Montenegro suspends payments by two banks

Montenegro suspends payments by two banks
By Denitsa Koseva in Sofia December 11, 2018

Montenegro’s central bank said it has suspended for 45 days payments by two local banks, Atlas Banka and Invest Banka Montenegro, to depositors and creditors. The move came after on December 7 the central bank placed the two banks under temporary administration due to their poor financial condition.

In June, central bank governor Radoje Zugic said that here were three banks where capital levels seemed risky and which should increase their capital, but did not provide details as to which institutions these were. At the time he said that they must increase their capital levels to comply with international standards and the best banking practices.

Although both Atlas Banka and Invest Banka Montenegro have taken steps to increase their capital levels, central bank’s audit has shown that the capital of the two lenders does not comply with the minimum risk requirements.

During the 45-day period, the central bank will undertake activities necessary for the continuation of the operation of the banks and the protection of their assets.

At a press conference on December 11, Zugic said that the aim of the measure is to protect deposits higher than €50,000. Those below €50,000 are protected by Montenegro’s fund for deposit guarantee.

Zugic also said that 560 clients of the two banks have deposits above €50,000.

The moratorium excludes payment of salaries and other personal income, health and life insurance compensations. Recurring costs for the functioning of the banks are also excluded from the temporary suspension.

The two banks are among the smallest in the country with a combined market share below 6%, according to Zugic. He also said that they have good prospects to recover from their current situation.

In October, Atlas Banka completed a €1.37mn capital hike, after which its capital stood at €32.03mn. The bank posted a net loss of €14.3mn through September.

Invest Banka Montenegro’s capital stood at €5.6mn as of end-September, while it managed to post a net profit of €9,000 in the first nine months of 2018, reversing a net loss of €0.4mn a year earlier.

The International Monetary Fund has said that the asset quality of Montenegro’s banking sector continues to improve, recovering credit growth, and high liquidity. However, the large number of banks – 15 in the country with a population of just above 620,000 people – presents a challenge for bank profitability. It has advised Montenegro to continue its efforts to improve the health of the financial sector.

Among the steps that Podgorica should take to strengthen the financial sector are asset quality reviews that would improve loan classification and provisioning practices, and adoption of a definition of non-performing loans that does not exclude impaired assets that have adequate collateral, the fund has said.