Press Releases 2011 - March

28.03.2011 - Eleventh CBM Council Meeting

16.03.2011 - Students of Economics Visit the Central Bank of Montenegro

11.03.2011 - Management of the Central Bank of Montenegro visits the National Bank of Serbia

09.03.2011 - Financial Stability Council Held the Third Regular Meeting

07.03.2011 - Council of the Central Bank of Montenegro adopts the Governor's Report

03.03.2011 - WB and CBM: Steps forward made towards the sustainability of the banking system

CENTRAL BANK OF MONTENEGRO
Podgorica, 28 March 2011

Eleventh CBM Council Meeting

The eleventh meeting of the Council of the Central Bank of Montenegro, chaired by the Governor Mr. Radoje Žugić, was held today.

The Council adopted the Governor’s February 2011 Report containing the information on the situation concerning liquidity of the Montenegrin companies. The Governor’s Report examines the CBM policy, providing for the positive assessment of its implementation in accordance with the planned dynamics. The Report also contains an overview of the macroeconomic environment and financial system stability, as well as the financial operations of the CBM.

Available data of the Central Bank indicate the estimated 2010 growth between 1% and 2%, which is in line with forecasts made by all relevant international financial institutions. It was noted that the crisis still affects the Montenegrin economy and that it is too early to talk about a full economic recovery because there are still some risks in the system. The attention was dedicated to the expectations about price movements in the upcoming period, primarily taking into account the impact of external factors.

When analysing liquidity of the Montenegrin companies, the discussions involved several structural aspects of frozen accounts, starting from liquidity risk, giving comments on the concentration of frozen accounts in the system. It was concluded that the information has to be supplemented with mutual claims and data on liquidated legal persons or those under liquidation/bankruptcy proceedings in order to get a clear picture of the actual liquidity position of the companies.

The Council discussed the banking system condition. It was noted that, although still very modest, the banking system recorded an increase in lending activity for the first time after more than a year. Deposit potential in banks is on an increase, having a positive effect on the systemic liquidity which was described as satisfactory.

Other positive trends in banks which were noted are declines in past due loans, non-performing assets and restructured loans, and a slight decline in lending and deposit effective interest rates on retail loans, as well as an increase in deposits, indicating a continued return of confidence in the banking system.

The Council concluded that credit risk is still rather significant and that there is an unfavourable maturity match of investments and sources of funds. Therefore, the banking supervision will continue with ongoing monitoring of banks` business activities and assessing of their capital adequacy in accordance with the assumed risks.

A set of secondary legislation governing the international reserves management was adopted at the meeting, thus ensuring further harmonization with the Central Bank of Montenegro Law passed in July 2010.

The international reserves cover all claims on non-residents which are available to the Central Bank of Montenegro. The aforementioned secondary legislation enables the Central Bank to manage international reserves in a manner which is in line with the monetary policy and which provides undisturbed fulfilment of Montenegro’s obligations to other countries, still adhering to the principles of liquidity and safety of investments.

The legislation also establish the investment strategy for managing the international reserves, the forms and principles of the international reserves, ensuring a more prudent approach in the international reserves management, in accordance with the Central Bank of Montenegro Law. It also sets a framework for limiting risk exposures in the international reserves management, those being credit risk, liquidity risk, interest rate risk, currency risk and operational risk.

The adopted secondary legislation specify that the Central Bank may open accounts with foreign central banks, international financial institutions or foreign banks to deposit its funds, purchase and sell in the FX market currencies other than euros, purchase and sell gold, securities, and banknotes and coins.

The legislation also regulate the manner of the international reserves management, division of authorities and responsibilities, which is also the recommendation communicated by international financial institutions and a standard central bank practice in the EU Member States and many other countries. To that end, in order to ensure integrity, limit risks and provide an efficient control over the international reserves management, a specific hierarchical organizational structure is established in the Central Bank, with precisely determined competences (the Council of the Central Bank, the Governor, the Investment Committee and employees authorized for managing international reserves).

