Central Bank of Montenegro Policy for 2008

Pursuant to Article 17 paragraph 1 item 1 of the Law on the Central Bank of Montenegro (“Official Gazette of the Republic of Montenegro”, No. 52/00 and 47/01), the Council of the Central Bank of Montenegro, at its meeting held on 20 December 2007, adopted the following:

 CENTRAL BANK POLICY FOR 2008
 

Following on from achievements in the development of the financial system, best international practices, the constitutional obligations and statutory powers, the Central Bank of Montenegro shall endeavour to achieve the following objectives in 2008:

1. work on the improvement of regulatory framework and management of all types of risks, strengthening of corporate management in banks, creating conditions for the gradual implementation of Basel II principles and standards in order to preserve the achieved stability of the banking system taking into account its importance for financial stability maintenance and its role in being one of the most important instigators of economic growth;                                   

2. continuously monitor, research and analyse all segments of the economic system and expand the coverage of monetary and financial statistics, and propose recommendations for fostering economic growth and financial stability maintenance;

3. maintain an efficient and sound domestic payment system and participate in creating the regional payment operations based on  the clearing with the aim of creating cheaper and faster international payment operations;

4. pursue an active reserve requirement policy with a view to improving the maturity match of the banking system sources and investments, liquidity, and control credit growth in order to maintain financial stability;

5. further improve the quality of the existing services, establish and assume new functions of the banker and fiscal agent of bodies and agencies of Montenegro, as well as to improve the reserves management;

6. improve cooperation with international financial institutions, international organizations, other central banks, and actively participate in the process of joining the European Union;

7. improve specialist knowledge and training of its staff, as well as its technical equipping on an ongoing basis;

8. pursue a highly transparent policy and inform the public about the activities undertaken to implement the pursued objectives in a timely, non-discriminatory and comprehensive manner.    

1. With a view to maintaining the banking sector stability, further improvements in risk management, strengthening corporate management in banks and continued progressive implementation of Basel II principles and standards, the Central Bank shall direct its activities particularly towards:

• a. the improvement of the regulatory framework, following the adoption of a new Law on Banks, by passing the pertinent sub-legal legislation that would provide the legal framework for a gradual transition to Basel II, i.e. the Capital Requirement Directive (CRD);
• b. prudent bank licensing policy and issuance of permissions and/or approvals to provide for the strengthening of corporate culture, competition and protection of depositors, clearly preferring the predominant founders to be other well-supervised banks;
• c. strengthening the risk-based supervision with the preference to be given to the portfolio management approach and the strengthening of the »home & host« supervision;
• d. improving the methods and techniques of stress testing in banks in order to duly observe the impact of identified systemic risks and take the necessary actions to address them properly;
• e. establishing and developing cooperation and exchange of data with other regulatory bodies in the country with a view to strengthening consolidated supervision;
• f. developing a specialized supervision system, with a particular emphasis on credit risk supervision and exchange of information between the Regulatory Credit Bureau and banks;
• g. controlling the compliance of policies with the procedures and fulfilment of obligations prescribed in the Law on the Prevention of Money Laundering and Terrorism Financing;
• h. strengthening the role of banks aimed at improving the quality of the corporate sector accounting reports;
• i. appointing the banking ombudsman and creating the requisites for the commencement of their activities.

2. With a view to implementing efficient measures for financial stability maintenance and advocating recommendations for fostering economic growth, and continuous analysis of the situation in the real, financial and other economic system segments, the Central Bank shall:

• a. propose amendments to the existing regulations in order to enable the Central Bank to freely perform its new constitutional function, i.e. financial stability maintenance;
• b. work on establishing the National Supervisory Committee in order to, as the constitutional guardian of financial stability, synchronize activities of various supervisors and work on improving their efficiency over the transitional period; 
• c. monitor developments in all segments that may affect financial stability, actively participate in, and support programmes for, strategic development and economic and other policy measures and, as needed, take corrective measures within,  or propose measures that are outside, its competence;     
• d. monitor macroeconomic developments in Montenegro, collect relevant statistical data, and perform regular economic and econometric analyses in monetary, financial, fiscal, and real sectors; in the domain of international economic relations, particularly analyse the prospects of maintaining macroeconomic stability and meeting the Maastricht Criteria;
• e. collect information and monitor developments in Montenegro’s balance of payments and propose corrective measures, as needed;
• f. follow international experiences, especially of countries in the region that have successfully completed the process of joining the European Union, as well as the experiences of dollarised countries in implementing economic and monetary policy measures in order to examine the possibilities for, and efficiency of, their implementation in Montenegro;
• g. by using the macroeconomic model for Montenegro and preparing studies, analyse the effects of the current monetary and economic policy instruments, as well as the opportunities for the development and implementation of new instruments under euroisation conditions;
• h. observe and point to the deficiencies in the existing statistical, methodological, and institutional bases of economic policy, and give recommendations for their elimination;
• i. broaden the financial statistics coverage primarily to those areas that are relevant for the financial stability monitoring and maintenance. 

3. In order to maintain the efficient and sound domestic payment system and its further development, the Central Bank shall work on:

• a. introducing sub-legal legislation after the passing of the Law on Payment Operations in the Country; 
• b. further improvement of efficiency of the interbank payment system;
• c. further improvement of efficiency of domestic payment operations for the Central Bank clients;
• d. further development of payment systems in the country in accordance with the recommendations of the relevant international organisations and international standards and the contemporary payment systems practice;
• e. the implementation of a new information system for enforced collection in order to provide further functional improvements, increase stability and efficiency of its performance.

