is unavoidable. The Bank is responsible for the monetary policy and economy, for important indexes such as Inflation Rate, CPI (consumer price index), which indexes help to clarify the development of the country in a long term.

The economic stability, and the territorial stability, are two very important things, in order that Macedonia could be part of the big European family, and become a potential country that will attract foreign investments at a much higher degree.

I. Description of the institution

About NBRM

Organization chart

Functions :

the National Bank shall perform the following functions:

  • establish and conduct the monetary policy;

  • regulate the liquidity in the international payments;

  • establish and conduct the Denar exchange rate policy;

  • handle and manage the foreign exchange reserves;

  • regulate the payment system;

  • grant founding and operating license to a bank and a savings house and supervise the banks and savings houses;

  • grant a license for performing services of prompt money transfer and supervise the operations of the entities performing services of prompt money transfer in accordance with a law;

  • grant operating license to foreign exchange bureaus and supervise their operations in accordance with a law;

  • issue banknotes and coins

  • perform activities for the account of the central government and the government administration bodies.

THE MONETARY POLICY: Monetary Policy-Design

    1. Designing of the monetary policy

The National Bank of the Republic of Macedonia (NBRM) is a central bank, and accordingly, the only bank of issue in the Republic of Macedonia. Its primary objective is to maintain the price stability, thus being independent in the performance of its functions. The National Bank supports the economic policy of the country and the financial stability of the country, without jeopardizing the achievement of the main objective, and adhering to the principles of market economy. In line with the legally set functions, the NBRM designs and conducts the monetary policy at a level of the national economy. At the end of the current year, in line with the previously determined macroeconomic framework, the NBRM works out the Projection of the monetary developments for the following year, adopted by the NBRM Council.

    1. Monetary policy goals

The maintenance of the price stability is a primary objective of the National Bank of the Republic of Macedonia, established by a Law. The establishment of this goal is in line with the current EU monetary policy layout, based on the empirically confirmed perceptions that the price stability creates most favorable macroeconomic environment for accelerated economic growth sustainable on a long run. Until 1999, the inflation in the Republic of Macedonia was measured through the retail prices index, while since 2000 it has been monitored by the costs of living index. In order to attain its ultimate goal, the NBRM determines an intermediary target of the monetary policy. Thus from April 1992 to September 1995, the NBRM was applying the strategy of targeting the money supply M1, as an intermediary goal of the monetary policy. Since October 1995, the NBRM has been implementing monetary strategy of targeting the nominal exchange rate of the Denar against the Deutsche Mark, i.e. against the Euro since January 2002. Accordingly, the maintenance of the Denar exchange rate stability is an intermediary goal of the monetary policy. The exchange rate targeting strategy is applied due to the following: a. the importance of the exchange rate in a small open economy (the Republic of Macedonia exchanges around 80% of the GDP with abroad); b. the need of nominal anchor for maintenance of financial discipline and credibility; c. high degree of currency substitution (over 40%) and d. exchange rate transparency and the possibility of daily monitoring by the economic agents.

    1. Money supply and money demand

The money supply in the Republic of Macedonia is subordinated to the maintenance of the Denar exchange rate stability, as a nominal anchor in the economy. The amount of money supply is determined in line with the need of regular execution of goods and money transactions, i.e. the economic activity in the country. The money supply is monitored through the following monetary aggregates: M0 – reserve money (currency in circulation, banks’ account with the NBRM and cash in the banks’ vaults), M1 (currency in circulation and transaction deposits), M2 (M1, Denar and foreign exchange deposits with a maturity of up to one year), M3 (M2 and restricted deposits) and M4 (M3 and Denar and foreign exchange deposits with maturity of over one year). The movement of these aggregates is monitored in line with the adopted projection. The money demand, by the definition, is determined by the income level, the price level and the short-term and the long-term interest rates. On the basis of the previous practical experience, the money demand in the Republic of Macedonia is relatively unstable, primarily due to the transitory and the external shocks, as well as the effect of the currency substitution.

