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13/05/2025

Radović: Sound Banking System Focuses on Economic prosperity

Montenegro exhibits formidable confidence in its banking sector, demonstrating steady growth. Irena Radović, the Governor of the Central Bank of Montenegro (CBCG), emphasised that these positive indicators provide a solid foundation for ongoing economic expansion.

In an interview for the Mina-Business agency, Radović expressed her pride in the ongoing enhancement of the banking sector’s metrics.

“As of the end of March, all key balance items have demonstrated substantial annual growth. Furthermore, loans and receivables now total 4.9 billion euros, reflecting a remarkable 14 percent rise. These figures unequivocally showcase vigorous credit activity and instil confidence in the integrity of the Montenegrin banking system,” she affirmed.

She pointed to a significant reduction in non-performing loans, which now stand at a historic low of 3.16 percent, a noteworthy achievement amid escalating economic uncertainty.

“Deposits currently amount to 5.63 billion euros, and the capital of banks has surged by 13 percent, now totalling an impressive 926 million euros,” she continued.

She underscored that the capital adequacy ratio remains exceptionally high at 19.6 percent, far exceeding the statutory requirement of eight percent.

“I believe that these indicators of the financial soundness of the Montenegrin banking system are very encouraging and strongly support Montenegro’s further economic growth,” said Radović.

Banks support key sectors of the economy

When asked about the noticeable credit activity growth and which sectors are most looking for loans, Radović stated that gross loans and receivables reached 4.86 billion euros in the first quarter, an increase of almost 600 million or 14 percent compared year-on-year.

“New loans rose by over 500 million euro or 37 percent compared to the same quarter of 2024. This points to very intense and constant credit growth, with retail loans accounting for over 42 percent of the demand structure,” noted Radović.

The three most important categories of corporate loans represent 39 percent of the total. Trade makes up a quarter of the financed activities, followed by tourism and hospitality services at approximately 16 percent each and construction at 13 percent. 

“This demonstrates that banks are actively supporting key sectors of economic activity, which are essential for Montenegro’s economic growth,” said Radović.

In discussing savings and deposits, Radović stated that there has not been a significant change compared to the previous period.

“The population has increased their savings by approximately 275 million euros compared to last year, along with an additional 22 million euros in corporate savings. The structure indicates that retail deposits account for 52 percent, while corporate deposits make up the remaining 48 percent,” specified Radović.

According to her, these indicators clearly demonstrate strong confidence in the Montenegrin banking sector.

Encouraging interest rates trend

When asked about the interest rates level and whether there is room for lowering them, Radović replied that the interest rates trend in an economy reflects the trends in both the international and domestic markets.

As she explained, the CBCG cannot influence interest rates directly. Still, it can engage in a series of activities - creating a favourable environment, promoting financial literacy, and designing applications that allow citizens to compare key banking indicators for each product category at any time.

She also emphasized the CBCG’s active role in the new Law on Consumer Credits, which stipulates that interest rates on household loans cannot exceed 200 percent of the average interest rate in the credit register, which will play a significant role in lowering interest rates, especially for the riskiest categories of citizens.

Radović assessed that the trend of falling interest rates is encouraging.

“In the first quarter of my term, the average weighted effective interest rate for individuals was 8.79 percent. Today, it stands at 6.98 percent. We have recorded a drop of 181 basis points for retail and 90 basis points for corporate sector. I believe that this is a very strong indicator, and Montenegrin banks deserve commendation for their proactive response to the CBCG’s call in March last year to reduce interest rates for the public,” Radović added.

She assessed that there is still room for further reductions in interest rates. She expressed confidence that we will continue to see a qualitative downward trend, especially with the ongoing reforms being implemented.

Cheaper and faster transactions after adherence to the SEPA system

Regarding the benefits of Montenegro’s accession to the Single Euro Payment Area (SEPA), Radović particularly emphasised cheaper, more accessible and significantly faster transactions, which will be officially available for citizens and the economy from 6 October.

