Central Bank Council held its 66th meeting
20/05/2020
The Governor, Mr. Radoje Žugić, chaired today`s 66th meeting of the Council of the Central Bank of Montenegro (CBCG).
The Council discussed the effects of previously adopted measures aimed at reducing negative impact of the novel coronavirus pandemic. It was concluded that the CBCG measures had significantly contributed to mitigating the effects of the pandemic on the population and the economy. Through regular Council meetings and intensive communication with banks and international financial institutions, the CBCG initiated and implemented significant activities that provided, inter alia, additional liquidity in the system. Thus, the introduction of the moratorium during March, April, and May will increase liquidity of private individuals and legal entities by approximately 150 million euros. In addition, the earlier two-percentage-point reduction of the required reserve rate increased liquidity of the banking sector by some 70 million euros, which directly resulted in an increase in their credit potential. From early March to mid-May, banks approved 6,423 new loans worth 152.5 million euros. Despite the good liquidity of the banking sector, the CBCG provided a repo line of credit from the Bank for International Settlements (BIS) in the amount of 100 million euros. These funds would be used to support banks' liquidity in case of contingencies.
The Council also passed a decision prescribing temporary measures that allow banks to continue providing additional support to loan users who had suffered or will suffer negative financial effects of the coronavirus pandemic. In this regard, banks may, under clearly specified conditions, approve the restructuring of loans, including unsecured cash loans. Loans restructured in accordance with this decision will be treated as newly granted loans and banks will be relieved of the additional burden of provisioning costs. This creates the conditions for loan restructuring under more favourable conditions. This decision also allows banks to approve a new moratorium on loan repayment for up to 90 days to loan users whose financial situation was negatively affected by the pandemic. Banks are obliged to publish on their websites, by 1 June 2020, more detailed conditions for applying for the moratorium. The nominal interest to be charged during the moratorium may not exceed the nominal interest rate contracted under the loan agreement to be subject to the moratorium.
The decision to redefine the principle of a “general” moratorium (when banks are obliged to provide all beneficiaries with temporary delay in loan repayment) is based on the analysis of information on the previous moratorium, the results of which showed that both individuals and legal entities whose liquidity had not been jeopardized due to the pandemic used this measure to a significant extent. Also, these activities are in the line with recommendations of international financial institutions (EBA, WB, etc.).
Temporary measures prohibiting the payment of dividends to shareholders remain in force, except for payments in the form of bank shares as well as the possibility of approving loans to one party or a group of related parties above the exposure limit prescribed by the Banking Law. Also, the fee that banks are obliged to pay for the use of the prescribed amount of required reserves that they fail to return on the same day will remain reduced by 50% until further notice.
The Council also considered the report on the operations of banks for the first quarter of this year. It was concluded that the banking sector is highly capitalized, with preserved liquidity and a stable level of deposits.
The CBCG Council recommends that banks, in line with their business policies, pay particular attention to tourism related projects as well as projects of micro-, small and medium-sized enterprises.