    1. Interest rate policy and transmission mechanism

With the monetary policy being directed towards preserving the Denar exchange rate stability, the interest rates and the money supply are endogenous variables, determined by the achievement of the intermediary goal. The NBRM, through its interest rate policy, sends monetary signals to the banks, thus making efforts to influence their lending and deposit interest rates. The lowest interest rate of the NBRM is the discount rate, whereas the highest is the interest rate on the Lombard credit. Currently, the referential interest rate in the economy is the interest rate registered on the CB bills auctions, with respect to its close relation with the interest rate on the Money Market. Due to the higher liquidity in the banking system, no need of organizing credit auctions has been registered over a certain period. However, the transmission canal of the monetary policy through the interest rates in the Republic of Macedonia is still insufficiently developed, considering the insufficiently developed financial market, the rigid interest rate policy of the banks and their insufficient responsiveness to the monetary signals of the NBRM.


    1. Exchange rate policy

According to the National Bank of Macedonia Law (Official Journal of Republic Macedonia nr. 3/2002 & 51/2003), the National Bank of Macedonia establishes and executes the denar exchange rate policy in order to achieve the main purpose – the conservation of the price stability.

    1. Current foreign currency system

According to article 33 from the currency policy law, the denar rate is determined by the simple rule of offer and demand for foreign currencies in the currency market. The denar rate in relation with the Euro is fixed by the reports from different banks that take part in the currency exchange market. As for the other foreign currency, the rate of the denar is determined by the relation between these currencies and the Euro rate, which is fixed by the European Central Bank. The buying and selling rate is calculated with the addition and deduction of 0.5%. In fact, this is the way how the National Bank of Macedonia exposes every day the approved currency rates on the Currency List.

    1. The execution of the currency policy

According to the denar rate targeting strategy, as an important element, the goal and also hard task of the monetary policy is to keep stability between the denar and the Euro rates. If there are tendencies to the depreciation or appreciation of the denar, the National Bank interacts by selling or buying respectively, foreign currencies, after what the monetary strategy becomes respectively more restrictive or more expansive in relation to the projected targets.

    1. Relationship between the monetary and the currency policy

There is a huge dependence between the monetary and the currency policy. It is important for the Macedonian economy to keep a stable exchange rate with the euro, in order to keep price stability in the country, which element will lead to a better life for all its citizens.

In October 1995 the monetary targeting strategy was overturned, and a new strategy was embraced, called the targeted nominal denar rate strategy. With this new strategy, the rising of the money supply is transformed into an instrument that helps, directly, on the stability of the currency rate, and indirectly, on the price stability.

  1. Currency reserves

When the Macedonian National Bank became independent, it had no currency reserves at all. It all began in 1992, when the National Bank began creating its own reserves. The amount of foreign currency reserves is rising permanently. While in 1992, there were around US $60 million, it became US $803 million in 2003, which represents the amount of four months of import.

According to article 25 from the Law on the National Bank of Republic of Macedonia, the management of the National Reserve is in the hands of the National Bank itself. It has also to duty to prepare and consolidate reports every 6 months.

On behalf of the management of the National Reserve, the National Bank, according to article 28, is loyal to the principles of awareness, liquidity and profitability.

  • The exchangeability concept

The Macedonian currency has a present exchangeability. In June 1998, Macedonia has accepted article nr. 8 of the International Monetary Funds’ Statute, which stated that all currents transactions between residents and non-residents can be completed freely, without restrictions. As part of this agreement between the National Bank of Macedonia and the IMF, was also the liberalization of capital transactions.

The direct investments of residents abroad, and of non-residents in Macedonia, are now free, except of a taxation fee in order to register by the ministry of economy. Non-residents can now invest into any Macedonian company, to start their own companies, and to buy shares so that they can become shareholders of all enterprises listed on the Macedonian Stock Exchange (MSE 10). The profit and all the capital investments can be taken back to the non-residents’ place, if there are no more liabilities towards the government.

Non-residents, on behalf of diplomats, and other embassy representatives, have the right to buy real estate, but under certain conditions of demand and registration at the Central Registry of Macedonia.

Residents may distribute and sell native shares at foreign financial markets if he/she has the permission from the Commission of shares and financial instruments.

Credit transactions are also liberalized, in and abroad the country, so that the funds can move loosely, but for that, the National Bank needs to be informed.

Residents may use foreign currencies obtained from transactions made with a foreigner to clear any debt he has, or also use them in the currency market to exchange them into the national currency. In order to pay with a foreign currency abroad, a resident may “buy” these currencies in exchange offices. Other residents, such as physical persons, can also exchange their money for other purposes, not only for business. As for the opening of an account abroad, residents need to be authorized by the National Bank itself.

