CBCG held a meeting with the chief executive officers of banks
22/11/2016
Representatives of the Central Bank of Montenegro held a meeting with the chief executive officers of all banks operating in Montenegro. They discussed key vulnerabilities that are present in the banking system, as well as modalities for their resolution.
Representatives of the CBCG pointed out three key vulnerabilities: high level of non-performing loans, high interest rates and lack of credit support. Although non-performing loans are significantly reduced, it was pointed out that the Podgorica Approach model is not exploited enough and that the CBCG plans to modify this law, through the extension of its validity, the expansion of coverage, as well as the potential additional tax incentives. They also pointed that the experience of other countries shows that with decreasing levels of non-performing loans creates space for higher lending activity and lower interest rates. It was pointed out that the possibility of introducing additional provisions for banks that have high level of NPLs and who are not ready to accept clients' proposals for restructuring have to be considered. Banks are suggested to release the collateral as soon as possible, particularly for the loans which greatest part is repaid, because in this way a significant economic potential is captured. Representatives of banks have agreed with the proposal that this model is under-utilized and it is necessary to prepare amendments. The CBCG suggested that the banks should submit their written proposals for improvement of this law as soon as possible.
Special attention was paid to the interest rates. It was pointed out that even though interest rates have a downward tendency, the CBCG is not satisfied with the pace of lowering interest rates. Bankers have pointed out a number of issues that, in their opinion, affect the level of current interest rates. Key issues that are listed relate to the slow judicial resolution of activating mortgages and recovery of disputed claims, poor quality financial reports, the presence of shadow economy, inadequate transparency of clients, the absence of institution that would guarantee the loans, thus sharing risks with the banks and the like. It was agreed to work jointly work on solving these problems. Also, bankers have stated certain structural specificities of the Montenegrin market which affect the level of interest rates and lending activity, such as a high level of deposit interest rates, dominance of short-term deposits, strong competition, due to too many banks that adversely affect profitability.
In the end, it was emphasized that the CBCG expects from banks to engage more in addressing these vulnerabilities, as well as willingness of the CBCG to work with banks in order to improve the environment.