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27/12/2018

The Council of the Central Bank of Montenegro held its thirty-sixth session today, chaired by the Governor, Mr. Radoje Žugić.

The Council discussed today the Report on the Central Bank of Montenegro Business Activities and Policy Implementation for November 2018. It was noted that the activities of the Central Bank conducted in November 2018 were implemented in line with the Central Bank Work Programme for the current year. Members of the Council were informed on the current activities of the interim administrators appointed in the Atlas Bank and the IBM Bank. It was noted that the interim administration measures imposed against these banks did not have any adverse effects on the banking sector stability nor on the confidence of depositors. This was also confirmed by the data on the growth in deposits at the system level, which was accomplished in period after the introduction of the interim administration.

The Council discussed and adopted draft of the Credit Institution Law, draft of the Credit Institutions Resolution Law, and draft Law amending the Bank Bankruptcy and Liquidation Law. These laws were drafted with the aim to align the national legislation with the Directive 2013/36/EU (CRD) in the areas that refer to the access to the activities of credit institutions and investment firms, the models for governing these institutions and the framework for their supervision, as well as to align the legislation with the Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD). The Credit Institutions Resolution Law, which adoption is expected by the end of the following year, will upgrade the legal basis for implementing timely resolution tools in a distressed bank in order to ensure the continuance of key financial and economic functions of the respective banks, while limiting to the lowest extent the effects of bank's failure on economic and financial system and ultimately, with minimum possibility for taxpayers to bear resolution costs. 

The Council also adopted the Decision amending the Decision on Minimum Standards for Credit Risk Management in Banks, which, in line with relevant EBA guidelines, upgraded the solutions from the current decision that refer to the collateral valuation in asset classification and allocation of loan loss provisions in banks.

Macroeconomic Report of the CBCG for the Third Quarter of 2018 showed the growth in the value of the completed construction works for the first nine months 2018 (31.5%) compared to the same period of the previous year, as well as the number of tourists arrivals (12.4%) and industrial output (24.4%), whereas a substantial growth of even 84.8% was recorded in energy sector. The banking sector in Montenegro, at the system level, was characterised by the safety and stability during the first three quarters 2018, which was accompanied by high liquidity and solvency. One bank recorded deterioration of the liquidity indicators. Total balance sheet of banks reported an increasing trend in the observed period and it grew by 5.5% at end-September relative to the end of the previous year. The growth in loans was the main driver of the asset growth, while deposits in banks recorded the highest growth within the liabilities side. As at end-September 2018, non-performing loans stood at 200.6 million euros and they made up 6.71% of total loans. Two banks recorded substantially higher level of the NPLs. High liquidity in banks as well as financing conditions in the international financial markets affected further decline in interest rates of banks. Weighted average lending effective interest rate has continued the perennial declining trend (9.57% in September 2014), and it reached its minimum of 6.40% in September 2018. Compared to December 2017, weighted average lending effective interest rate fell by 0.41 percentage points, while its y-o-y decline was 0.58 percentage points.

The deceleration of inflation was noted in the third quarter in the Inflation Report for the Third Quarter of 2018. The average consumer price rate (first nine months of 2018 compared to the same period of the previous year) amounted to 2.9%, while the annual prices increased by 1.9%. The annual growth rates of consumer prices were also recorded in the regional countries as well as in majority of the EU countries, which resulted from the growth in global oil prices. As for inflationary expectations, a survey conducted by the CBCG shows that most banks and companies expect inflation between 2.5% and 3%. Model projection for end-2018 predicts inflation from 2.1% to 3.2%, with the central trend of 2.6%. The CBCG expert projection is based on the deceleration of inflation in the third quarter and predicts inflation in 2018 between 1.5% and 3.5%. 

The Council also considered the Report on Bank Lending Survey Results for the Third Quarter 2018. The Survey results show that credit terms and conditions for enterprises and households were more favourable in the third quarter compared to the previous quarter, in particular those based on lower margins, commissions and fees. Banks expect that almost all credit terms and conditions for the household sector will be eased in the following quarter. The survey also shows that the demand for enterprise and household loans increased, whereby the demand for loans that the banks approve to enterprises was driven by the requirement to fund capital investments, working capital and restructuring of the existing debts. However, in the households sector, the main factors contributing to the increase in demand for loans were requirements to refinance the existing debts and purchase immovable property, and consumer durable goods.

The Council supported the Proposal of the 2019 Budget Law at the session that was held today, assessing that the implementation of the consolidation measures will continue by applying this law, which will contribute to the strengthening of the fiscal sustainability. On the other hand, the highest amount of capital budget has been anticipated so far, which represents strong development component that will generate new value and influence future growth and development.

The Council also discussed other current issues under its competence at the session held today.