Montenegro: Central Bank held the Financial Stability Council meeting

Montenegro: Central Bank held the Financial Stability Council meeting

The Montenegro Central Bank Financial Stability Council (FSC) held its 55th meeting chaired by Radoje Žugić, Governor of the Central Bank (CBCG) and Council Chairman, said Bank in the press release issued on Wednesday.

Uroš Andrijašević, President of the Council of the Insurance Supervision Agency and Zoran Đikanović, President of the Capital Market Authority, also attended the meeting. Upon the invitation, Predrag Marković, Director of the Deposit Insurance Fund, also participated in the meeting.

At today’s meeting, the preliminary results of the independent asset quality review (AQR) of the banking sector in Montenegro were presented, which provide an objective insight into the country’s banking system soundness. AQR is an essential tool for assessing financial stability and the direction of the risk impact. Its final results will be presented at a press conference to be organised next week.

As the meeting continued, the Information on the state of financial stability for Q2 2021 was discussed.

The Information stated that economic activity in the euro area in Q2 of the current year recorded a quarterly increase of 2% and a y-o-y increase of 13.6%. In Q2 this year, the economies of the USA and Chinese economies both grew compared quarterly and y-o-y.

Preliminary data from MONSTAT concerning Montenegro showed a real decline in GDP of 6.4% in the first quarter of 2021 compared to the same period in 2020. Forecasts by international institutions (IMF, World Bank and European Commission) point to expected GDP growth in the current year.

Compared y-o-y, Q2 2021 saw an increase in industrial production and retail trade turnover by respective 10.6% and 22.5%. Tourism recorded a significant recovery. According to preliminary data, the number of tourist arrivals was 61% higher in the first six months of 2021 compared year-on-year and the number of overnight stays by 115.5%.

The source budget revenues for the first six months of 2021, according to preliminary data from the Ministry of Finance and Social Welfare, were 1.8% higher than planned, or 5.3% higher compared year-on-year. Budget expenditures were 8.3% lower than planned, i.e. 1.5% lower than in the first six months of 2020. As a result of these trends, the budget deficit for the six months of this year was 38.4% lower than planned, or 25.1% lower than in the same period last year.

In the first half of 2021, the banking market was characterised by an increase in assets, capital and deposits. Non-performing loans (NPL) recorded a slight increase in total loans was recorded. At the end of Q2 this year, NPL amounted to 5.7%, or 0.25 percentage points more compared to Q1 end. It was a direct consequence of the COVID-19 pandemic-caused crisis, which hit the domestic economy hard and spilt over into the financial sector. Still, its impact was significantly limited and mitigated owing to measures implemented by the CBCG timely.

Banks’ lending activity continued to grow in Q2 this year. In the first six months of 2021, the economy was granted 266.8 million euros of new loans, or 22.1% more than in the same period in 2020.

The Director of the Deposit Insurance Fund informed the Council members about the data on the Fund’s available funds. Along with the available EBRD credit line, existing funds provide an additional guarantee for deposit security.

The Council concluded that the financial system’s stability at the end of Q2 2021 improved compared to the situation at the end of the same period last year. Still, some risks need to be closely monitored and adequately managed to maintain stability.