Europe > Montenegro
This paper discusses the current status of banking supervision and regulation in Montenegro in the context of select Basel Core Principles. It provides a brief overview of the financial system structure, bank system performance, and the framework for financial oversight. Laws, regulations, and supervision have improved significantly since the 2006 Financial Sector Assessment Program to align more closely with Basel and EU requirements. The banking sector dominates the financial system and accounts for about 90 percent of financial system assets, equivalent to about 93 percent of GDP as of June 2015. There are currently 14 banks operating in Montenegro, up from 11 in 2013.
Strong growth this year looks set to continue into the medium term. The authorities are seeking to accelerate growth and development, mainly through new infrastructure projects, but also with fiscal incentives. Although this growth strategy can bring substantial gains, it also poses sizeable risks, notably to public finances, and also in terms of the allocation of capital and financial stability. Gross debt has increased substantially over the past year and looks likely to increase significantly, to 80 percent of GDP. Staff recommends immediate and durable fiscal consolidation measures to limit risks to the public finances and to ensure favorable conditions for funding, particularly to the extent that further infrastructure projects would require additional public debt. Fiscal consolidation is also important for improving external balance, especially as the economy lacks independent monetary policy. A credible strategy to safeguard the health of the public finances would address longstanding problems with public expenditures, such as the very high level of spending on pensions and public sector wages. Measures should be supported by strengthening the fiscal framework and public financial management.
Montenegro is undergoing rapid credit growth in the context of heavy foreign bank presence and euro use. However, the rate of credit expansion is testing the limits of banks’ capacity to underwrite loans prudently and maintain adequate buffers. Rapid credit growth is now also posing supervisory challenges, despite relatively strong financial sector regulation and supervision. The recommended policy response is a mix of prudential strengthening required to address risks emanating from rapid credit growth, and measures to address specific vulnerabilities.
Abstract
This volume, edited by Robert C. Effros, focuses on how technology is affecting the world of banking and finance in an era of increasing globalization. The advent of electronic money, stored value cards, and internet transactions are discussed, as well as the impact of technology on cross-border banking and its implications for central banks. Other issues examined are the legal and regulatory frameworks for risk management of banks, sovereign debt, the international laws of bank secrecy, and financial services within the context of the GATT Agreement on Trade Services.
Abstract
Chapters 10 and 11 stress a number of trends in banking. Some of these trends—globalization, increasing diversification, and the impact of technology—have been evident for quite some time. They imply a changing view of the content of risk. There is nothing new in risk. Banks have always been in the business of risk management. The issue is one of ensuring that new risks are properly identified and properly managed. Systems of supervision need to respond to the changes within the boundaries of what is achievable and desirable. Nevertheless, risk has now taken center stage. A major underlying factor has undoubtedly been the explosive growth in the trading of derivatives and the part played in it by banks. The implications of this development are not debated here. However, the concomitant risks are and have to be in the forefront of the minds of supervisors throughout the world.1
Abstract
In Chapters 12 to 15, the concepts of sovereign debtors, liquidity crises, and external debt were explored; a legal framework for dealing with defaults and rescheduling was examined; the role of sovereign immunities was reviewed; and the pitfalls and hazards of debt rescheduling were addressed. Experts have long sought a means to resolve sovereign liquidity crises through the application of law. One important avenue that has from time to time been suggested is to build on the jurisprudence that surrounds the meaning and interpretation of Article VIII, Section 2 (b) of the Articles of Agreement of the International Monetary Fund.1