Artificial Intelligence and Financial Risk Management in the North Macedonian (Europe) Banking Sector

Abstract

Artificial Intelligence (AI) is being adopted in the banking industry in the Republic of North Macedonia (ROM), a small, bank-dominant foreign majority banking system and EU candidate. This study explores the adoption, drivers, and risk-management implications of Artificial Intelligence (AI) in the banking industry of the Republic of North Macedonia (ROM), a small, bank-dominant, foreign majority banking system and EU candidate. The study relies on the international academic literature, the National Bank of the Republic of North Macedonia supervisory and financial-stability publications, reports of the Macedonian Banking Association, publications of the European Banking Authority (EBA), and International Monetary Fund (IMF) publications, as well as Scopus-indexed studies from similar banking markets in CESEE countries. A comparative content analysis of the annual and financial-stability reports (2019-2024) of 13 commercial banks is supplemented by expert-perception assessment conducted by 24 risk officers, IT/digital-transformation managers and NBRNM supervisors. The results reveal a shift from rules-based automation to a growing number of machine-learning applications, such as fraud detection, transaction monitoring, and behavioural credit scoring. The application of advanced solutions such as deep-learning market-risk models, robo advising and generative-AI based RegTech/SupTech are in nascent stages. The capital adequacy ratio for each sector stood at 18.1% whereas ROA for each sector was 2.0% in 2023, which support the investment in AI. But, inadequate data infrastructure, data-science skills, outdated banking systems, regulatory issues and parent-bank decision-making limit adoption. The study argues that, today, AI is helping to perform “augmented”, but not “autonomous” risk management, and suggests a four-phase journey that starts with data governance, model-risk management, supervisory technology and skills development to align with EU AI and banking requirements.