4. With a view to further improving the institutional and other prerequisites for monitoring the banking system liquidity and foreign exchange reserves  management in Montenegro, the Central Bank shall:

• a. continuously analyze and implement appropriate reserve requirement policy, followed by a gradual harmonization with the reserve requirement recommendations and standards implemented in the Euro area;
• b. implement the Agreement on clearing of international payments, which will enable more efficient, faster and low-cost international payment operations;
• c. monitor and analyse international experiences with a view to improving international payment operations;
• d. improve regulations prescribing the conditions for granting loans to banks for liquidity maintenance;
• e. work on the introduction of new instruments and techniques for the purpose of more efficient foreign exchange reserves management;
• f. supply the required amounts and denomination structure of euro banknotes and coins for banks, financial and other institutions.

5. With a view to continuously improving the quality of the existing services, establishing and assuming the new functions of banker and fiscal agent of bodies and organizations of Montenegro, the Central Bank shall:

• a. update the records, transfers and calculation of interest rates on funds of the Ministry of Finance, the Deposit Protection Fund, and other agencies and organisations of the Republic deposited with the Central Bank;
• b. provide efficient international payment operations for bodies and organizations in Montenegro in accordance with international banking standards;
• c. work on the improvement of the existing, and the establishing of new, correspondent relations with foreign banks and financial institutions;
• d. perform certain activities related to the primary sale of government bonds for the Government purposes;
• e. improve cooperation and perform appropriate transactions with the IMF, the World Bank and other international financial institutions.

6. With regard to improved cooperation with international financial institutions and organizations, the Central Bank shall:

• a. develop cooperation with the International Monetary Fund (IMF) and carry out all operations and financial transactions in the name of Montenegro; create conditions for performing the depository function of the IMF funds, and perform the function of the Governor in the IMF;
• b. continue cooperation with the World Bank by performing the function of depositary of monetary assets of the International Bank for Reconstruction and Development (IBRD), the International Financial Corporation (IFC), the International Development Organization (IDA) and Multilateral Investment Guarantee Agency (MIGA) as well as by promoting cooperation and fulfilling its obligations as the requirement for the utilization of financial support by the World Bank within the existing arrangements;
• c. take an active part in the EU accession process in accordance with its powers and competence by developing cooperation with the European Commission and initiating new forms of cooperation with EU bodies, primarily the European Central Bank;
• d. follow IMF recommendations set out in the Financial Stability Assessment Program (FSAP), as well as in other IMF and World Bank documents;
• e. develop cooperation with institutions of neighbouring countries as a continuation of the already existing geographical, historical, economic, trading and institutional connections with these countries;
• f. monitor the activities of international organisations through the establishment of direct communication, participation in working bodies and assemblies, and organization of international conferences;
• g. initiate and develop business cooperation and strategic partnerships with other central banks and financial bodies by signing Memorandums of Understanding (MoU) in the field of banking supervision;
• h. through active participation of our experts in meetings of international organizations, forums and conferences dedicated to the global financial stability contribute to the international affirmation of the Central Bank;

7.   In order to upgrade the level of specialized knowledge of the staff and encourage their excellence, and continuously develop its technical equipping, the Central Bank shall continue its activities on:

• a. improving the level of specialized knowledge through organizing seminars, trainings, educational and innovative programs and the like, as well as through transferring the acquired knowledge on both the vertical (from higher to lower hierarchical levels), and the horizontal level;
• b. improving its human resources management and promoting the performance management system;
• c. the development and application of motivation mechanisms and rewarding employees achieving the best results;
• d. assisting in career development, both through granting scholarships to employees and best students and rewarding the best papers on monetary policy and banking;
• e. the development of the methodology for management and control of the  quality and security system, as well as the methodology for IT project management, and provide the staff training in adequate implementation of such solutions in practice;
• f. improving the IT system security and availability, the implementation of modern solutions for surveillance and control of traffic in the CBM computer network;
• g. improving the efficiency of the existing information system in business operations through the development and implementation of applications for operational support;

8. With a view to increasing the level of informing the public about the activities and role of the Central Bank as an important institution in the system, and in order to analyze the public opinion, the Central Bank shall:

• a. inform the public about its regular activities and promote financial system stability thus giving its contribution to the national debate on economic policy and the importance of financial stability and fiscal discipline;
• b. educate the public about the Central Bank's function and role in order to raise the level of economic knowledge of the public and better understanding of the functions of the Central Bank and central banking in general; 
• c. improve communication with the general public - partners, citizens, local and international media, as well as all other interested parties;
• d. as the institution with emphasized social responsibility, contribute to the strengthening of the civil society and support the development of all national resources through public participation in numerous social and humanitarian activities;
• e. regularly update its website as an important form of communication with the public and providing relevant, precise and actual information, standpoints and analyses of the CBM;
• f. improve internal communication in the Central Bank through the development of the Intranet, as a quick and efficient way of communication among employees of the bank;

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 In accordance with the expected new Law on the Central Bank of Montenegro to be enacted in 2008, the Central Bank focus shall be the adjustment of its activities to the new Law, i.e. the best international practise it should be based on. 

COUNCIL OF THE CENTRAL BANK OF MONTENEGRO        

Ref. no. 0101-2933/9-6                  PRESIDENT OF THE COUNCIL
Podgorica,   20 December 2007                 Ljubiša Krgović