CBM policy for 2015

• CENTRAL BANK OF MONTENEGRO POLICY IN 2015
  

• GUIDELINES FOR THE IMPLEMENTATION OF THE CENTRAL BANK OF MONTENEGRO POLICY IN 2015

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Pursuant to Article 44 paragraph 2 item 1 of the Central Bank of Montenegro Law (OGM 40/10, 46/10 and 6/13), at its meeting held on 27 November 2014, the Council of the Central Bank of Montenegro adopted the following

CENTRAL BANK OF MONTENEGRO POLICY IN 2015

I. In line with its constitutional responsibilities and statutory obligations and accountability for monetary and financial stability and the banking system functioning, and adhering to the principles of transparency and independence, in 2015, the Central Bank of Montenegro will:

1. follow the policy of monetary and financial stability based on taking all necessary activities and using all available instruments and measures within its jurisdiction in order to ensure timely identification and minimize adverse effects and risks to monetary and financial stability, regardless of whether those have emerged from the macroeconomic environment and/or the financial system. With a view to fostering and preserving monetary stability, the Central Bank will pursue the reserve requirement policy based on the assessment of effectiveness and efficiency of the applicable solutions and instruments and, as required, implement other monetary policy instruments. In order to promote and preserve financial stability, supervise the implementation of the macroprudential framework, the Central Bank will develop indicators for the assessment of financial stability and combating systemic risks, as well as instruments for the latter. With the aim of fostering stability and strengthening resilience of the banking sector, it will continue to monitor and analyse the situation in the banking sector. As necessary, the Central Bank will take timely corrective actions, promote the strengthening of corporate governance and risk management in banks, the implementation of the relevant internationally accepted standards and principles in this area. It will continue with the harmonisation of its regulatory framework with the EU Acquis Communautaire as per established schedule and the strengthening of cross-border supervisory cooperation. It will actively participate in the implementation of measures related to the financial restructuring of debts with financial institutions in order to encourage the recovery of economically viable business entities and mitigate the problem of non-performing loans, stimulate economic growth and development and, ultimately, maintain the stability of the financial system;
   
2. support the Government of Montenegro in the economic policy pursuit to the extent that will not jeopardize the attainment of its objectives, constitutional responsibilities and independence;
   
3. maintain a sound, efficient and effective payment system and work on the implementation of regulations governing payment systems to be implemented as of 9 January 2015;
   
4. implement an efficient policy of managing the international reserves in the manner to ensure the safety of investments and undisturbed fulfilment of Montenegro’s international financial obligations, thereby adhering  to the principles of safety, liquidity, and profitability, as well as  undisturbed supply of necessary quantity and denomination structure of cash;
   
5. continue with active participation in Montenegro’s EU accession process that is to be treated as one of the strategic priorities for which it will designate adequate human and material resources;
   
6. continue to maintain the appropriate structure of human resources with professional skills and know-how necessary for the pursuit of policy and/or exercising of functions of the Central Bank of Montenegro;
   
7. following standards of transparency, continue providing the public with all relevant  information about its work in an open, clear and timely fashion;
   
8. with a view to preserving, protecting, and maintaining the historical and cultural numismatic heritage in Montenegro, it will continue with collecting and supplementing the collection of money and other monetary instruments, with a particular emphasis on completing the collection of the only Montenegrin money – the Perper;
   
9. also adequately develop other areas of importance for the attainment of its objectives and the exercising of its functions such as the information system development, international cooperation development, protection of euro against counterfeiting and the like;
   
10. base its functioning on the principle of a socially responsible institution as an active participant in a modern society development.

II. This Policy is to be published on the website of the Central Bank of Montenegro.

CENTRAL BANK OF MONTENEGRO COUNCIL

Pursuant to Article 44 paragraph 2 item 1 of the Central Bank of Montenegro Law (OGM 40/10, 46/10 and 6/13), at its meeting held on 27 November 2014, the Council of the Central Bank of Montenegro adopted the following

GUIDELINES FOR THE IMPLEMENTATION OF THE CENTRAL BANK OF MONTENEGRO POLICY IN 2015

1. With a view to promoting and preserving monetary and financial stability, and particularly fostering and preserving the banking system stability, the Central Bank of Montenegro (hereinafter: the CBCG) will:

a. take all necessary activities and apply all available instruments and measures of monetary and prudential policies in line with the law;

b. continuously revisit its reserve requirement policy as the key monetary policy instrument and, as necessary, amend the reserve requirement rates and/or base coverage;

c. timely identify and assess the impact of potential systemic risks and threats to financial stability with a view to their diminishing through the implementation of other monetary policy instruments – open market operations, liquidity facility for banks, and the lender of last resort;