“Through this activity, CBCG has consciously chosen to relinquish its operation of the Montenegrin payment system. Although we anticipate an annual income decrease of three million euros with the implementation of SEPA, this move represents a substantial investment in the economic development of Montenegro,” she stated.

She illustrated this in the example of a citizen, for whom the average bank fee was about 60 euros per a thousand euros transaction and completed within five days. By entering SEPA, the fee will be less than five EUR, and the transaction will be carried out on the same day.

For businesses, the fees are currently 70 euros, with a transaction completion time of four days. With SEPA, this will shift to same-day execution, with transaction costs reduced by twelve times.

“When we examine the economic effects for Montenegro, we expect that in the first year of SEPA implementation, the direct and indirect savings will exceed 130 million euros, which is very significant,” Radović specified.

She expressed pride in implementing the modern international standard for data exchange in payment transactions—ISO 20022. As of 20 May, all banks and the CBCG will conduct state transactions exclusively in this format.

Banking sector is ready for SEPA transactions

When asked whether Montenegrin banks are ready for the full implementation of SEPA, Radović stated that they actively cooperated with them and that it is certain that all 11 Montenegrin banks will be prepared for transactions in October.

“So far, 54 percent of the Montenegrin market, including three system banks, have already submitted applications to the European Payments Council (EPC), as did the CBCG. We have all received positive feedback and the green light. For the remaining banks that have not yet submitted applications, they are expected to do so by 15 May at the latest,” announced Radović.

She explained that all this would somehow affect the Montenegrin banking system, with over 10.5 million as the effect of reducing fees from implementing SEPA.

Moreover, this presents an excellent opportunity to demonstrate our readiness for whole market competition within the European area. Including 11 Montenegrin banks in the network of over three thousand European banks operating under the EPC is a significant indicator of Montenegro’s economic preparedness and integration into the European financial ecosystem,” Radović believes.

In addition to SEPA, the CBCG is also working on a project to align Montenegro with European infrastructure for instant payments, known as a TIPS Clone, which is expected to launch by mid-next year. 

This project will enable the Montenegrin economy and citizens to perform transactions within just a few seconds, 24/7.

Some anticipated benefits include reduced transaction costs, faster processing times, increased economic liquidity, and improved ease of doing business.

Benefits for the state and citizens from the payment systems modernisation

Summarising the importance of modernising all these payment systems, Radović said that they would contribute to an increased income per capita, improved standard of living and a greater degree of economic convergence with the EU.

The state will also feel the effects of attracting foreign investments and increasing the economy’s competitiveness.

“CBCG recently conducted an analysis that showed that already in the first year of the implementation of SEPA, TIPS and ISO 20022, Montenegrin economy will record an additional 160 million euros of savings, which equals to 2.3 percent of the GDP. For a ten-year period, we are talking about an increase in income from the current 11 thousand EUR per capita to 13.5 thousand euros, which is a big step forward”, Radović believes.

Encouraging messages from the IMF/World Bank Spring Meetings

Radović recently attended the International Monetary Fund (IMF) and the World Bank (WB) Spring meetings in Washington, where Montenegro received significant praise for its ongoing reforms and regulatory efforts. These efforts aim to close the relevant chapters by the end of next year, aiming to achieve full EU membership by 2028. 

They also acknowledged the modernisation of payment systems, representing a significant step toward integrating into the single European market.

“The messages from the key addresses indicate that Montenegro is heading in the right direction, but additional efforts in structural reforms are necessary,” said Radović.

When asked whether geopolitical uncertainty could impact the FDI inflow in Montenegro and the banking sector in general, Radović noted that geopolitical instability often affects international economic trends and the free flow of capital.

“If the trends remain optimistic as the IMF forecast stated, I believe that the Montenegrin economy could stabilise relatively well in the coming period by targeting opportunities to enhance export positions and transferring some tourism-related interests to our markets,” said Radović.

She reminded us that tourism, energy, and real estate were usually the most affected by global financial uncertainty, but the financial sector plays a crucial role in mitigating these impacts.