CENTRAL BANK OF MONTENEGRO
Podgorica, 16 March 2011

Reasons for the difference between net FDI inflows in 2009 and 2010

Net FDI inflow in 2010 amounted to EUR 542.4 million or 49.1% less than in 2009. However, net FDI inflow in 2009 (EUR 1,066.5 million) was remarkably high for two reasons: 1) revenues from privatization and recapitalisation of EPCG of EUR 436.1 million and EUR 150 million of debt accumulated from the previous period that was transferred into capital. To wit, the international methodology registers this kind of transaction as an FDI inflow although it is actually the transformation of debt into company’s capital and not the actual inflow registered in the respective year.

In 2010, pursuant to the CBM Decision on Keeping Separate Records on Foreign Current and Capital Transactions and their Reporting to the Central Bank of Montenegro, the Central Bank was informed by companies that funds from the credits withdrawn in the period 2003-2008 were transformed into equity capital in 2009. Pursuant to the IMF methodology provided in the Balance of Payments Manual, Fifth edition - BPM5, paragraph 540, the transformation of debt into capital is recorded in the balance of payments as the reduction of credit obligation and an increase of obligation arising from FDIs at the moment of the debt-into-capital swop which, in our case, occurred in 2009.

If this amount of inflow from privatization and recapitalization of EPCG and the amount of debt transferred into capital were excluded from net FDI inflow in 2009, the amount of net FDI inflow in 2010 would be 12.3% higher than in 2009.

CENTRAL BANK OF MONTENEGRO
Podgorica, 16 March 2011

Students of Economics Visit the Central Bank of Montenegro

The third-year students of the Faculty of Economics at the University of Montenegro visited today the Central Bank of Montenegro.

The purpose of the visit was to make the students familiar with the main activities of the CBM as the highest monetary authority in the system.

The future economists had an opportunity to hear a lecture on monetary policy and statistics that are within the CBM`s competence and also to make a tour of the departments that are actually exercising the CBM functions – the Payment System Department that is in charge of monitoring the RTGS and DNS systems, as well as SWIFT offices and the dealing room where the foreign exchange reserves are controlled and banking and financial operations are performed, respectively.

The students also visited the meeting room of the Council of the Central Bank where this governing body makes decisions within its competence.

CENTRAL BANK OF MONTENEGRO
Podgorica, 11 March 2011

Management of the Central Bank of Montenegro visits the National Bank of Serbia

The Governor of the Central Bank of Montenegro, Mr. Radoje Žugić, and his associates talked today in Belgrade with the Governor of the National Bank of Serbia, Mr. Dejan Šoškić, and the management of the NBS about the possibilities of promoting and strengthening the regional and institutional cooperation among central banks.

The Governors estimated that the cooperation between these two central banks, which was officially established under the Protocol in 2009, has been good so far. It was agreed to expand the cooperation in the areas which would provide professional exchange of experiences and benefit employees in both institutions.

CENTRAL BANK OF MONTENEGRO
Podgorica, 09 March 2011

Financial Stability Council Held the Third Regular Meeting

The Financial Stability Council held its third regular meeting. It was chaired by the CBM Governor, Mr. Radoje Žugić, and attended by the Council members Mr. Milorad Katnić, the Minister of Finance and Mr. Zoran Đikanović, the President of the Securities and Exchange Commission.

The minutes of the second meeting of the Financial Stability Council were adopted at the meeting, as was the proposal of Amended Decision on giving consent to the list of persons responsible for the delivery of data and information to the Financial Stability Council.

The Council was informed on the application of the International Accounting Standards with regard to the treatment of impairment of financial assets as discussed regarding the application of the accounting standard 39.

The application of IAS 39, which is very complex in its contents, has become highly important against the backdrop of the global recession which effects have led to the reduced value of the economic entities’ portfolio. The main concern with regard to the accounting standards, which has been even deepened by the crisis, refers to the recognition and measurement of financial instruments – financial assets, financial liabilities and some contracts on purchase/sale of non-financial assets. The value of financial instruments varies depending on market developments (interest rates, prices of securities, prices of goods, exchange rates, price indices, creditworthiness and the like). After the initial recognition of the financial assets value, an economic entity measures its financial assets at fair value, without deductions for transactions costs that may occur during a sale or some other way of alienation.

The Council reviewed the aforesaid information and assessed that this issue would not lead to the systemic risk or affect financial stability.

