The management of international reserves held in foreign accounts is carried out in accordance with the Central Bank of Montenegro Law and in line with the defined commitments set out in the following documents adopted by the Central Bank Council: Policy and Guidelines for the Implementation of the Central Bank of Montenegro Policy, the Decision on International Reserves Management and the Guidelines on International Reserves Management.
The CBCG manages international reserves in the manner consistent with its monetary policy, with the priority being given to the principle of investment safety whilst ensuring liquidity in current international transactions. Adhering to this commitment, developments in the international financial market and risks related to the portfolio of international reserves are continuously monitored and analysed with a view to successfully adapting to market conditions.
International reserves held in foreign accounts are divided into the available, liquid, and investment portfolios, and funds held with the IMF. The purpose of the available portfolio is to provide the necessary intra-day liquidity, with the funds being held both with central and commercial banks of appropriate short term rating. The liquid portfolio funds are invested in deposits of adequate maturity and in short term securities of the original maturity of up to one year within the selected index. The total investment portfolio consists of the investment portfolio available for sale and the investment portfolio held to maturity where funds are invested in government bonds, securities of supranational institutions, provinces, government agencies and funds, development and specialised banks/institutions (state owned or state guaranteed), as well as in German covered bonds. Funds with the IMF relate to the membership of Montenegro in this international financial institution.
Risks monitored in the process of managing international reserves are market, credit, and liquidity risks. Market risk management of the investment portfolio implies its identification, measurement and control. The ex post and ex ante analyses used include absolute and relative risk measures (VaR, Tracking Error, Sharpe ratio and so on). As for market risk, interest rate risk is particularly measured. Credit risk management is done through continuous monitoring of credit ratings and fundamental financial parameters. The CBCG`s Guidelines also define a number of limitations that ensure proper management of liquidity risk. In addition to these analyses, daily portfolio performance measurements are performed against the selected benchmark. This data enables timely decisions regarding the portfolio and its structure to be made.
The CBCG publishes an Annual Report wherein it provides more detailed information on international reserves management concerning their structure and level, profit, and performance per individual portfolios against the selected benchmarks, as well as relevant risks