MEDIA STATEMENT
20/01/2019
With a view to informing the public accurately and objectively, and with regard to the current situation in Atlas Bank and IBM Bank, the Central Bank of Montenegro issues the following media statement:
Bearing in mind that the preservation of credibility and reputation is one of the underlying objectives of the CBCG, we uncompromisingly and decisively react on all activities of individual persons that might jeopardise institutional value of this institution.
In that respect, the CBCG not only fully supports but insists on the reaction of competent government authorities regarding the initiation of the proceedings for determining potential responsibility of the employees of the CBCG, if determined that they acted against the law.
The CBCG is guided by the principle of zero tolerance on corruption in its operations. Therefore, due to indications on corruption activities of the former Vice-Governor, Velibor Milošević, the CBCG will consider further status of this person, the current member and the chairman of the Board of Directors of the Universal Bank AD, with regard to the previously granted approval to this bank for his appointment as a member of the Board of Directors. Simultaneously, although we firmly believe in the credibility of the persons employed in the Banking Supervision Department, the CBCG will make an internal check of their activities in the specific case.
Although layman researchers, referring to “confidential sources”, are unsuccessfully trying to connect the current Governor with the 2015 Report on Atlas Bank, we point out that the Financial Stability Council, in its composition from 2015, including current Governor and the then Finance Minister, had never been acquainted with any report on Atlas Bank, which is confirmed by the minutes from the Council’s meetings. Also, this can be confirmed by the then members of the Council as well as by the persons that attended the Council meetings.
On the other hand, it can be easily checked, and for which no “confidential sources” are needed, that the current Governor, together with the management, promptly ordered the implementation of supervisory action plans against weak banks in 2017. In accordance with the results of the implementation of the aforesaid plans, adequate reaction of the CBCG was implemented in 2018.
Guiding by the principles of efficient and prompt implementation of banks’ resolution, decisions passed on the recapitalisation of the Atlas Bank and the introduction of bankruptcy administration in the IBM Bank ensure the continuity of financial stability, full compensation of small depositors and very limited exposure of the State. The decision on call for tender for recapitalisation of the Atlas Bank and the Decision on introduction of bankruptcy proceedings in the IBM Bank were passed in a record short period since the introduction of interim administration based on the findings and financial reports of interim administrators. It is worth mentioning that the CBCG “does not buy time” by calling for recapitalisation tender of the Atlas Bank. Instead, it implements the only available instrument in accordance with Article 126 of the Banking Law. In that respect, call for recapitalisation of the Atlas Bank was tendered for period of 35 days.
The financial stability of the system is fully preserved. No early indicator that is monitored daily indicates any of adverse effects on financial stability. On the contrary, the unchanged structure of deposits and their growth of 10 million euros since the introduction of interim administration in two non-systemic banks, speaks on the assessment of market that the situation in two related banks is considered as a separate case. Moreover, the banking system will strengthen due to swift resolution of two weak banks (through bankruptcy and/or recapitalisation).
Bearing in mind the experiences from the region and best international practices, the direct impact even of worst-case scenario, i.e. bankruptcy proceedings in both non-systemic banks on public finances is at minimum. Direct exposure of public sector, although it exists, is extremely low according to the IMF standards and it ranges between 0.2 and 0.5% of GDP. It is very difficult to estimate total macroeconomic impact; however, bearing in mind the size of non-systemic banks, the impact has no potential to become fundamental on macro level. With regard to the impact on other banks, they will not allocate higher premium to the Deposit Protection Fund in the following period compared to the one they were paying in the last several years. In the worst-case scenario, Deposit Protection Fund has sufficient amount of funds to pay out the guaranteed deposits. The statement that the Fund will be “dried out” in case of the worst-case scenario has no grounds, taking into consideration acquired assets in these two banks. On the other hand, regional practice also confirms that the Funds in similar situations settle their claims in a significant amount from the bankruptcy pool of assets of banks. To that end, there is no expectations that the borrowing of the State in this respect is needed.
We would like to point out also that the assessments and recommendations of international financial institutions are reflected in their full capacity in the CBCG actions. The World Bank has never warned on “selective approach and inadequate regulation policy of the CBCG to risky banks” as stated by layman researchers. On the contrary, by approving the guarantee to the Government (PBG1), the World Bank identified in 2017 that the CBCG approved adequate time-limited Supervisory Action Plans for three banks that had 2015 audit reports with qualified opinion. Acting upon these plans, the CBCG requires full compliance of banks with minimum regulatory requirements and provisions.
The World Bank also determined that the CBCG made progress during 2017 in adjusting balance sheets of weak banks, including additional requirements for provisioning and recapitalisation processes. The results of the supervisory action plans were also confirmed by the IMF in its report on Montenegro in May 2018 (before calling for payment the guarantee of Kaspia and blockade of liquidity by the Special State Prosecutor’s Office), which estimated that the measures from the supervisory action plans for three small banks resulted in the improvement of the conditions in two banks.
With regard to the following step within the approval of the new guarantee to the Government (PBG2), the World Bank defines that the CBCG should take activities on resolution, restructuring or liquidation of banks that are materially non-compliant with the regulatory requirements, which is exactly what the CBCG is doing now.