It is possible for any non-resident to open a denar or foreign currency account, and to use it whenever he/she wants to, with no objection. But there is a limitation on the amount of payments a month, this limit is 10.000 Euros.

But, in case of disorder of the balance of payments or the financial system, the National Bank can prevent the circumstances to worsen by application of some restrictions.


General Features of the Payment System

The payment system represents a sum of instruments, procedures and infrastructure for money transfer. It is of great importance for all economic agents since it enables fast and efficient payments in the national economy.

The payment system of the Republic of Macedonia can be presented schematically as:

The central bank, which runs the accounts of the deposit money institutions – the banks, is at the top of the payment system. In the payment system, the central bank has the following functions: operational, development and function of monitoring of the other payment systems in the country.

The banks, which run the accounts of other legal entities and natural persons, consist the following level. Running of the accounts is decentralized – which means, each bank runs only the accounts of its clients. In order to execute and perform prompt settlement of the large value payments and urgent interbank payments, the system of the central bank is used. For netting the small value payments, a specialized institution – the Clearing House for small value payments is used, while the results of the netting are later settled in the system of the Central Bank.

Start of the New Payment System

On July 30, 2001, the functional implementation of one of the most complex reforms in the Republic of Macedonia, the Reform in the Payments System, commenced. This Reform is managed by a Steering Committee comprised of experts from the National Bank of the Republic of Macedonia, the Ministry of Finance, the banks, the Payment Operations Bureau and eminent professors from the Faculty of Economics in Skopje.

This start represents a beginning of a new payment system designed according to the payment systems of the countries with developed market economies. The new payment system enhances the competitive component of the banks and represents a prerequisite for implementing new banking products which increase the efficiency of the banks and the banking system as a whole. The competitiveness induces new IT tendencies in the banking operations. The reform enables more efficient monitoring and management of the liquidity of individual banks, as well as better efficiency in conducting the monetary policy.

The previous payment system (effective until December 31, 2001) incorporated strong static components and limitations both regarding the options, as well as technological limitations, which represented an obstacle for the future development of the financial infrastructure and the financial system as a whole.

The implementation of the new payment system was encompassed a transitional period from July 30, 2001 until December 31, 2001, during which besides the implementation of the new systems, the Payment Operations Bureau continued with its operations as a specific payment system.

The National Bank of the Republic of Macedonia has important functions in the new payment system, which are stipulated in the new Law on Payment Operation.


According to the Law on the National Bank of the Republic of Macedonia and the Banking Law, the National Bank of the Republic of Macedonia is the only supervisory authority responsible for licensing and supervision of banks and savings houses in the Republic of Macedonia.

The main purpose of the supervisory function performed by the National Bank of the Republic of Macedonia is the maintenance of safe and sound banking system and protection of the depositors and other creditors that had invested their money in the banking system. The National Bank of the Republic of Macedonia has established supervisory standards that are incompliance with the international standards and practices set by the Basle Committee on Banking Supervision.

Supervisory standards

While performing their activities, banks are obliged to comply with the existing supervisory standards that are implemented for the purpose of limiting the banks’ risk exposure. The supervisory standards established and implemented by the National Bank are derived from the Basle Committee’s principles and the European Directives. The most important standards implemented by the National Bank are:

  • capital adequacy, i.e. maintenance of an adequate capital base that will enable covering of the risk profile of banks. The capital adequacy ratio calculated as a ratio between the bank’s own funds and its risk weighted assets, must not be lower than 8%;

  • criteria for classification of on-balance and off-balance sheet asset items of banks according to their risk level and determining adequate amount of impairments and special reserves for coverage of the banks’ potential and/or established losses;

  • exposure limits as a ratio between the total on-balance and off-balance sheet exposure to a single persons and group of connected persons and the bank’s own funds;

  • limits of exposure to the FX risk and the manner of managing this type of risk;

  • limits on investments in land, buildings, equipment and equity holdings.


1. Legal Tender in the Republic of Macedonia

Legal tender in the Republic of Macedonia is the Macedonian Denar, consisting of 100 Deni. The National Bank of the Republic of Macedonia has the exclusive right of printing and issuing banknotes in the Republic of Macedonia.