d. continuously monitor and analyse the situation in the financial system through the prism of its complexity that arises from interconnectedness of financial institutions, financial markets and infrastructures not only on national but on cross-border level as well;

e. continuously analyse the impact of macroeconomic trends on financial stability and, depending on the results, take adequate measures within its authority and recommend taking adequate measures outside the CBCG`s authority, in accordance with its powers bestowed by the Central Bank of Montenegro Law, the Financial Stability Council Law, and the Law on Foreign Current and Capital Transactions;

f. improve the existing and develop new analytical indicators and instruments for quantitative and qualitative assessment of vulnerability and resilience of the financial and banking systems in order to timely identify and assess potential systemic risks and prevent any large-scale crisis;

g. carry out macro stress tests aimed at testing the banking system resilience to potential macro shocks;

h. improve instruments for actions in case of a potential systemic financial crisis;

i. carry out crisis simulation exercises in order to test the efficiency of solutions proposed in the CBCG`s Contingency Plan in order to ensure effective, consistent, and comprehensive acting in bank and/or systemic crisis;

j. actively participate in the work of the Financial Stability Council by contributing to objective assessment of efficiency of the solutions contained in the National Contingency Plan and the implementation of best practices in this field;

k. intensively cooperate in the area of financial system stability issues with other financial system regulators in the country, as well as with relevant international regulators, in accordance with the Financial Stability Council Law;

l. with a view to maintaining stability of the banking system as the key financial sector element for preserving financial stability, the CBCG will:

- considering the protection of interests of bank depositors and creditors as the major concern, continue following the policy of prudent licensing and/or granting approvals to the entry of new legal entities into the domestic market, as well as to changes in the shareholding structures of the existing financial institutions;
- work on the improvement of risk management in banks and risk-based supervision;
- actively participate in implementing financial restructuring measures by financial institutions in order to stop further increase of non-performing loans and lower them to an acceptable level, which will require further improvements of on-site supervision techniques, in line with the latest supervisory trends; 
- develop systems that will contribute to the strengthening of transparency and market discipline through a comprehensive and continuous exchange of information between banks and other market participants;
- continuously improve and carry out macro stress tests in banks with a view to timely determining additional capital and liquidity requirements in banks;
- intensively monitor trends in the international financial market, with a particular consideration of the market volatility that could have negative repercussions to the banking system in Montenegro, in order to ensure preventive actions and creation of an adequate capital buffer system as a safeguard against external shocks;
- pursuant to the new legislation, oversee the banks` enforcement of the regulation governing consumer loans;
- within the process of pre-accession negotiations with the EU, continue improving and harmonising the banking regulatory framework to bring it in compliance with the EU Acquis Communautaire;
- continue harmonising banking business requirements with those in the international financial market, in particular through the implementation of the latest standards defined in Basel III;
- continue cooperating with international institutions in the area of anti-money laundering and counter-terrorist financing, in parallel with the strengthening of mechanisms and procedures necessary for a successful implementation of this process;
- develop cooperation with the supervisors of parent banking groups of subsidiaries operating in Montenegro, as well as with the key international financial institutions such as the World Bank, the European Bank for Reconstruction and Development, the European Central Bank, and the European Banking Authority with a view to synchronising supervisory activities;
- monitor and implement improvements based on international multilateral agreements and adopted conventions in banking industry;

m. continuously monitor and analyse inflation trending and make short-term inflation forecasts.

2. With a view to supporting the Government of Montenegro in pursuing its economic policy to the extent that will not jeopardise the objectives and constitutional responsibilities and independence of the CBCG, the CBCG will:

a. communicate economic policy recommendations to the Government of Montenegro, contribute with the measures and instruments within its authority to the economic recovery, growth and competitiveness, and the public debt management in the function of maintaining financial stability;

b. participate in creating systemic solutions aimed at minimizing the lack of liquidity in the economy and fostering lending activity of banks to the extent that will not mean excessive risk taking and jeopardising the banking system stability;

c. monitor and analyse macroeconomic trends in Montenegro, other countries in the region, the European Union , as well as at the global level with a view to forecasting macroeconomic trends in Montenegro;

d. continuously develop a macroeconomic model for the Montenegrin economy to forecast macroeconomic developments and analyse efficiency of the monetary policy instruments, whether this be done independently or in cooperation with other institutions;

e. regularly collect, process and publish data on monetary and balance of payment statistics, as well as other statistical data produced by the CBCG and which represent significant inputs for the creation of economic policy;

f. publish working papers and other publications dealing with the current macroeconomic and financial issues.

