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06/12/2010

MONTENEGRO'S BAD LOANS UP TO 17 PCT IN OCT-CBANKER

~ Bad loans as high as 17 pct in Oct

~ Central banker says bad loan problem will ease in 2011

~ Sees foreign interest in acquiring banks

 

By Petar Komnenic

PODGORICA, Dec 6 (Reuters) - Bad loans in Montenegro have continued to rise this year, but the central bank governor said on Monday he expects an improvement in 2011 as the economy in the European Union applicant country revives.

Montenegro shared in the global credit boom in the mid 2000s and the financial crisis led to a sharp increase in non-performing loans. 

Radoje Zugic, who was appointed in October, told Reuters in written answers to questions that the level of loans that had not been paid in more than 90 days was between 16 and 17 percent in October.

"We don't expect the number of bad loans to grow further especially because of forecast growth next year," he wrote.

In October 2009 the bad loan rate was 13 percent.

The International Monetary Fund upgraded its 2010 growth estimate for Montenegro in November to 0.3 percent from minus 1.8 percent, but said 2011 growth would be 3 percent, down from 5 previously forecast.

Unlike neighbouring Bosnia, Kosovo and Serbia, Montenegro has not turned to the IMF for a loan. Instead the government successfully issued a debut 200 million euro ($265 million) Eurobond in September.

Zugic said there could be need for a precautionary arrangement with the international lender in the future.
In so far as it is necessary, concluding an arrangement of a possible IMF loan or with another international financial institution deserves full consideration," he said. But "as the economy continues to grow there will be less need for that."

With the region's smallest population at about 670,000, Montenegro enjoyed economic growth of 8.7 percent on average between 2006-08, but was then hit hard by the world crisis.

The economy shrank by 5.7 percent last year and banks were wary about making new loans. 

"We are not satisfied with banks' credit activity," Zugic said, echoing complaints from government officials. The amount of loans to businesses and consumers in Montenegro "has fallen by 143 million euros", he said

In 2009, the mostly Western European-owned banks had made loans in Montenegro totalling 2.4 billion euros, according to central bank data.

Total bank borrowing by bank subsidiaries from their parent companies outside Montenegro is around 700 million euros, he said. 

"The central bank is going to monitor banks' borrowing abroad and if it grows -- to the extent it can impact credit activity -- we will undertake corrective measures," he said. 

Leading foreign-owned bank subsidiaries in Montenegro include OTP , NLB [LJUBB.UL] and Hypo Group.

Zugic was appointed governor after the government shortened the mandate of his predecessor who had taken a tough line against Prva Bank, in which Prime Minister Milo Djukanovic has a small share and his bother is the largest shareholder. 

"The central bank nowadays is maintaining control over major banks including Prva Banka with an aim to determine business parameters and introduce measures that would provide safety for all clients in those banks," Zugic said.

Montenegro has unilaterally adopted the euro and the central bank has a supervisory role overseeing banking activities. 

"Banks in Montenegro are liquid. There is general interest for acquisition of some banks within the system, but because of confidentiality I can not talk about it," he said. 

Prva Banka has said it is looking for foreign partners, and some say an Italian bank could be a good match as the country just across the Adriatic has growing energy investments in Montenegro.