The 52nd Meeting of the Financial Stability Council
28/12/2020
Financial Stability Council held its 52nd meeting today, chaired by Radoje Žugić, Governor of the Central Bank and Chairman of the Council. All other members of the Council also attended the meeting: Milojko Spajić, Minister of Finance, Uroš Andrijašević, President of the Council of the Insurance Supervision Agency, and Zoran Đikanović, President of the Capital Market Authority. Upon invitation, Predrag Marković, the Deposit Protection Fund director, attends the Council’s sessions.
At today’s meeting, the Council discussed the Information on Financial Stability for Q3 2020, focusing on the coronavirus pandemic’s impact on economic activity, public finances and overall financial stability in the country.
Discussing the international economic environment trends, it stated that economic activity in the euro area, after a record decline of 12.1% in the second quarter of this year, recorded a growth of 12.7% in Q3. However, compared to year-on-year, the economy in the euro area recorded a 4.3% decline. The IMF forecasted economic activity in the euro area in 2020 to fall by 8.3%.
Concerning the domestic macroeconomic environment, during the first nine months of the current year, negative trends were recorded in tourism (77% decrease in the number of tourist arrivals and 79.7% in the number of overnight stays), construction (7.9% decrease in the value of performed construction works and 3.8% in effective working hours), industrial production (decrease of 1.5%), etc. Consumption recorded a significant decline, reflected in the goods retail trade turnover annual decline of 23.4%.
It further stated that the crisis has increased the vulnerability of public finances in Montenegro. On the one hand, revenues are declining due to declining economic activity and on the other hand, due to the need for increased allocations to repair the pandemic. The Council assessed that the recent Eurobonds issue has reduced the fiscal sphere risk since funds were provided to repay public debt and finance public spending in the next year. The following year will also be characterised by high uncertainty resulting from the pandemic unpredictability. For this reason, as well as considering that the achieved interest rate is favourable, the Council positively evaluates this transaction.
So far, the banking sector has shown good resilience to the crisis. The solvency ratio at the end of Q3 this year was 19.3%, slightly lower than at the end of Q2 when it was 19.6%. Bank liquidity is also satisfactory. NPLs recorded a slight increase at the end of the third quarter, amounted to 5.6%. The materialisation of the newly emerging crisis through non-performing loans’ growth is not currently systemic. Still, it deals with some individual banks, although with significant market shares. The insurance market is also stable. According to the data for the first three quarters of this year, all insurance companies are solvent, liquid and profitable.
Given the impact analysis of different factors, the Council concluded that financial stability has been preserved so far. Still, due to the high uncertainty brought by the current crisis, and objective risks that can materialise, all actors in the financial sector must carefully monitor and examine the market signals in detail and take adequate measures to maintain stability in the future.