Press Releases 2016 - September

29.09.2016 - Ninety-third meeting of the CBCG Council

05.09.2016 - Financial Stability Council (FSC): Financial system is stabile

CENTRAL BANK OF MONTENEGRO
Podgorica, 29 September 2016

Ninety-third meeting of the CBCG Council

Council of the Central Bank of Montenegro held today ninety-third meeting, chaired by the Governor Milojica Dakić.

The Council adopted Report of the Governor on operations and the implementation of the policy of the Central Bank of Montenegro in May 2016, in which it was stated that the activities of the Central Bank in this period were carried out in accordance with the planned commitments in the Agenda of the Central Bank for 2016.

The banking system, according to the Quarterly report on the operations of banks and MFIs during the first half of 2016, is characterized by positive trends in the key business indicators. There has been a growth in total assets of banks, liquid assets, profit, solvency ratio, asset quality, as well as the fall in interest rates. Improving the quality of bank loans continued in the second quarter of the current year. At the end of the period, non-performing loans amounted to 278.7 million euros, representing a decrease of 7.1% compared to the end of 2015. Non-performing loans to total loans amounted to 11.72% and were 0.85 percentage points lower than at the end of the previous year. Banks' capital increased by 5.8% in relation to the end of 2015, and the banking system of Montenegro in this period is characterized by a high level of solvency, with the solvency ratio of 16.65% at the end of June. The growth of capital during the period was largely a positive financial result, and the recapitalization of two banks and the opening of a new bank in the second quarter.

In the macroeconomic report, the CBCG analysed sectoral indicators in the Montenegrin economy and presented the semi-annual situation in the economy. According to available indicators, during the first six months of this year, most sectors largely observed an upward trend. Growth was recorded in the construction sector, tourism, trade and most kinds of transport. The decline in production was recorded in forestry, as well as in industrial production. In the first half of 2016 there was an increase of current account deficit which is mainly the result of an imbalance at the goods account. According to preliminary data, the deficit of the current account deficit amounted to 661.6 million euros or 35.7% more than in the same period of 2015. In the observed period, deficit on goods account increased by 16.1%. The significant increase in imports is largely a result of higher imports of machinery and transport equipment for investment projects in the country. In the international trade of services, Montenegro recorded a surplus of 92.2 million euros in the first half of 2016, which is 24.4% lower than in the same period of the previous year due to increased expenditures arising from transport, telecommunications and professional and consulting services.
     
Inflation report for the second quarter analyses trends, expectations and determinants of inflation in Montenegro. During the first half of the year there was a drop in consumer prices, compared to December last year, and on an annual basis (-0.6% and -1.0% respectively). The annual fall in prices in the category of transport by 6.9% had the greatest impact on the decline in total annual inflation rate. When it comes to inflation expectations of banks, based on a survey conducted in July this year, the largest number of banks expects inflation ranging between -0.5% and 0% by the year-end. As for the expectations of the corporate sector, of the total number of surveyed companies, majority of them, 26%, believe that inflation will range between 0.5% and 1% in 2016. According to the expert projections conducted by the Central Bank of Montenegro, inflation will range from -1% to 1%, in 2016, while the central projection is 0%.

The Council adopted a Decision on the appointment of internationally recognized independent external auditor for the Central Bank.

CENTRAL BANK OF MONTENEGRO
Podgorica, 08 September 2016

Financial Stability Council (FSC): Financial system is stabile

Thirty-second meeting of the FSC was held today. The meeting was chaired by Milojica Dakić, Governor of the Central Bank, and attended by all members of the Council: Raško Konjević, Minister of Finance; Branko Vujović, President of the Council of the Insurance Supervision Agency and Zoran Đikanović, President of the Securities and Exchange Commission.

At today's meeting, the Council discussed the current situation regarding financial stability in Montenegro, the risks and vulnerabilities of the overall economic system, which were present during the first half of 2016. In an analysis prepared for the Council, trends and events that have affected the situation in the Montenegrin economy were addressed, both from domestic and from international environment.

The event that had affected the most trends in the international environment was a referendum in the UK. The outcome of the British referendum on leaving the European Union was a surprising signal to financial markets, globally, which have reacted negatively. Also, based on the increase of the uncertainty, prospects for the global economy for 2016 and 2017 were, to a certain extent, exacerbated. It is expected that the uncertainty will affect reducing investments and increasing the funding risk of less developed markets.

To this end, at the international market, the key central banks of the world, the ECB and the FED, have retained the same course of monetary policy and did not change interest rates. In addition, the ECB has introduced an increase in new measures to help member states to intensify the recovery.

Impact of the international environment and transfer of risks and uncertainties in the Montenegrin economy is moderate.

In addition to situation in the international environment, the state of economic activity was also discussed, as well as the level and intensity of risk, sources of risk and financial stability vulnerability from the local environment.

Domestic environment is characterized by different trends in basic economic sectors, compared to 2015. In the first six months of 2016, there was a drop in industrial output of 5.3%. In the first six months of 2016, according to preliminary Monstat data, retail trade turnover (at current prices) grew by 3.9% compared to the same period last year. In the first six months of 2016, number of tourist arrivals increased by 5.6% compared to the same period in 2015, while the overnights stood at 5.5%. According to preliminary Monstat data, construction in the first six months of 2016 recorded an increase in the value of construction works by 22.5% and growth in effective working hours by 10.9%, compared to the same period of 2015.

The annual inflation rate in June stood at -1%. As a result of these tendencies in price movements, the CBCG has revised the expected inflation rate for December 2016. For the end of 2016, inflation is projected to range from -0.1% to 1.3%, with a central tendency of 0.4%.

Weak recovery of the real sector, which recorded modest growth rates in key economic sectors, still represents the highest risk in the first half of 2016. Weaker recovery than the potential one is recorded in the liquidity of the real sector, where there has been an increase in the value of debt based on frozen accounts of legal entities and entrepreneurs. The total amount of this debt amounted to 584.6 million euros at end-June 2016, which is 11.3% more at the annual level. Credit risk in the banking sector recorded a declining trend, but the level of non-performing loans of 11.72% in total loans remains high.

The Council discussed the situation in the fiscal sector, where there has been a growth in revenues as well as increase in budget expenditure in the first half of the year. Present were higher allocations of funds for loans' repayment while the budget recorded deficit. Also the level of tax debt burdens the public finances.

At the end of the second quarter of 2016, the national debt (gross) amounted to 2.36 billion euros or 62.7% of GDP. Percent of gross government debt is also exceeded the value of the Maastricht criterion of 60% of GDP. External debt accounted for 2.03 billion euros, representing a decline of about 190 million euros. Domestic debt accounted for 327 million euros or 6.4 million euros more compared to March 2016.

Based on these indicators, the increase of the fiscal risk is evident due to the pressure of public debt.

The first two quarters of 2016 were marked by an increase in the current account deficit by 16.1% compared to the same period in 2015. High level of import dependence is still evident in trade with foreign countries, but there is still moderate inflow of foreign direct investments, which amounted to 335.6 million euros, of which equity investments amounted to 140.8 million euros, while the inflow in the form of intercompany debt amounted to 64.1 million euros.

The banking system is stable, solvent and liquid. The insurance market is characterized by positive trends and stable development, while the situation at the capital market is unchanged.

The Council assessed that the financial system is stable in the first half of 2016.