Strengthening the partnership between the State and the banking sector aimed at fiscal and financial system’s long-term stability
15/05/2023
“Strong cooperation between the State and the banking sector and their mutual support are prerequisites for long-term fiscal and financial stability and more dynamic economic development,” was the message at today’s meeting of the CBCG Governor, Radoje Žugić, Minister of Finance, Aleksandar Damjanović, President of the Association of Montenegrin Banks, Aleksa Lukić, and Deputy President of the Capital Market Authority, Dragan Đukić. Members of the management of banks operating in Montenegro also attended the working meeting.
Minister Damjanović highlighted the positive macroeconomic and fiscal indicators pointing to an average increase in state revenues of more than 10% month by month and accelerated economic growth. “Along with the banking sector’s high liquidity, such a situation opens up space for finding a model for strengthening the partnership between banks and the State,” the Minister pointed out. He added that deposits should be utilised more adequately, i.e. put to develop both the real sector and the overall medium-term fiscal sustainability and public finances stability.
Speaking about the potential future cooperation, Minister Damjanović announced that it would be beneficial to think towards the possible issuing of bonds for citizens, definitely preceded by harmonising all actors’ views (Government, CBCG, Capital Market Authority, and the banking sector), which would give the necessary credibility to the entire process.
Governor Žugić pointed out that the banking sector was highly liquid and solvent and that capital and deposits were continuously growing, with a simultaneous non-performing loans reduction. According to the Governor, “banks operate in an environment with no systemic weaknesses and disturbances, which creates the prerequisites for a stronger partnership between the State and banks towards strengthening fiscal sustainability, at the same time preserving financial stability.”
Mr Đukić pointed out the great potential of the free funds’ transfer from owners to those who would invest those funds, which, so far, have not been used largely. He noted that it was necessary to strengthen the citizens and the economy’s trust in the capital market, which had wide opportunities and instruments for adequate capital, i.e. putting it into further development streams. He fully supported more intensive communication between all fiscal and financial system actors to make economic flows more dynamic.
Bank representatives pointed out that they supported the real sector, as confirmed by good quality conditions for economic borrowing on the domestic market in the context of rising interest rates and a high public debt level. Comparative data show that Montenegro’s entrepreneurs borrow at the lowest interest rates in the region despite the fact that lending interest rates recorded growth during the previous period resulting from the monetary policies of the leading central banks. It was pointed out that the increase in the interest rates at which the economy and citizens in Montenegro borrow is much lower than the growth of the Euribor as a reference interest rate.
Despite the high-quality performance indicators, banks are prudent in pursuing their policies and considering all activities’ effects. At today’s meeting, inter alia, the banks’ representatives expressed their readiness to strengthen the partnership with the public sector by purchasing Treasury bills if the State offered them. The current banks’ exposure to the Government of Montenegro amounts to almost one billion euros, of which around 60% relates to securities.
Today’s coordination will be followed with further discussions on open topics, with the all parties’ expressing readiness to contribute to the strengthening of overall Montenegro’s macroeconomic, fiscal and financial system through cooperation.