International Monetary Fund. Monetary and Capital Markets Department
This paper discusses the current status of banking supervision and regulation in Montenegro in the context of select Basel Core Principles. It provides a brief overview of the financial system structure, bank system performance, and the framework for financial oversight. Laws, regulations, and supervision have improved significantly since the 2006 Financial Sector Assessment Program to align more closely with Basel and EU requirements. The banking sector dominates the financial system and accounts for about 90 percent of financial system assets, equivalent to about 93 percent of GDP as of June 2015. There are currently 14 banks operating in Montenegro, up from 11 in 2013.
Activity and fiscal policy continue to exceed expectations, but strong bank credit growth has fuelled a sharp increase in the current account deficit. In this context, the new administrations recognize the need to establish the macroeconomic stability quickly. These actions are supported by strengthened bank regulations. The new administrations recognize the need for sweeping structural reforms if their aspirations to eventual EU membership and sustained growth are to be realized. But with unemployment high and with large aid inflows set to decline further, risks remain.