Does the introduction of the bond market reduce the interest rate on Kosovo banking industry?

Abstract

Kosovo does not have a bond market which would enable companies, people and other economic agents to have access to it, that would have been a substitute for the companies to get other sources of funds beside banking sector. The Kosovo economy has only one source of institutional money injected into the economy and that is the banking industry. Bringing back the money of Kosovo Pension and Saving Trust (KPST) to Kosovo would have been a huge injection for the economy to raise GDP and lower unemployment. Since the companies in Kosovo contain a lot of asymmetric information within their financial statements, clearing the way for KPST how to allocate their investments in Kosovo would be through alleviating asymmetric information. The paper stands on the general concepts of the asymmetric information and how to alleviate it within the financial market and particularly within the bond market. The other part of the paper concentrates on theoretical framework how to eliminate asymmetric information for the companies who want to get funding from KPST. Therefore, it is necessary to have healthy banks and better environment to have a sound bond market. On the other hand, bond market may increase the health of banks by enhancing market competition.