“The indicators regarding asset quality and capital in the Montenegrin banking sector suggest that we are well-positioned to respond effectively and maintain stability despite potential ongoing geopolitical uncertainty. We are actively monitoring all ratios, and from this perspective, we can confidently say that Montenegro is stable, with expected minimal short- to medium-term repercussions,” added Radović.

Since Radović took on the leadership of the CBCG, the institution has tightened measures against banks to prevent money laundering and terrorist financing.

Commenting on these efforts, Radović emphasised that Montenegro and its financial system cannot afford to play a regional game.

“Operating as a central bank alongside our counterparts in the Eurosystem. Currently, our regulatory framework for preventing money laundering and terrorist financing is fully aligned with the EU’s legal standards,” Radović said, stressing the importance of addressing these issues decisively.

CBCG harmonises its institutional infrastructure with Eurosystem standards

When asked about the CBCG’s path toward full integration into the ESCB, Radović expressed optimism about the team’s work ahead.

“We have left room for adopting regulations to harmonise financial market laws with those of the EU this year and in the following years leading up to 2027. However, in the first quarter of last year, we decided to prioritise the CBCG’s activities to achieve harmonisation of Montenegro’s regulatory framework with European standards, particularly concerning the two chapters led by the CBCG. As a result, we prepared 16 systemic laws related to the financial sector in collaboration with key partners in the Montenegrin financial market during the first three quarters of last year,” she explained.

The supreme monetary institution also works diligently to align the CBCG’s institutional infrastructure with Eurosystem standards.

“This is a challenging task, as it will reveal areas that need improvement. However, it is also an essential step that will ensure we are fully prepared for integration, signalling our readiness not only for EU membership but also for entry into the euro area,” Radović added.

Comprehensive transformation of the CBCG into an open and modern institution

In discussing the CBCG Strategic Plan for the next four years, Radović highlighted that the document outlines five key development pillars. These pillars aim to position the supreme monetary institution as an open, modern, and dynamic institution focused on serving the public interest and promoting economic prosperity.

She explained that each segment of the document pertains to the transformation of the CBCG and the introduction of innovative practices in its operations.

“Since joining the EU, the CBCG is required to have 160 of our employees actively participate in the bodies of the ESCB alongside their EU counterparts. By the end of the first quarter next year, we aim to identify all areas needing further development,” Radović said.

It will facilitate the creation of a roadmap for comprehensive transformation, encompassing operational, institutional, and functional alignment, as well as human resources considerations.

Parliament expected to elect vice-governors and members of the Council

Radović noted that the CBCG enjoys effective cooperation with the Government and Parliament in various areas, actively contributing to nine economic chapters and drafting important legal solutions for the banking sector.

Addressing the lack of elections for two vice-governors and members of the CBCG Council by the Parliament, she emphasised that CBCG, as an independent institution, must respect the autonomy of both the executive and legislative branches.

“I am confident that the Parliament will responsibly approach the election of the vice-governors and Council members in accordance with its schedule,” she said.

Joint Efforts and Economic Focus for EU Membership

When asked about her key message for the Montenegrin economy amid a challenging global environment, Radović expressed a desire for Montenegro to demonstrate its commitment to structural reforms, embrace digitisation trends, foster a competitive business environment, and build institutions based on meritocracy and quality. 

“The core of our responsible economic approach lies in recognising the sacrifices we must make for the sake of our prosperity. We need to fulfil all prerequisites for both economic and general chapters as promptly and effectively as possible. By the end of next year, we should aim to have these chapters closed, laying the groundwork for the ratification of the accession treaty to the EU, which is slated for 2027. This is a central message that should guide us all,” said Radović.

She firmly believes that all system institutions, governmental branches, the civil sector, and media must unite towards the same goal. Only through collaborative efforts and a focus on the economy can Montenegro achieve full EU membership by 2028.

Interview of Governor Irena Radović for the News Agency “Mina-Business”