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28/05/2021

In cases when individuals, knowingly or due to lack of knowledge and competence, place inaccurate information that may directly or indirectly affect the banking market’s developments, as its primary competence, the Central Bank (CBCG) has to react to preserve the banking sector’s soundness and stability and deny such allegations.

Being a guest yesterday in the morning program of Radio Television of Montenegro (RTCG), Mr Predrag Drecun presented a series of flat and unfounded assessments of the CBCG work and the banks’ functioning. Thereby, we are obliged to provide the public with data that realistically reflect the banking sector’s situation and remind us of our work’s assessments of the objective European Commission, European Central Bank, World Bank and International Monetary Fund.

We will first look at the rudest and the most unsubstantiated comment that “the CBCG has not preserved the sector’s stability.” The assessments of all relevant international institutions, which someone involved in the financial market analysis should consider, confirm that the CBCG acted adequately and promptly during the corona crisis, managing to preserve the banking system’s soundness and stability.

Let us first remind that, for the first time since the CBCG establishment, the IMF prepared an external analysis of the institution’s control mechanisms this February. It determined that the CBCG had strong operational control mechanisms of its key functions. During the April meeting, the director of the IMF Department for Europe, Alfred Kammer, congratulated the Governor on “taking the right steps towards building a strong and credible institution”.

In the spring edition of the Western Balkan Regular Economic Report, the World Bank pointed out that “the financial sector has been resilient so far.” A recent letter from the World Bank’s Country Director for Montenegro and Bosnia and Herzegovina to the Governor stressed that “the CBCG has implemented a relatively large set of measures in response to the pandemic impact on the economy and the financial sector. “

Positive assessments of the CBCG work came from the highest European addresses. The ECB stated that “key indicators of the banking system’s financial stability are still sound due to their stable situation before the pandemic and recent measures to support the crisis.” They further point out that “owing to the CBCG efforts, the banking sector had strong financial stability indicators before the crisis at the aggregate level.” Furthermore, the CBCG is one of the few institutions that received an excellent progress assessment in the European Commission’s Progress Report for 2020. We expect a similar result, based on the already fulfilled recommendations of the European Commission for 2021, this year as well. The European Commission’s latest report on the quality of Montenegro’s 2021 Economic Reform Program states that the CBCG has taken strong support measures to mitigate the crisis impact, including deferrals and debt relief, through a moratorium and loan restructuring. It further states that “monitoring activities were of high quality, including monitoring the measures impact” and that “it madegood progress in supervision strengthening”.

In addition to the mentioned ratings from the most relevant addresses, the bank operations’ data confirm that the banking system is sound and secure. At the end of Q1 this year, the solvency ratio was 19.3%, almost twice the prescribed minimum. The previously defined CBCG measures to restrict the realized profit distribution, and the focus on strengthening capital, helped significantly to this. All key balance sheet items have been growing since the beginning of the year. During the first four months of the current year, banks approved 318 million euros in new loans, 32% more than in the comparable period last year.

Deposits continued to grow in 2021 (by EUR 223 million from 1 January to 25 May 2021) as a sign of confidence in the banking system and the supervisor.

Let us also remind that the CBCG implemented nine packages of measures to mitigate the pandemic consequences in the previous year. Inter alia, they aimed at delaying and facilitating the liabilities repayment through a moratorium and loan restructuring. We have taken special care to direct support to those categories of the population and economy most severely affected by the pandemic. Legal entities from the list of endangered activities and those whose total revenues in 2020 were at least 50% lower than in 2019 may use the moratorium. Natural persons - loan beneficiaries with terminated employment and those who have not received net wages for three months before the moratorium, and those with wages reduced by at least 10% due to the pandemic, may use the moratorium.

As a former banker and current financial analyst, Mr Drecun should know that the required reserve was reduced due to a CBCG measure. The CBCG knowingly initiated and implemented the measure last May to “inject” additional 70 million euros of liquidity. With this measure, banks could even more strongly support citizens and companies whose financial situation was negatively affected by the corona crisis. This measure, supported by international financial institutions, was implemented by almost all national banks during the corona crisis. To provide additional funds to support systemic liquidity, the CBCG actively communicated with international partners. It contracted two repo lines of up to 350 million euros with the Bank for International Settlements and the ECB.

Given the aforesaid, it is clear that Mr Drecun’s allegations are unfounded and that his assessments of “CBCG inactivity” and “system vulnerability” are absolutely non-existent.