3. With a view to maintaining and improving safe and efficient payment system, the CBCG will:

a. continuously work on maintaining a safe and sound CBCG payment system for the performance of transactions among the payment system participants, as the basic payment system infrastructure in Montenegro, and on its further improvement through the implementation of international standards, principles and best practises in the functioning of modern payment systems and payment system transactions in general;

b. continue performing quality and efficient national payment system services both for the current and new CBCG clients;

c. work on the implementation of regulations governing payment systems to be implemented as of 9 January 2015, further improve the payment system legislation following EU regulations and international standards, and carry out efficient payment system supervision with a view to ensuring payment services delivery in line with applicable regulations;

d. carry out the policy of licensing payment and electronic money institutions to be established in line with the new payment system regulations;

e. improve the functional model of enforced collection that the CBCG carries out in accordance with provision of the Law on Enforcement and Securing of Claims;

f. develop and improve the payment system oversight function following the principles of: transparency, implementation of international standards, having effective authority and resources, consistency in the implementation of standards and in cooperation with other relevant authorities. To that end, the CBCG will work on the implementation of the latest international standards – “Principles for Financial Market Infrastructures”;

g. continue with activities on improving the CBCG payment system’s IT infrastructure and components at the central, backup, and disaster recovery locations with a view to increasing security and continuity of the payment system functioning.

4. With a view to further improving institutional and other prerequisites for managing the international reserves, the CBCG will:

a. reposition the existing financial instruments in the portfolio and improve already adopted techniques in managing risks and international reserves thereby adhering to the principles of liquidity and safety with a view to successfully balancing investment risk and achieved return;

b. consider the option of investing in new financial instruments such as short-  and medium-term securities of issuers from the OECD countries (governments, government supported agencies, federal government units, and the like); deposits with commercial banks; covered bonds, with a view to improving diversity of investments and potential realization of higher returns;

c. continuously monitor and analyse trends in the financial market, financial situation and ratings of banks, both the existing banks in the market and potential future partners, and timely adjust the investment policy to the market trending through tactical allocation, i.e. invest funds in those entities that ensure a higher degree of safety of investment and simultaneously allowing for achieving a higher return;

d. perform the operations of the depository and banker of the government bodies and organisations in a quality and efficient manner through continuous improvement of cooperation and regulation of mutual relations with the clients;

e. improve the existing and establish new correspondent relationship with foreign central and commercial banks and other international financial institutions and organisations;

f. continuously monitor and plan cash supplies with a view to ensuring timely and adequate servicing of cash needs of banks and other clients for the internal payment system transactions;

g. initiate the buying of necessary quantities and denominations of banknotes and coins from the foreign correspondent bank and/or selling of any surplus cash with a  view to optimizing the costs of cash holdings in the CBCG vault on timely basis.

5. Through active participation in the process of Montenegro’s EU accession and respecting the obligations of Montenegro assumed with receiving the status of a candidate country and the recommendations communicated in the European Commission`s Screening Reports, the CBCG will:

a. continue activities on the harmonisation of legislation with the EU Acquis Communautaire in banking, payment system, monetary policy and statistics and other areas within the CBCG authority;

b. continue activities on the harmonisation of the CBCG Law with the relevant EU Acquis Communautaire;

c. participate in the preparation of negotiating positions for chapters in which the CBCG representatives participate;

d. participate in the working and negotiating structures within the CBCG authority, as well as in the production of reports, documents, and other material necessary for efficient EU accession negotiations;

e. continue activities on the implementation of obligations defined under the Stabilisation and Association Agreement (SAA), the Montenegro EU Accession Programme and Montenegro`s Programme of Accession to the European Union 2014-2018;

f. participate in the preparation of the National of Economic Reform Programme;

g. continue activities on institutional capacity building thereby creating conditions for the future undisturbed functioning of the CBCG within the ESCB;

h. improve the existing and establish new forms of cooperation with the ECB other national banks of the EU Member States, as well as with representatives of other EU institutions;

i. participate in the preparation and implementation of projects financed from the EU funds;

j. improve the communication strategy in the area of European integration through the preparation of working papers and other publications to deal with specific aspects of the EU accession;

6. With a view to maintaining an adequate structure of human resources capable of implementing the defined policy, international standards and good business practice, as well as the implementation of changes resulting from the European integration process and other changes in the business environment, the CBCG will:

a. stimulate employees, especially through technical cooperation programmes, to permanently improve their knowledge and skills necessary for the realisation of working processes in the Central Bank, as well as the acquiring of academic titles and certificates;

b. develop mechanisms to improve the motivation of employees.

