International Monetary Fund. Monetary and Capital Markets Department
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.
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.