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03/07/2017

The Council of the Central Bank of Montenegro held its twelfth session today, chaired by the Governor Mr Radoje Žugić, PhD.

At today's session, the Council adopted the Governor`s Report on Central Bank of Montenegro Business Activities and Policy Implementation for April and May 2017, Central Bank of Montenegro Macroeconomic Report for the first quarter of 2017, as well as the Inflation Report for the first quarter of 2017.
 
The Governor`s Report for March and April 2017 stated that the activities of the Central Bank in this period were carried out in line with the planned obligations established by the Central Bank's Work Programme for 2017. Total assets of banks at end-May 2017 amounted to EUR 3.9 billion, which is a growth of 2.9% compared to end-2016, that is, 12.2% annually. Total approved loans in the first five months of this year increased by 2.3% compared to the previous month, while compared to May of the previous year they increased by 10.7%. The Council members were particularly satisfied with the fact that banks gave significant credit support to the economy this year. The weighted average lending and deposit interest rates continued to decline, while interest rates on retail deposits grew slightly in April 2017. The average weighted effective lending interest rate on total approved loans at the end-May 2017 amounted to 7.09%, which is a drop of 0.03 percentage points compared to end-April. During the first five months of this year, the banks showed a positive financial result in the amount of EUR 15.5 million.

The Council members found as positive the trends characterized by the situation in public finances, primarily referring to the realization of the fiscal surplus in the amount of EUR 2.8 million in April and the reduction of budget expenditures in April by 18.2% compared to the plan.

At today's Council session, the rational business activities of the CBCG were acclaimed, with expenditures in the first five months of this year being 9% lower than the planned for the mentioned period. The largest savings were made in salaries, severance pays and other income of employees, travel expenses, as well as operating and other business expenses, among which are the costs of telecommunication services, representations, conferences, seminars, etc.

The Council adopted the Macroeconomic Report of the Central Bank of Montenegro for the first quarter of 2017, which gives an overview of the most important developments that characterized the real, fiscal and financial sectors in the previous quarter. According to the available statistical data, most sectors in the economy recorded growth in the one-year comparable period. Except for industrial output, which recorded a 10.9% drop in the first quarter of this year compared to the same period in 2016, growth was recorded in tourism, construction, forestry, air and road transport. Inflation, measured by the consumer price index, amounted to 2.7% in March 2017, while consumer prices recorded a growth of 0.1% in March compared to the previous month. In the first quarter of 2017, the banking sector was stable, liquid and solvent. The continuation of the downward trend in non-performing loans was noted and it was pointed out that they, still, represent the vulnerability of the banking sector at the individual level. The expectation is that the new Law on Voluntary Restructuring of Debts towards Financial Institutions will contribute to further lowering the level of non-performing loans. The increase in the current account deficit in the first quarter of 2017 was recorded in the amount of 10.5% in relation to the same period of the previous year, which is a consequence of intensive investments, especially in the infrastructure. The slight increase in the number of employees was recorded in March this year compared to the previous month, from 0.9%, while the increase in the number of employees compared to March 2016 was 4.5%. Average net salary in March this year amounted to EUR 510, which is an increase of 4.1% compared to the same month of the previous year.

At today's session, the members of the Council discussed and, with certain constructive suggestions, adopted working versions of the Draft Law on Amendments to the Banking Law, the Law on Bank Rehabilitation, as well as the Law on Financial Leasing, Factoring, Micro-Crediting and Credit-Guarantee Operations. The discussed laws, the adoption of the obligations from the EU accession process, as well as the condition for the budget support of the World Bank, were appreciated by Council members. It was pointed out that after the adoption of these laws, the regulatory framework will be significantly improved and harmonized with European standards and the best practices. The members of the Council also got acquainted with the comments provided to the CBCG by the World Bank, which refer to the Draft Law on Amendments to the Law on the Central Bank of Montenegro, giving a high affirmative rating on all issues covered by the Law. Such comments by the World Bank confirmed that the CBCG prepared a law that will allow for full harmonization of the Central Bank operations with the European Union law in this area and its future smooth involvement in the work of the European System of Central Banks.

At today's session, the Council also adopted the Decision on Amendments to the Decision on Minimum Standards for Credit Risk Management in Banks, which preparation was initiated with the aim of strengthening the regulatory solutions related to loan restructuring under the new Law on Voluntary Restructuring of Debts towards Financial Institutions. In this respect, the implementation of this Decision will contribute to a more comprehensive monitoring of the effects of the loan restructuring process.

The Council considered and, with certain amendments, adopted the proposal of the CBCG's opinion on the Draft Law on Amendments to the Law on Investment and Development Fund of Montenegro. Also, the Council adopted the proposal of CBCG's opinion on the Proposal of fiscal strategy of Montenegro 2017-2020. The Council members supported the proposed measures, emphasizing that they were carefully selected and created, respecting the social and overall economic segment and taking into account the competitiveness of the economy, and expressed the expectation that their implementation would have positive effects on the position of public finances, as well as on the real and external sector.

The Council also discussed other current issues under its competence.