Macedonian banknotes in circulation (issue 1996 and 2003) :

· 5000 Denars – issue 1996

· 1000 Denars – issue 1996 and issue 2003

· 500 Denars – issue 1996 and issue

· 100 Denars – issue 1996

· 50 Denars – issue 1996

· 10 Denars – issue 1996

2. Printing and characteristics

The lower banknote denominations of 10, 50 and 100 denars are printed in Macedonia, while the banknotes of 500 and 1000 denars (1996 issue) are printed at “Thomas de la Rue”, London. The last banknote issue of 2003, 500 and 1000 denars denominations, was also printed in TDLR. The Macedonian banknotes posses several security features like watermark, windowed-thread, intaglio print, latent image, micro-text, see-through feature, and optically variable ink.

3. Institutions which Act as cash collectors

Institutions which act as cash collectors are the National Bank of the Republic of Macedonia and commercial banks.

II. Internship description

As I am from the Republic of Macedonia, I thought maybe doing an internship there would be a plus for me. I graduated in Macedonia in 2002, so I really wanted to go back there to an internship, which I think it was a good idea in order to put together what I’ve learned at university and what’s happening in the real life out there.

I think it is crucial for a student, or a future graduated student, to learn and make the link between theory and real life practice in order to get ready and not surprised or shocked when first meeting life for real.

The reason also why I chose Macedonia to complete my internship, is that one day after graduating in Belgium, to be able to go back there, and work for my country, which would be much easier if the internship was done there, especially at a very important institution, its’ National Bank.

But, it is also important to say that in this kind of countries, it is difficult and complicated to find a company, private or public, that would accept a future graduated student to do his/her internship there. This is also the position of national institutions.

In such countries, that are living in transition, and where this process takes so long, and has many difficulties, the problem of informal economy is very present in the everyday life. This is the reason why, it is so hard to find a company that would offer you a normal and proper internship, unless, of course, if you may know the head of the company or institution.

I was, unfortunately, not in this case of knowing somebody “important” to either private or public institutions. Regardless this fact, I still applied and send the demand of such internship at the National Bank of Macedonia. It took very long to get a response from them, but it finally came positive.

After this, they were some complication, especially during the 2007 summer, for me to begin with the internship. In fact, there were some procedures to respect, which were not told to me and which I didn’t know. Above all, the extreme heat of that summer had an impact on the government to reduce much of the working hours, especially in its institutions. That is the reason why I could not manage to start the internship that summer.

My internship could finally be done during the three months of holiday granted to last year students at ICHEC. I was accepted by the human resources manager at the Bank, who interviewed me, especially to learn about my background, such as school, political, interests on the National Bank, and so on. After that I could finally begin with the internship.

I was told to begin the very next day, after signing a convention of behavior at the Bank. I was supposed to start at 8 am and finish at 4 pm, which is the work time of each functionary working at this institution.

After the interview, the Human Resources Manager advised me, in relation with my interests, to do the internship in the Research and Development department of the National Bank.

It was a little confusing, because in general, students are allowed to come for their internships a few hours during working days, while I was invited to go there all day long. It was a something I didn’t expected at all when I applied for this internship. But the conditions were given by them, so I did not wanted to react about that. But it was not the best manner to execute and learn about my topic.

When I begun the internship, I had the task to read the reports that are issued by the National Bank itself. Actually, I didn’t understand why I had to do this, but everybody told me they had done so when they started work at the Bank. It was also the way internship students started at this institution. It was a little confusing, but I had to rely on this task.

This reading of the reports helped me though to learn further more of the different indexes that are studied, and their importance in order to measure the development of the macroeconomic policy of Macedonia. But I would have been more satisfied if I was told before beginning this internship to do so, in order to not waste my time reading during my internship, which was limited in time.

First, I had a topic that seemed very clear and comprehensive to me. But after a few days at the Bank, I understood that something had to be changed in this topic because as I was entering my internship everyday more and more, I could see that my topic was too vast, and it could not really help me for my final paper, which would be related with the internship.

After many consultations with my internship advisor, and also with participation of the head of the sector, I decided to somehow change my topic.

At the beginning, I was opting for a study about the macroeconomic indexes, such as Inflation Rate, Unemployment Rate, CPI (consumers’ price index), etc. These indexes are studied and performed by the National Bank of course. But as I said, it was really a vast topic, which could have gone nowhere, and finally not helped me much to the purpose of the internship.

