---

20/11/2023

At its meeting on 20 November 2023, chaired by Governor Radoje Žugić, the Council of the Central Bank of Montenegro analysed the current state of the Montenegro banking sector and the CBCG’s work in the previous seven-year period.

The Council members stated that, despite the challenges that characterised the previous period, causing enormous uncertainty and highlighting multiple risks, including those to financial stability, the CBCG recorded exceptional work results, as confirmed by the reports of international institutions, such as the IMF, the World Bank and the European Commission.

First, the CBCG fully fulfilled its obligation defined by the Constitution and preserved the stability of the banking and financial system. According to the Council members’ assessment, the CBCG successfully resolved all the banking system’s vulnerabilities in a responsible and systematic manner in the previous period. Resulting from such CBCG’s work, the Montenegrin banking sector, which has a prevailing position in the country’s financial system, was stable, highly liquid and adequately capitalised. All key banking sector balance positions record the historically most favourable values with a positive trend, with a decrease in non-performing loans, further improving the quality of the bank assets.

With a focus on constantly monitoring banking operations and implementing measures to strengthen the banking system’s resilience, the CBCG intensely strengthened the regulatory framework in the previous period. Montenegro’s legislative framework governing banking operations is continuously harmonised with the relevant EU acquis and the highest international standards. The ECB’s Report of April 2023 stated “the CBCG has made some progress in financial sector reforms, including in advancing key legislations that align Montenegro’s regulation and supervision with the EU framework.”

In its latest Progress Report, the European Commission recognised the CBCG as a rare institution whose work it positively evaluated. The CBCG Council fully implemented the CBCG activity plan regarding the European integration process for 2023. The body’s 149 meetings in the previous seven-year period, twice as compared to the legal obligation, testify to the intensive work of the CBCG Council.

The European Commission assessed the Montenegrin banking system as stable and liquid, with “strong liquidity buffers exceeding pre-COVID-19 levels”. The Report states that strong lending activity of banks provides support to the economy, while non-performing loans declined and the capital adequacy ratio significantly exceeded the statutory minimum.

Concerning transparency, the results of the previously conducted external analysis of the CBCG’s supervisory mechanisms by the IMF confirmed that the CBCG possesses strong operational control mechanisms of its key functions (including central bank management, legal framework and the CBCG’s autonomy, reserve management, treasury operations, finance and controlling, operational risks, and internal audit).

De Nederlandsche Bank’s analysis of the CBCG internal audit’s work confirmed the full independence of the CBCG internal audit work following international standards and best practices. As a working body of the CBCG Council, the Audit Committee made a notable contribution.

The Council noted that the CBCG performed its supervisory function professionally and with quality, respecting the principle of equal treatment of all banks and a non-selective approach in the supervision schedule based on supervision plans determined according to pre-established rules incorporated in the CBCG’s work procedures. The CBCG’s supervisory function has additionally improved in the previous period through strengthening staffing capacities and the establishment of an expert and advisory body - the Bank Supervision Committee - as an additional mechanism ensuring objectivity in action, i.e. representing the third level of control when making decisions concerning the CBCG supervisory activities. Upon the Supervision Department’s proposal, the Committee declares itself before the Governor makes final decisions concerning banking supervision. Thus, this decision-making method eliminates the possibility of corruption, indiscriminateness or inappropriate influence.

The World Bank team’s report from this June highlighted the “proactive, intensive, and efficient banking supervision model”. Moreover, it assessed that the “CBCG’s Supervision Department achieved significant results in various areas related to financial stability, asset quality review, regulatory framework and risk profile of banks”.

The Asset Quality Review (AQR) process results of Montenegro’s banking system also prove the CBCG’s non-selectivity in performing its supervisory functions: The AQR confirmed the sector’s stability through an adequate capital position and a satisfactory bank assets quality. This assessment, which included all 13 banks then present on the Montenegrin market and over 84% of credit exposures, was carried out by independent external auditors based outside Montenegro. The CBCG was the first central bank outside the EU to conduct an AQR following the ECB’s methodology.

The CBCG also recorded exceptional results in the internal economy, as evidenced by the independent external auditors’ reports. During all these seven years, they gave a positive opinion of the CBCG financial reports, assessing that all data provided an accurate and fair presentation of the institution’s financial condition and results. Over the last two years, the external auditors have not made any recommendations or objections to the management of the CBCG concerning financial operations. To ensure full transparency of work, all annual financial reports with external auditor’s opinions are available on the CBCG website.

Achieving exceptional business results proves the successful CBCG’s management. The CBCG’s profit exceeded five million euros last year, with a record 18 million euros of expected profit for the current year, given an unchanged pricing policy for the CBCG services to banks and other payment system participants.

The Council assessed that all the above results were achieved owing to the responsible and dedicated work of the Bank’s management and all employees of the CBCG.