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Montenegro’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

Gross domestc product grew by 4.9% in Montenegro in 2018, according to preliminary data from MONSTAT (Statistical Office of Montenegro). Strong growth was due to an increase in tourism, energy and industrial production.

The annual inflation rate (CPI – Consumer price index) in December 2018 was 1.6%. Average inflation (CPI – Consumer price index) rate in 2018 was 2.8%.

Estimates of the Ministry of Finance indicate that Montenegro’s budget revenues and state funds in December 2018 amounted to €184.7 million or 4% of the estimated GDP. It represented a slight decrease of 0.6% in relation to December 2017. Budget expenditures in December 2018 fell by 5.6% to €255.1 million or 5.5% of GDP.

At the end of 2018, the banking sector consisted of 15 banks and 13 banks by April 2019. The banks’ networks comprised 207 organisational units, including 111 branches. The total number of employees in the banking sector amounted to 2,497. At the end of 2018 there were 443 installed cash machines.

The main portion (62%) of banks’ assets was concentrated within five banks, which granted 63% of total loans and took 60% of all deposits. Banks’ concentration did not record any significant changes during 2018. Six small-sized banks had a total asset share of 12%. During December 2018, interim administration was introduced in Atlas Bank and Invest Bank Montenegro.

Banks’ capital mostly comes from foreign sources. The share of foreign capital in banks amounted to 84%, and domestic capital accounted for 14%, while the share of government capital in total capital was 2%. Ten banks with majority foreign capital, originating mainly from large banking groups from the EU, were in control of 80% of the banking market.

At the end of 2018, there were 26,334 credit card users, down from 27,359 a year earlier. Individuals accounted for 23,703 users and legal entities 2,631.

Montenegro’s banking sector is stable and has improved. In 2018, banks experienced growth in assets, loans and deposits, while capital slightly decreased, along with a continuous decline in interest rates and the level of non-performing loans.

At end-December 2018, total assets and liabilities of banks amounted to €4,407.2 million, recording a yearly increase of 5.38%. The main share in the structure of aggregate balance sheet of banks referred to loans, which increased by 8.5% year-on-year to €2,929.2 million. In December 2018, deposits in banks amounted to €3,459.2 million, rising by 5.9% year-on-year.

In terms of loan structure, loans to individuals took the main share of 44% in total loans. They were followed by loans to the corporate sector with a share of 35%, placements to banks with 9%, loans granted to the Government of Montenegro with 6% and other loans with the share of 6% in total loans.  Loans to the corporate sector (state and private companies) stood at €1 billion, with year-on-year growth of 6.63%.

During 2018, the total amount of new loans was €1.2 billion, or 7.47% more year-on-year. Loans to legal entities accounted for the main share of 58% in total new loans.

Within deposits, €1.8 billion or 53% came from natural persons or individuals and €1.6 billion or 47% from referred legal entities. Legal entities’ deposits grew by 4% year-on-year, whereas natural persons’ deposits grew by 8%. Demand deposits accounted for 64% of total deposits. The banking system is lacking a stable long-term deposit potential. The share of non-resident deposits was 21.31%, while deposits in other currencies accounted for 6.92% of total deposits.

At the end of December 2018, banks’ capital was €513 million, 0.2% lower than at the end of 2017.

Banks’ solvency ratio was 15.63% at the aggregate level. Two banks in the system failed to meet the minimum legally prescribed solvency ratio of 10%, while the remaining banks showed the solvency ratio between 12.50% and 45.62%.

As of31 December 2018, the banking system operated with profit. Operating profit at the system level was €58 million. At the system level, four banks reported negative financial result. Banks’ aggregate return on average assets amounted to 0.58%, while the return on average equity was 4.87%. These two key profitability indicators declined in relation to the corresponding period of the previous year when they stood at 0.88% and 6.92%, respectively. Earning assets accounted for 79% of total assets. This ratio fell below 70% in some small-sized banks.

The banking system was liquid. Banks’ liquid assets amounted to €994.5 million and made up 22.57% of total assets. The value of loans and receivables to the deposits ratio was 84.68%, indicating that the system’s deposit potential exceeded receivables, arising from loans granted, by €530 million. One bank failed to meet the prescribed the minimum daily and ten-day liquidity ratios.

Contributor: Nebojsa Djokovic