So I opted for a change. This change was more directed towards the energy sector of Macedonia, and how energy has an influence on the economy of this country. This idea came, as I said, after consulting people working there, but above all, after attending on a presentation performed by a professor of the Cyril and Methodius University of Skopje for the National Bank.

The professor presenting was Dr. Vlaško ÄŒingoski, and the topic: The Electro-energetic Situation and Perspectives of Republic of Macedonia. The presentation was mainly on the problems concerning the energetic sector of Macedonia, from its independence until today, the current situation of energy and also the most probable and real manners to overcome the negative balance on this sector. This presentation really opened my path, and helped me a lot into finding a new and more specific topic for my final paper.

Other presentations regarding energy, and the energetic sector concerning Macedonia were performed after. I attended all of them, as my interest was since balancing toward this topic. I was allowed though to be present at these meetings, so it helped me further more in my focusing. The other presentations were performed also by professors, or people working in the management of electro-energetic companies.

But my internship wasn’t all about attending presentations, and taking notes of them. As I said, I was accepted at the Research and Development department of the Bank. This department, which was the one where my main advisor worked, is the principal responsible for the construction, consolidation, editing, and writing the annual, trimester, monthly, and even two-weekly reports concerning the development of the economical situation of Macedonia, and comparing them to other countries, mainly from the Balkans.

These reports have different parts, in general. The first part, concerns the economic development in a global point of view. Next we have the development of Macedonia, then the monetary development, the capital market, etc.

Generally speaking, they are specific teams that work on a specific part of these reports, but the teams can sometimes change. My main advisor was more active on determining and calculating macroeconomic indexes, and then, comparing them with the same indexes of one specific period of last year, or same periods in the past. That was in general his role, and the one of his team.

In fact, I was introduced at his computer to see how things are going, working thus with these indexes. All indexes were calculated via Microsoft Excel, and a software, which is frequently used by National Banks in the region and wider, called eViews. I was not able to have this software on my computer, as it is a program only the National Bank of Macedonia may use. This is why I couldn’t really get deep into this software, in order to understand how it works, and what data or information it offers.

So, the whole things was to take right data, transform and calculate them into indexes, compare them with same indexes of past periods, design different graphics and tables so that it is more comprehensive to the reader, and finally do the interpretation of the results.

The data I mentioned before, which are the base of these indexes, are delivered from the Statistical Office of Macedonia. It is this office that has almost all statistical data for the population living and working in Macedonia. It also has information about the housing sector, which is important to calculate some indexes, such as inflation and CPI.

Then, I was able to start and calculate myself some basic and simple indexes, but mostly, I was asked to compare them with the past permofmances. This is not a very difficult task to do, as I have had many statistical classes during my study years both in Macedonia and Belgium.

But I have to say that, my internship was far from what I was expecting. I am conscious that the period I was able to do the internship, was a full working period. Everybody there was working at high speed to finalize the annual report of 2007, which is the most important, and also most voluminous of all. So, they had not very much time to spend with me and my internship.

In general, this internship enabled me to see what the sector works in real terms, and also, it was very important for me that I was able to have access to the Banks’ library, and also to many publications that I saved, which helped me analyze the data that interested me more after I was done with the internship.

III. Technical Part


As I mentioned in the introduction of this internship report, I was first keen on studying the macroeconomic indexes that the National Bank of Macedonia uses in order to develop its’ reports (annually, monthly, even 2 weekly reports) that are required by many organizations such as World Bank, the ECB, the International Energy Agency, etc. But after some time, I realized I should be focusing more on one specific matter, and that was the energetic sector of Macedonia.

I think the problem of energy, globally speaking, is becoming more and more an important issue, that is undoubtedly an unavoidable factor for the economic growth and development of one country.

Especially, in countries such as Macedonia, who aren’t very rich in natural resources, this situation can have a huge impact, having in mind that these countries are highly dependent on the import of energy producing products.

The reason why I chose this topic to study is, that it is a problem everybody talks about in these days, as we are conscious of the high prices of oil in the recent months. This is another important factor that pushes the issue of the Macedonian energetic sector just further.

This study provides an overview of the investment and policy choices in the Macedonian energy sector. On the investment side, the study highlights the criteria under which potential investments in a new Combined Heat and Power (CHP) plant and a new coal mine should proceed. The Report focuses on reforms that would be required to support the CHP project, namely ratification by Macedonia of the Kyoto Protocol and resolution of ownership issues related to the gas pipeline linking

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