Media Release on conducted AQR in Montenegro


The first ARQ conducted outside the EU following the ECB methodology confirmed the stability of Montenegro’s banking sector

According to the recommendations of the 2016 FSAP mission, the Central Bank of Montenegro (CBCG) initiated the asset quality review process (AQR) of the entire banking sector in cooperation with independent external audit firms. The AQR was conducted in all 13 banks present on the Montenegrin market, using the banks’ financial data available on 31 December 2019. The AQR was conducted following the methodology based on the European Central Bank’s (ECB) “Asset Quality Review Phase 2 Manual” from June 2018, adapted to the local institutional and legal framework and market specifics.

The AQR in Montenegro was conducted from March 2020 to September 2021. This period was marked by challenges caused by the coronavirus pandemic, measures taken to combat the adverse consequences for Montenegro’s population and economy, and the merger of CKB Banka and Podgorička Banka, the most extensive integration of banks in the Montenegrin market at the same time.

The AQR exercise has been conducted in Europe since 2014 as the first component of so-called comprehensive assessments aimed at ensuring that banks are adequately capitalised and able to withstand macroeconomic and financial shocks. In addition, the AQR examines the banks’ general readiness, the quality of relevant documentation, infrastructure, and various functions in the bank.

The AQR exercise in Montenegro characterises an extremely high level of reviewed banks' assets

According to its characteristics, the AQR is a prudential exercise not previously performed in the local banking system. Observed by numerous criteria, it has the character of a highly complex and comprehensive procedure:

  • The procedure included all 13 banks present on the Montenegrin market;
  • The selection of credit exposures that were the subject of the AQR analysis provided high coverage (of 84.43%) of risk-weighted assets at the banking sector level;
  • 3 independent audit firms and 12 external assessment firms (engaged in the implementation of AQR in individual banks), many CBCG employees and employees of banks that were subject to AQR were engaged from March 2020 to September 2021 in various activities concerning the AQR;
  • Over 90 individual portfolios of receivables were subject to review, with a book value of 3,737 million euros at the reference date;
  • Auditors individually reviewed loan files of over 2,700 debtors;
  • Over 2,800 residential and commercial real estate was (re)appraised, or their current appraised market value was analysed according to AQR criteria.

The leading consultant of the CBCG for support in the management of the AQR project was the auditing and consulting company EY Serbia, Bosnia and Herzegovina & Montenegro, with the support and cooperation of EY teams from Croatia, the Czech Republic and Germany. At the same time, external auditors conducted the independent asset quality review of banks. AQR auditors were selected following the Guidelines for the Selection of AQR Auditors and Assessors and the CBCG consent. These were the teams of the following audit and audit consulting firms: PWC, KPMG and TPA.

The AQR exercise results confirmed the stability of Montenegro’s banking sector, satisfying quality of assets and capital adequacy of the local banking system.

The main goals of the AQR exercise were:

  • confirmation of Montenegro's banking system stability;
  • elimination of doubts concerning the banks’ assets quality by applying a unique and conservatively established methodology, including the performing of collateral (re)assessment following internationally recognised valuation standards;
  • providing a basis for improving regulatory and supervisory regulations, especially concerning International Financial Reporting Standards (IFRS) (such as improving the IFRS 9 application).

The total effects of AQR on the impact on the amount of capital at the banking market level amounted to 40.3 million euros, resulting in the average solvency ratio decrease by 1.57 percentage points. The average solvency ratio at the banking sector level after the AQR adjustment was 16.2%, significantly above the statutory minimum of 10%.

Banking sector indicator

Prior AQR

After AQR


Solvency ratio



-1.6 p.p.

Banks’ capital (in million euros)




Given that the net effect of the determined adjustments on the capital of the covered banks resulted in an insignificant solvency ratio decrease, the AQR confirmed the satisfactory capital adequacy of the local banking system. There is also an ongoing analysis and development of capital preservation measures that would be applied at the individual banks level if needed.

On 30 June 2021, the banking system was stable, well capitalised, highly liquid, and profitable. Banks’ own funds amounted to 534.9 million euros and were 78.6 million euros higher than at the AQR implementation reference date. It means that the growth of banks’ own funds more than offset the adjustment made during the AQR (40.3 million euros). During the reporting period, the banks’ own funds growth mainly resulted from temporary measures adopted by the CBCG that limited the payment of dividends to shareholders.

Banks will be required to implement the AQR results by the end of the year at the latest. Considering the proactive measures taken by the banks after the AQR completion of which we have been informed, we expect that all banks operate within the statutory defined capital adequacy limits after the AQR results implementation.