Due to the potential impact coronavirus might have on the Montenegrin financial system, Central Bank has outlined measures aimed at maintain the financial strength of banks and the overall transparency in the financial sector, said for Dnevne novine Vice Governor of the CB, Ms Zorica Kalezić.
DN: What impact can the coronavirus have on Montenegrin financial system?
Ms Kalezić: There are two aspects that go in favor of the resistance of the Montenegrin financial system. First, banking system in Montenegro has managed to recover from the financial crisis in 2008.
The second aspect is the fact that CB and other banks have rich institutional memory, with previous financial crises and economy overheating, regarding high-quality practices and legislative solutions and measures that can help in the cases of the spillover of macroeconomic shock in the financial system .
DN: Has the CB outlined specific measures?
Ms Kalezić: CB has already recommended the banks to make risk assessments of the pandemic of COVID19 and the impact it may have on the private sector and to duly anticipate impact on cash flows and to make adjustments of repayment deadlines to the new cash flows of the clients. Getting micro information on daily basis and reduction of the asymmetric information between clients and banks is essential for regular assessment of clients’ cash flows.
CB has outlined measures, in accordance with the IMF recommendations. In the forthcoming days, the governor of the CB and director of the control sector will coordinate with the banks proposals for measures, in order to make sure that those initiatives are transparent and temporary.
DN: What can CB expect in 2020?
Ms Kalezić: Despite some unforeseen challenges caused by the pandemic of COVID19, CB management is working on the implementation of a very ambitious agenda projected for 2020. Apart from AQR implementation, basic goals of the CB refer to the harmonization of the regulatory framework with the EU regulations and compliance of banks with the requirements of activities on the financial market through the implementation of Basel III standard.
CB has just tested the Early Warning System, as a tool which enables adequate signals of when the banking system is in the state of increased vulnerability. This enables right decision-making process, with a view to preventing crisis.
DN: And what about instant payment?
Ms Kalezić: Development of the pilot project for the assessment of the feasibility of instant payments and bylaws is underway. Control, of payment institutions has been enhanced, as well as gradual automation of compulsory payment.
DN: What is the opinion of the World Bank about the banking system in Montenegro?
Ms Kalezić: Recently adopted Guarantee, based on the public policy of the WB, shows synergy effect of the work and coordination between the Ministry of Finance and CB in strengthening macro-financial foundations of the country. CB was faced with a challenge of efficient resolution of the two non-system banks, with parallel adoption of system legislative solutions and toughening minimum standards for credit risk management.
In a matter of several months, CB managed to solve the problems of two weak banks. Bankruptcy with minimum impact on tax duties has been introduced and depositors have been entirely serviced. We are very happy that the WB has characterized Montenegrin banking system as “liquid, well capitalized and resistant to two national banks going bankrupt”.
The WB has emphasized considerable progress of the system in the improvement of solvency coefficient. We agree with the WB that there are some vulnerable parts which reflect in the variation of loans of poor quality and deadline mismatch between deposits and loans.
DN: How important is the fact that our country has obtained the Guarantee?
Ms Kalezić: It’s a high-quality choice of the Government to improve the structure of public debt in an innovative way, using state-of-the art instruments of international financial institutions. Not every country can obtain it. WB offers it to the countries with credible structural, social and macroeconomic performances with sustainable and coherent mid-term borrowing strategy.
Therefore, it is so ridiculous to brand Montenegro as semi-colony. Obviously, authors of such claims are not familiar with the role of international financial institutions.
DN: When can we expect final review of the assets quality?
Ms Kalezić: AQR is a strategic project for 2020 and it is expected to establish the real value of balances of the banks, the real assessment of the collateral and adequacy of reservations for the potential losses. With the aim of providing transparency and reputation of the process, CB has chosen Ernst & Young Serbia audit institution to be its consultant.
Speaking of transparency of the process, we should stress that the CB is one of the very few central banks that decided to control all 13 banks in its system.
We can expect acceleration of the AQR activities in the forthcoming weeks.
Of course, pandemic of COVID19 might affect the beginning of the first working block to a certain extent.
DN: What results can we expect when it comes to the comprehensive assessment of banks?
Ms Kalezić: It wouldn’t be very wise to anticipate results at the moment. Comparative analyses confirm that AQR was followed by recapitalization of banks in other systems.
CB is working on the development of transitional plans for the recapitalization of specific banks, if AQR results indicate the need.
DN: What innovations will the amendments to the Law on Payments bring?
Ms Kalezić: CB Council has just adopted Draft Law on the Amendments to the Law on Payments which implements PSD2 EU Directive on Payment Services. The law envisages modernization of payment services in Montenegro for the benefit of consumers and private sector, as well as further development of innovative payments via Internet and mobile devices, providing safer payments and better consumers’ protection.
Important change is that banks will be obliged to provide service providers electronic access to the accounts of the users of payment services.
So far, access to data about users and their accounts has been in the ownership of the banks. Now the banks will be required to “open” to their new service providers. This regulation opens up possibilities for Fin Tech companies.
We’re just starting to foresee huge benefits the clients will have. Finally, consolidated Legislation encompasses tougher rules for the protection of consumers.
