The Montenegrin economy has yet torecover from the collapse of the lending boom in 2008. Thefinancial crisis hit asset quality, weakening banks’portfolios. The legacy of pre-crisis rapid increase inindebtedness is adding to banking sector vulnerabilities.The crisis triggered a prolonged period of balance sheetdeleveraging, which has translated into a near uninterruptedcredit contraction. Slow economic growth and gaps in thelegal framework have hampered banks’ efforts to reduce theoverhang of nonperforming loans (NPLs). The CBM-managedpayment and settlement systems are generally efficient. Someadjustments are needed to minimize any residual liquidityrisks, such as facilitating the automatic transfer ofbalances from the reserves account to the settlementaccount. The CBM oversight function should be strengthenedthrough the formulation of an oversight policy frameworkalong with improvements to interdepartmental communicationand exchange of information. The growth of the financialsector has contributed to greater access to finance forindividuals and SMEs, but a number of weaknesses in theregulatory and enabling environment need to be addressed.
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