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31/05/2019

The Financial Stability Council held its forty-sixth meeting today, chaired by Radoje Žugić, the Governor of the Central Bank and the Chairman of the Council. All other members of the Council attended the meeting: Darko Radunović, Minister of Finance, Uroš Andrijašević, President of the Council of the Insurance Supervision Agency, and Zoran Djikanović, President of the Capital Market Commission. Upon invitation, Predrag Marković, the Director of the Deposit Protection Fund attends the Council meetings.

At today's meeting, the Financial Stability Council's discussed Financial Stability Report for 2018 and the Information on the state of the financial stability for first quarter of 2019, as well as current issues under the competence of the Council.

While discussing the Central Bank of Montenegro Annual Report for 2018, the Council concluded that the financial stability was at a satisfactory level during the previous year, despite the challenges, with moderate risks which were of a systemic nature.

During the previous year, the most important issues were the resolution of vulnerable banks, as well as fiscal challenges, which required adequate monetary and fiscal measures. Through the implementation of these measures and the activities of the relevant institutions, system stability has been preserved, and all risks have been placed under control. Additionally, a strong economic growth of 4.9% had a positive influence on the risks in the financial system.

During 2018, the banking sector was marked by an adequate level of liquidity and solvency at the aggregate level. The most significant balance sheet items of banks (total assets, deposits, and loans) recorded the year-on-year growth. The insurance market is stable, while the capital market is still recording a moderate recovery.

The Council concluded that a policy aimed at consolidating government spending, growth, and recovery of the economy as well as continuation of investment spending with a view to achieving long-term growth and economic development must be also pursued during 2019. In that sense, maintaining the stability of the banking sector and implementing fiscal consolidation measures must be set as priority goals. Also, measures aimed at improving the competitiveness of the economy must be initiated and implemented during this year. It is necessary to continue with the implementation of structural reforms, primarily in the area of health and pension insurance, as well as to further strengthen the stability of the system through the harmonisation with the EU acquis.

Based on the analysis of the financial system stability indicators and the trends in key parameters, the Council concluded that risks must be monitored and that fiscal, monetary and prudential policies must be directed towards their reduction.

Information on the state of the financial stability for first quarter of 2019 was used to discuss the effects from the international and domestic macroeconomic environment as well as from the financial sector, which can have an impact on systemic stability. 

It was noted that in the first quarter of this year, a slightly positive influence from the international environment continued, bearing in mind economic growth in the region and in the euro area.

When it comes to the domestic macroeconomic environment, economic indicators for the first three months of 2019 indicate that positive developments from the previous year continued. There was an increase of goods turnover in retail trade (6.8%), as well as in the number of tourist arrivals (44.1%), and in the volume and value of construction works (12.4%).

As for the fiscal indicators, in the first quarter of this year there was a growth of budget source revenues, which, according to the preliminary data of the Ministry of Finance, were 8.3% higher than planned. On the other hand, in the first three months of this year, budget expenditure was 15.3% lower than the plan.

According to preliminary data, the total net inflow of foreign direct investments for the period January - March 2019 amounted to 82.7 million euros, which is the year-on-year increase of 62.9%.

When it comes to the situation in the financial sector, the indicators of stability and quality of operations at the banking, insurance and capital markets recorded positive trends.

As at the end of Q1 2019, the total assets of banks amounted to 4.4 billion euros and recorded a slight decline (0.1%) in relation to end-2018. Assets recorded an annual growth of 6.6%. In Q1 2019, total loans increased by 3.4%. The share of non-performing loans in total loans was 5.9% as at end-March 2019, which was a quarterly decline of 0.8 percentage points. Lending interest rates continued to show a downward trend in Q1.

Based on the impact analysis of all abovementioned factors on the overall economic stability, with particular focus on financial sector stability, the Council concluded that the financial system stability is slightly higher compared to the corresponding period of 2018. 

The Members of the Council also discussed other issues under its competence.