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12/06/2020

Financial Stability Council held its 50th meeting today, chaired by Mr. Radoje Žugić, Governor of the Central Bank and Chairman of the Council. Other members of the Council - Darko Radunović, Mr. Minister of Finance, and Mr. Uroš Andrijašević, President of the Council of the Insurance Supervision Agency, also attended the meeting. Upon invitation, Mr. Predrag Marković, the Director of the Deposit Protection Fund, attends the Council meetings.

At today’s meeting, the Council discussed the coronavirus pandemic effects on economic activity, public finance and the country’s overall financial stability. It stated that the pandemic would leave substantial consequences on many global economies and that the effects would undoubtedly affect the Montenegrin economy. Due to the uncertainty characterising the pandemic development, it is objectively impossible to give projections of future economic trends. However, according to economic theory, recovery after such crises should be shorter than after classic economic crises. Therefore, the pandemic may be expected to end in 2020, and to record a positive economic growth rate in Montenegro in 2021.

At this meeting, the Council also discussed the Financial Stability Report 2019 and the Information on Financial Stability for Q1 2020.

The annual Financial Stability Report 2019 pointed out that financial stability in 2019 improved compared to 2018. The financial system was sound throughout the previous year, while the systemic risk was moderate with a stable trend. Addressing the issue of vulnerable banks reduced the banking sector’s risk and preserved the financial system’s stability. Despite being less intense than in the previous year, the continued economic growth contributed to risk mitigation at all levels.

Discussing the Information on Financial Stability for Q1 2020, the Council stated that the economic indicators in Q1 this year pointed to the continuation of previous year’s positive trends. Industrial output, trade, and construction recorded an increased volume of activities. In contrast, tourism, with the most significant share in the GDP (indirect share of some 25%), recorded a y-o-y decrease in the first three months of this year both concerning the number of tourist arrivals and the number of overnight stays (26.3% and 18.7%, respectively) due to the coronavirus pandemic in the region and Europe. In Q1 2020, fiscal indicators recorded positive trends (with an increase in source revenues and a decrease in budget expenditures compared to the planned size).

In 2019, the banking sector was characterised by high liquidity, solvency and the historically lowest share of non-performing loans in total loans. Owing to such positive parameters from end-2019, banks managed to resist the first wave of the epidemic and to maintain their liquid position. At the end-March 2020, banks’ liquid assets amounted to 955.4 million euros, decreasing by 0.7% y-o-y.

Based on the various factors’ impact analysis, the Council concluded that the financial system’s stability at the end of Q1 2020 was at a slightly lower level compared to y-o-y. This requires increased caution in creating and implementing all measures and policies under the mandate of institutions represented by Council members.