Central Bank of Montenegro : 54th Meeting of the Financial Stability Council

54th Meeting of the Financial Stability Council

07/06/2021

Financial Stability Council (FSC) held its 53rd meeting today, attended by Milojko Spajić, Minister of Finance and Social Welfare, Uroš Andrijašević, President of the Council of the Insurance Supervision Agency, and Zoran Đikanović, President of the Capital Market Authority. Upon invitation, Predrag Marković, director of the Deposit Protection Fund, attends the Council's sessions.

At today's meeting, the Council discussed the AnnualReport of the Financial Stability Council for 2020 and the Information on Financial Stability for Q1 2021.

The AnnualReport of the Financial Stability Council for 2020 pointed out that the financial stability's preservation in the previous year was marked by the control of risks with an upward trend due to the coronavirus pandemic. The pandemic business conditions put almost all aspects of financial stability at greater risk.

Despite numerous challenges, the banking sector maintained stability owing to the inherited good risk profile, the CBCG's prudential activity and moderate credit policies. One year after the pandemic impact of the pandemic, the banking sector has strong liquidity and solvency, and credit risk is under control. However, although this risk was so far assessed as moderate, the lifting of the CBCG measures and the potentially prolonged impact of the crisis and the pandemic development uncertainty could increase this vulnerability.

The capital market and the insurance market trends had a stable development, despite facing the crisis impact. The effect is evident in the reduced capital market, while the insurance market showed adequate resilience. The insurance sector's stability strengthened slightly, and indicators pointed to positive growth rates in this activity, despite still an apparent dominance of compulsory insurance types.

The FSC assessed that, despite numerous challenges, financial stability was preserved during all quarters of the previous year. The risk was assessed as moderately stable with an increased presence of some risks. Therefore, it is necessary to continuously monitor risks and direct monetary and fiscal policy measures to their reduction.

Discussing the Information on Financial Stability for Q1 2021, the FSC stated that the economic activity in the euro area recorded a quarterly decline of 0.6% in 2021Q1, while the economies of the United States and China grew by 6.4% and 0.6%, respectively.

Concerning the domestic macroeconomic environment, industrial production increased by 11.8% in the first three months of 2021, compared year-on-year, while the number of tourist arrivals and overnight stays decreased by respective 57.1% ad 49.7%, as well as retail trade turnover by 7%.

According to the Ministry of Finance preliminary data, the original budget revenues in the 2021Q1 were 4.8% higher than planned, while budget expenditures were 14.6% lower than planned. The budget deficit for the 2021Q1 amounted to 2.2% of the projected annual GDP.

The Information further stated that the banking sector was characterised by adequate capitalisation, expressed by the solvency ratio, which amounted to 19.3% at the end of March 2021. The share of non-performing loans in total loans was 5.45% at the end of Q1 of the current year, 0.36 percentage points more compared year-on-year. In the first quarter of this year, deposits and lending activity of banks continued to grow, while interest rates declined slightly. In the first quarter of 2021, 119.5 million euros of new loans were approved to the economy, 11.1% more compared year-on-year.

Based on the analysis of the various factors impact, the FSC concluded that the financial system's stability at the end of 2021Q1 was preserved, while the risks were assessed moderate.