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Montenegro’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

Since the restoration of its independence in 2006, Montenegro has made a serious step forward in its social and economic development, has strengthened the position of the most economically developed country in the Western Balkans, and has shown itself to be a safe, politically stable and economically sustainable country with the potential to grow rapidly. The security and prosperity of Montenegro have created preconditions for future integration into the European Union (EU). Accession negotiations began in June 2012.

Current developments in the Montenegrin economy point to the recovery of economic activity from the second quarter of 2016, underpinned by intensifying investment in large infrastructure projects as well as projects in tourism and energy. Under the conditions of the global economic crisis, the programmes of eliminating the barriers to the development of new investment projects and the creation of a more favourable business environment have become crucial. In this respect, the business environment in Montenegro has been significantly improved by adopting new laws aligned with the EU regulations and implementing institutional reforms in the fiscal system and the financial sector. The economic policy is focused on increasing the competitiveness of the economy, with the implementation of structural reforms and the development of infrastructure, with the aim of creating conditions for a greater inflow of domestic and foreign investments.

According to the 2016-2019 projections for Montenegro, real GDP growth is expected to reach 4.4% in 2017, 3.9% in 2018 and 1.8% in 2019. It is estimated that Montenegro’s economy will grow up until 2019 due to the growth of investment activities and the engagement of domestic resources, primarily in the construction and transport sector. The strong contribution of the construction sector will be boosted by domestic companies involved in road building, as well as the construction of new tourist and energy facilities. Positive contributions are also expected from the agricultural sector, as a factor of substitution for food imports and increased exports.

Owing to the economic growth, employment will gradually increase (on average 1 percentage point per annum), and the 2% growth in salaries, on average, is expected in the period 2017-2019. The unemployment rate is expected to fall from 19.4% in 2016 to 16.6% in 2019.Fifteen banks operate in Montenegro and the banking sector is stable and adequately capitalised. The stability of the sector is reflected in the growth of all key business indicators in the system during 2017. The balance sheet of banks grew by 10% in 2017, while the growth of total loans and deposits was 14.1% and 10.9%, respectively. The aggregate financial result of banks’ performances was positive and significantly higher than in the previous year.

With regard to capital adequacy, capital grew by 7.9% in 2017. The aggregate solvency ratio was 16.8%, which was above the statutory minimum of 10%.

The progress in improving the quality of the loan portfolio and reducing non-performing loans (NPLs) has been noticeable over a long period of time. Total NPLs, as well as their share in total loans, have been declining in recent years. The NPL ratio fell from 25.9% in August 2011, to 10.29% at the end of 2016. During 2017, the NPL ratio fell further to 7.0% by year-end.

The preservation of financial stability in an open economy, integrated into the international environment, is a continuous challenge for the banking system and regulators and applies to all segments of the financial system, financial infrastructure and their participants. Montenegrin economy and the banking sector are not isolated from the domestic risks, nor from the transfer and materialisation of international risks and uncertainties. Consequently, the policy is focused on a proactive approach and preventive action in communication and control of banks, as well as in the creation of a regulatory environment in accordance with the implementation of international standards and sound banking practice.

Contributor: Nebojsa Djokovic

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