An initiative was proposed at the meeting with regard to drafting an analysis to serve as the basis for a proposal of the institutional positioning of the financial system regulators. This issue will be addressed in the future in more detail so that the financial sector would continue to be an efficient development driver of economic growth of Montenegro.

CENTRAL BANK OF MONTENEGRO
Podgorica, 07 March 2011

Council of the Central Bank of Montenegro adopts the Governor's Report

The tenth meeting of the Council of the Central Bank of Montenegro, chaired by the Governor Mr. Radoje Žugić, was held on 7 March 2011.

The Council adopted the Governor’s Report indicating the expected inflation rate to range between 2.3% and 4.3% in this year, a gradual recovery of the real sector and a steady acceleration of economic growth over the year.

The Governor’s Report discusses the implementation of the CBM policy in accordance with the plan. Special attention was dedicated to the financial system stability. The prevailing at this moment is credit risk and the banking system has been gradually stabilising.  Despite the still present crisis, the capital market does not represent a threat nor bears risks to the financial stability.  Bearing in mind the confidentiality nature of this document, the Council made a decision to publish only a summary of the document.

The Council discussed the banking system condition. Deposits, solvency ratio, liquid assets, and the banking system assets show the month-on-month increase in January this year, and the loans to deposits ratio also improved.  However, the matter of concern remains the growth of non-performing assets, as well as unfavourable maturity of loans and deposits in the system.

The Council adopted a set of decisions regarding the monetary policy. The Decision on Open Market Operations prescribes that the purchase of securities may be executed as permanent transaction and repo transaction, the conditions to be fulfilled by banks in order to participate in the open market operations, whereby individual operations are subject to the Council’s decision in accordance with the monetary policy goals and tasks. The Decision on Detailed Conditions for Granting Liquidity Loans to Banks prescribes the possibility of granting intraday, overnight and short-term liquidity loans for the period of 15 days. The Decision prescribes detailed conditions to be fulfilled by banks in order to obtain short-term loans, as well as the lending procedure. The Decision on Granting Last-Resort Financial Assistance prescribes the possibility of providing credit support to banks and financial institutions for the purpose of preventing the jeopardizing of safety and soundness of the banking system if a financial institution fails to provide support from other sources. The implementation of this function stipulates the commitment of a bank to refrain from lending, paying dividends, investing in other legal persons, or increasing its operational costs while using of this assistance. The Guidelines on the Allocation of Funds for the Implementation of Monetary Policy Instruments prescribe that funds that may be used for these purposes are the CBM cash assets, bank reserve requirements up to the amount of allocated assets of the bank in question, and exceptionally, a funds borrowed from international financial institutions or foreign central banks.

In addition, a set of decisions regulating payment system has been adopted. The Decision Amending the Decision on Contents of the Central Registry of Accounts prevents the possibility of avoiding enforced collection, as adopted after the amendments of the Instruction of the Ministry of Justice for the Central Registry operations and registration forms. The amendment of this decision called for the harmonization of decisions on recording accounts for performing payment operations, the structure of transfer execution accounts, and the implementation of enforced collection from the account of the executive debtor. The Decision on the Manner and Procedure for the National Payment System oversight prescribes oversights of those payment system segments that were not regulated before: transfer of duns, interbank settlement, and the issuing and use of electronic payment instruments. A separate decision prescribes the mandatory elements of a payer transfer order. In addition, the Decision on Recording Accounts for Foreign Payment Operations was amended.

CENTRAL BANK OF MONTENEGRO
Podgorica, 03 March 2011

WB and CBM: Steps forward made towards the sustainability of the banking system

A World Bank team led by Alexander Pankov, Senior Specialist for Private Sector Development, is currently visiting Montenegro to discuss with the Central Bank of Montenegro the current situation in the banking sector, including the details of supervisory strategies for large banks currently undergoing a process of restructuring.
 
In meetings with the Governor of the Central Bank, Radoje Žugić, and his associates, it was stated that certain steps forward have been made towards the consolidation and sustainability of the banking system, especially when it comes to systemically important banks.

The experts from the World Bank and Central Bank exchanged views on how to ensure that the regulatory and supervisory actions ultimately taken by the CBCG would be in line with international best practice and allow for a level playing field of all banks operating in Montenegro.