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29/10/2018

The forty-first session of the Financial Stability Council was held today. It was chaired by Radoje Žugić, Governor of the Central Bank and the Chairman of the Council. All other members of the Council were present at the session: Darko Radunović, Minister of Finance, Branko Vujović, President of the Council of the Insurance Supervision Agency, and Zoran Djikanović, President of the Capital Market Commission. Upon the invitation, Predrag Marković, director of the Deposit Protection Fund, is present at the meetings of the Council.

At today's session, the information on the state of financial stability for the second quarter of 2018 was considered, as well as the current issues under the competence of the Council.

Continuity of positive quarterly growth rates of GDP in Montenegro continued, which positively affected systemic risks. Positive signals, in terms of economic growth, come from the region and the wider environment (euro area).

The economic indicators for the first six months of 2018 show a stronger continuation of positive developments from the previous year. Namely, during the first two quarters of 2018, significant growth was registered in most sectors in relation to the same period of 2017. The volume of activities in construction, trade, tourism and industry has increased, where a particularly high growth was recorded in the energy sector (117.8%). Estimated real growth rate in the first half of the year was about 4.7%, based on quarterly estimates.

Positive trends were recorded also in certain fiscal indicators, thus, the original budget revenues for the first two quarters of 2018 were 12% higher than in the comparative period of the last year. Concerning budget expenditures, they are 7.9% higher than in the same period of the previous year, while 4% lower than the plan. The growth of expenditures is a consequence of higher realization of the capital budget in relation to the same period of 2017.

It was estimated that effects of fiscal consolidation are visible, which affected, among other things, the recent improvement of the credit rating of Montenegro by Moody's agency (in September this agency changed Montenegro's prospects from "stable" to "positive"). The control of fiscal risks and the accompanying structural reforms are currently key activities to preserve fiscal, and consequently, financial stability over the medium term.

It was noted that the indicators of stability and quality of operations at the banking, insurance and capital markets are positive and they record positive tendencies.

At the end of the second quarter of 2018, the total assets of banks amounted to 4.31 billion euros and it grew by 4.3% on a quarterly basis. The credit activity of banks, measured through new loans, amounted to 609.5 million euros in the first six months of 2018, which is 6.9% more than in the same period of the previous year.

The members of the Council discussed the preliminary results of supervision of two banks with some vulnerabilities present and discussed the possible impact of risk materialization in these banks on the overall system.

Based on the analysis of the impact of all mentioned factors on the overall economic stability, with particular emphasis on the stability of the financial system, the Council concluded that the financial system is relatively stable and that there are risks of moderate intensity.