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29/03/2017

The CBCG Council met today for the 7th meeting chaired by the Governor Radoje Žugić.

The Council adopted the Governor's Report for February 2017, the Central Bank of Montenegro Annual Report for 2016, Financial System Stability Report for 2016, Price Stability Report for 2016 and Quarterly Report on Banks and MFIs’ Operations for the fourth quarter of 2016.

The Governor’s Report stated that the activities of the Central Bank in this period were carried out in line with the obligations planned under the Central Bank of Montenegro Work Programme for 2017. The Report stated that lending and deposit interest rates continued to trend down, thus in February 2017, the effective interest rate on new loans amounted to 6.88%, while in February 2016 it amounted to 8.63%. In the first two months of 2017, the lending activity of banks increased by 10.76% y-o-y.

The CBCG Annual Report for 2016 stated that the year was marked by the intensification of economic activities. Preliminary Monstat data reveal that in the first three quarters, Montenegro's economy recorded a somewhat milder growth in relation to the corresponding period of 2015. The growth was primarily a result of the continued implementation of major investment projects in the sectors of energy, tourism and construction, with the same trend recorded in trade and transport sectors. Postponement of a part of planned activities on the construction of Bar-Boljare highway, along with the decline in the industrial output and foreign trade deficit, has had an adverse effect on the projected growth rates over the observed period. Continued implementation of fiscal system consolidation measures and capital expenditure below planned resulted in the narrowing of fiscal deficit in 2016, despite the significant pressures arising from social allowances increase and the cost of public sector wages. On the other hand, public debt remained on an uptrend. Financial and banking sectors operations were stable, resulting in continued interest for investing in Montenegro’s financial sector. In 2016, one new bank entered the market, while Montenegro Stock Exchange recorded its first successful issue of government bonds.

In the part of the Annual Report that refers to the implementation of the CBCG policy it was rated that this institution’s activities in 2016 were aimed at the preservation of the financial system stability by fostering and maintaining a sound banking system and safe and efficient payment system. Consequently, the key activities of the CBCG referred to preventive and supervisory activities, stabilisation and strengthening of the banking sector, maintaining the stability and improving the efficiency of the national payment system and promoting healthy competition.  In this segment, the practice has confirmed the expectations that the increase in the number of business entities in the banking sector, on condition that the high levels of stability, liquidity and solvency are preserved, will result in strengthening competitiveness, widening the spectrum and improving the quality of services, further interest rate decline and lending activity increase under favourable conditions. The Report further stated that CBCG’s regulatory activities were mainly determined by Montenegro’s negotiating position in the process of EU accession. The Council found that the CBCG’s operations were based on high transparency standards and social responsibility principles. In reference to financial results, the CBCG recorded net profit of 1.83 million euros in 2016.

The Financial System Stability Report for 2016 stated that the level of systemic risks, which affect the stability of the financial system, may be assessed as moderate, with the presence of financial risks at the individual level. Factors in the form of illiquidity and insufficient competitiveness of the real sector, high spending observed against relatively low accumulation and increased dependence on foreign capital inflow have induced the fiscal sphere pressures increase.

It was underlined that the banks represent the soundest segment of the economic-financial system. This statement was confirmed by the fact that the banking sector is characterised by the stability and continuous increase of deposits, as well as by the data provided in the Quarterly Report on Banks and MFIs’ Operations for the fourth quarter of 2016, which show that in 2016, the banking system recorded a positive financial result, i.e. profit of 7.4 million euros.  This report also provided data showing that in the final quarter of 2016, the banking sector was marked by a y-o-y increase in assets, gross loans and deposits, along with a y-o-y decline in the placements with banks and capital. Banking sector liquidity and solvency indicators were relatively high. It was stated that the banking sector still had systemic challenges in the form of non-performing loans (although they are on a continuous downtrend) and sluggish credit growth. It was assessed that the level of public debt and government guarantees poses a relatively strong systemic risk.

The Price Stability Report for 2016 stated that, following a positive inflation in 2015, in 2016, in Montenegro, the prices were affected by the global market oil price trends, and the price trends of specific food products. Taking into consideration the annual rates, the prices were negative for the most part of the year. However, at end-December, the annual inflation rate was positive (1%) and virtually identical to the one recorded in the euro area (1.1%). In reference to the region, positive inflation rates were observed in Albania (2.2%), Serbia (1.6%), Croatia (0.7%) and Slovenia (0.6%), while negative inflation rates were recorded in Macedonia and Bosnia and Herzegovina (-0.2% each). The CBCG’s survey revealed that majority of banks and economic subjects expect the 2017 inflation to range between 0.5% and 1.5%. CBCG’s expert assessment indicated inflation between 1% and 3% for the end of 2017.

On today’s meeting the Council also considered other current issues from its competency.