7. Following transparency standards, the CBCG will: 

a. openly, clearly and reliably inform both domestic and international public on all aspects of its operations through press releases, its website, press conferences, regular and occasional papers and, as required, interviews, participation in the media broadcasts and the like, thereby promoting the principle of two-way communication both in the public relations and internal communications in the CBCG, with a particular attention to be dedicated to informing its employees;

b. promote economic knowledge in the society in order to contribute to a better understanding of importance of financial stability and soundness of the banking system for the entire society, that is, the understanding of central banking.

8. With a view to preserving, protecting and maintaining the historical and cultural numismatic heritage in Montenegro, the CBCG will:

a. carry out activities on collecting museum material for the purpose of completing the numismatic collection, primarily the collection of the Montenegrin money, the Perper, and other historical material and documents related to the issuing of the Montenegrin money;

b. present the numismatic collection to the domestic and foreign public in a professional manner;

c. promote the Money Museum as the institution of cultural and historical importance and an institution significant for educating the public and promoting the role and importance of the CBCG in the Montenegrin financial system;

d. develop cooperation with central banks, other museums, cultural, scientific, and educational institutions in the country and abroad, with a view to improving the practice in similar activities performed by the aforesaid entities.

9. As a support to the attainment of the stated objectives in other business areas, the CBCG will:

a. work on improving the information system and ensuring an adequate level of services and its availability and safety, and particularly on improving the ICT infrastructure supporting the Payment system (RTGS and DNS) at the central, backup and disaster recovery locations, the Main banking system, the debt collection enforcement system, as well as other application, systemic, and communication services;

b. work on the harmonization with international standards, particularly the information security management standard ISO/IEC 2700;

c. with a view to developing and improving cooperation with international financial institutions and organizations, central banks and regulatory bodies in other countries, the CBCG will:

- meet the obligations arising from the membership of Montenegro in the International Monetary Fund and the role of the fiscal agent of the state of Montenegro in that international financial institution, as well as meeting the requirements for receiving its technical and potential financial assistance;
- develop cooperation with the International Monetary Fund , the World Bank, the European Bank for Reconstruction and development, the European Investment Bank, the Bank for International Settlements, and other international financial institutions, particularly in the areas of importance for the CBCG;
- develop cooperation with other central banks and financial regulatory authorities through the implementation of signed agreements, particularly in the area of banking supervision, as well as proposing new forms of cooperation and establishing strategic partnerships;
- work on further international promotion of the CBCG through the organisation of international events and seminars, organisation of working and/or study visits, and the participation of the CBCG high officials in international meetings and conferences;

d. with a view to providing an adequate protection of the euro against counterfeiting, the CBCG will:

- intensify already established cooperation with relevant international entities dealing with the protection of the euro against counterfeiting (ECB, EC-OLAF, European Technical and Scientific Centre (ETSC)), and the national public authorities – the Prosecutor’s Office and the Ministry of Interior - Police Directorate through continuous sharing of information (correspondence and reporting) and attendance at seminars and trainings;
- continue cooperating with all cash handlers in Montenegro in order to ensure full implementation of the adopted legislation in the area of protection of the euro against counterfeiting, in line with the EU acquis/ECB regulations and which implies the training of employees and onsite supervision of work and techniques used by the cash handlers;

e. continue with activities on risk management in the CBCG through further development of the monitoring of the system of internal controls and the operational and reputational risk management systems;

f. continue with activities on the establishment of the CBCG business continuity system.

10.  The CBCG will continue following the principles of a socially responsible institution, both regarding its employees and the society as a whole, and it will base its operations on the universal principles of protection of human rights, labour right, environmental protection, and combating corruption. To that end, the CBCG will:

a. endeavour to promote and apply in its operations ten universal principles of the protection of human and labour rights, environmental protection, and development of a civil society defined in the United Nations Global Compact, as the continuation of activities on the building of the corporate image and maintenance of the gained reputation;

b. with an efficient use of resources, implementation of good practices, and creation of good working atmosphere, create conditions for better quality in the exercising of the CBCG functions and realization of working processes, better motivation and engagement of employees, and the reduction of operating costs;

c. continue promoting and raising the level of economic knowledge through integration in the educational system to be achieved with the participation of the CBCG representatives as guest lecturers at universities, organisation and providing assistance in economic research, rewarding of the best pupils and students, graduate students, holders of MSc and PhD degrees;

d. in accordance with its financial possibilities, continue contributing a portion of its revenues to charity and support of the development of cultural, historical and other values of the society, and contribute to the strengthening of civil society through public participation in numerous social activities and events. To that end, the CBCG will continue with the practice of presenting the CBCG functioning and organisation of the “Week of Savings” with a view to promoting saving.

11.  These Guidelines shall be published on the CBCG website.

CENTRAL BANK OF MONTENEGRO COUNCIL