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17/05/2022

Today, the CBCG Council held its 118th meeting chaired by Radoje Žugić, Governor of the Central Bank.

At today's meeting of the Council, the 2021 Central Bank of Montenegro Annual Report was adopted. The Report states that the CBCG effectively managed the consequences of the crisis caused by the coronavirus pandemic and contributed to the preservation of financial stability, through the implementation of carefully designed measures. During 2021, the CBCG measures were primarily aimed at natural persons, as well as at micro, small and medium-sized enterprises. Preserved and strong confidence in the banking system was reflected through the achievement of historical maximums of deposits and liquid assets of banks. The only indicator of deterioration is the level of non-performing loans. There was a slight increase in NPLs, which was expected, given the unfavourable external environment, as well as the gradual lifting of the CBCG measures. It was stated that the current account deficit for the previous year amounted to 9.2%, which is the lowest level since the restoration of independence of Montenegro. Also, an extremely high inflow of net foreign direct investments, which amounted to 512 million euros, or 11.3% of estimated GDP was recorded in the previous year.

The 2021 Financial Stability Report stated that systemic risks at the end of the previous year were moderate and at a slightly lower level compared to 2020, owing to, primarily, the economic recovery. However, other risks are still present, particularly fiscal risks, due to the relatively weak international competitiveness of the domestic economy and high consumption against low accumulation, and dependence on foreign capital inflows. In the context of the current crisis caused by the situation in Ukraine, it is necessary to resolutely pursue well-balanced fiscal and monetary policy measures.

In December 2021, according to the 2021 Price Stability Report, the annual CPI inflation reached 4.6%, while the average annual inflation was 2.4%. The largest contributors to the growth of prices were prices from the categories "food and non-alcoholic beverages" and "transport". Regarding future price developments, the CBCG model forecast for end-2022 projects inflation in the range of 6.7% to 11.3%, with a central projection at 8.8%. The CBCG expert estimate forecasts a somewhat higher inflation rate for the end of the year, ranging from 8% to 12%. Due to high uncertainty, both projections will be updated throughout the year.

The Council also adopted the Decision amending the Decision on interim measures to mitigate the negative impact of the communicable disease COVID-19 epidemic on the financial system. The amendments to the current decision were initiated in order to mitigate the potentially negative impact of changes in securities prices on the capital position of credit institutions. Namely, the increased volatility in the financial markets caused by the COVID 19 pandemic, and especially the situation in Ukraine, was reflected, inter alia, in the decrease in market price of securities credit institutions invested in, and there is a possibility of negative impact on regulatory capital and, consequently, the financial position of credit institutions. In order to mitigate the negative impact of the identified risk, the decision amends an additional temporary measure that will allow credit institutions to exclude 70% of unrealised losses from the accumulated other comprehensive income account, which incurred after the entry into force of this decision, in valuing available-for-sale debt financial instruments determined in accordance with International Financial Reporting Standards (IFRS 9). This measure will be valid until the end of the current year and will apply only to securities issued by central governments and local and regional self-government units, defined by the Decision on Capital Adequacy of Credit Institutions. 

The latest data show that new loans in the first four months of the current year amounted to 455 million euros, which is 17% more than in the comparable period of record 2019, or 43.1% more than in the comparable period of 2021. Such intensive credit activity of credit institutions is accompanied by stagnation of interest rates, therefore the weighted average effective interest rate was 5.58%, or 4.08% for legal entities and 7.09% for natural persons at end-April 2022.

With a view to prescribing the obligation of credit and financial institutions to implement restrictive measures, the Council adopted the Guidelines on the implementation of international restrictive measures by banks and financial institutions and supervision of the implementation of these measures.

The Decision Amending the Decision on the Reproduction of Euro Banknotes was also adopted with a view to harmonizing the valid decision with the regulations of the European Central Bank. Also, the Council adopted the Decision on determining the most representative services linked to payment account, which identified 14 services that consumers most often use in connection with the payment account and which expose them to the highest cost, such as: maintaining the account, online and mobile payments, cash receipt and transfer, issuance of credit and debit cards, and the like. As of January next year, the service fees to be charged by credit institutions for the provision of these services will be publicly announced on the CBCG website, which will enable consumers to easily and simply compare them and choose the most favourable terms and conditions. This is expected to increase competition between credit institutions and, consequently, reduce customer costs.

At today's session, the Council also adopted the Governor`s Report for February and March 2022 and reports on the Bank Lending Survey Results for the fourth quarter of 2021 and the first quarter of 2022, and reviewed other issues from its competencies.