Council of the Central Bank of Montenegro held its 64th meeting
The Council of the Central Bank of Montenegro held its 64th meeting today, chaired by its Governor, Mr. Radoje Žugić.
The topic of the today’s meeting was a comprehensive and thorough analysis of the new coronavirus pandemic impact on Montenegro’s economy, the effects of current Central Bank of Montenegro (CBCG) measures aimed at mitigating the pandemic effects and considering the possibility of providing additional banking sector’s support.
It has been reported that the measure of temporary suspension of payment of credit obligations, i.e. the introduction of a moratorium has significantly contributed to the increase of the system’s overall liquidity. According to the CBCG calculation, the introduction of a moratorium will increase the liquidity of individuals and legal entities by some 150 million euros, during March, April and May, which represents almost 3% of GDP. In this way, the banking sector has made a significant contribution to increasing the disposable income of the population and the economy, creating the conditions for the regular settling of their obligations.
This March and April, banks also approved 4,940 new loans, worth some 115 million euros. Most of these funds (some 80 million euros) are directed to the economy.
The banking sector was assessed liquid, and the deposits level stable.
Despite the excellent liquidity of the banking sector, the Council adopted a decision today that significantly reduces the fee banks are required to pay for using the statutory reserve requirement, which they do not return on the same day. Namely, during these temporary measures, the fee that banks would pay was reduced by 50%, from the previous 12% to 6% annually.
By the end of the current month at the latest, the CBCG will prepare a new package of measures aimed at providing additional support to the recovery of the population and the economy.
Today, the Council also adopted respective reports on the Central Bank of Montenegro Business Activities and Policy Implementation for January, February, and March 2020. These reports stated that the activities of the CBCG during this period were implemented according to the planned commitments set out in the Central Bank’s Work Programme for 2019 and that these were adapted to the extraordinary circumstances caused by the new coronavirus pandemic.
At today’s meeting, the Council adopted the Central Bank of Montenegro Annual Report for 2019, the Central Bank of Montenegro Macroeconomic Report 2019, the Financial Stability Report 2019, and the Price Stability Report 2019.
The mentioned reports point out that the positive economic trends from the previous year continued in 2019. Preliminary MONSTAT data showed a relatively high GDP growth rate of 3.6%, which was an excellent result taking into account the high previous-year base. The annual CPI inflation rate in December 2019 was 1%, while prices grew at the average rate of 0.4%. According to preliminary data, the net FDI inflow in 2019 was 6.9% higher than in 2018, and the number of employees was 7.1% higher than in the previous year. The fiscal sphere also recorded a positive trend - the implementation of fiscal consolidation measures resulted in budget and public spending deficits reduction compared to 2018. In 2019, the current account deficit decreased by 6.2% compared to 2018, due to increased surpluses on services and secondary income sub-accounts.
Despite the closure of two non-systemic banks, the banking sector maintained stability, increased resilience, and strengthened its operations in 2019. The high level of liquid assets, the growth in deposits and loans, and the recapitalization of some banks additionally strengthened the banking system. The aggregate solvency ratio was 17.73%, and the multi-year trend of lowering interest rates and non-performing loans continued. The strengthening of lending activity has strongly affected macroeconomic stability, through stimulating growth, consumption and economic recovery, resulting in the tax base expanding and reducing fiscal pressures.
Such trends continued in the first two months of 2020 and were expected throughout the current year. Unfortunately, due to the COVID-19 virus pandemic, last year’s growth projections are no longer realistic, and this event will undoubtedly have numerous consequences for the global and the domestic economy.
Today, the Council also considered the quarterly reports on the operations of MFIs, the Investment and Development Fund, of factoring and leasing companies as at 31 December 2019, and within its competence.