Page 81 - Central & Southeast Outlook 2020

Moving forward, the exit of the second largest bank from temporary administration, addressing rising risks in the non-bank financial sector, and improving the AML/CFT framework will be critical, in addition to making decisive progress on asset recovery.
The volume of new loans extended by Moldovan banks increased by 26.1% in the third quarter of 2019 compared to the third quarter of 2018 as the interest rate on new loans increased insignificantly to the level of 8.16%. After a period of almost three years of stagnation, the population has begun to borrow more consumer loans and mortgages from banks. According to experts, developments in this regard have been determined by the fact that in the last year the lending interest rates have been historically low, varying between 7% and 10%.
In addition, the central bank claims that it has created conditions to stimulate lending in the national currency to companies, to reduce systemic risks for the country's economy. In the first nine months of 2019, the country's financial and banking institutions issued new loans worth nearly MDL17bn (€870mn), up 29% over the same period of 2018. MDL7.3bn were loans expressed in foreign currency, the same level as in the same period of 2018.
5.8 ​Finance - Montenegro
Two locally owned banks, Invest Banka Montenegro and Atlas Banka, went bankrupt in 2019. This showed that​Montenegro needs stronger banking supervision​with improvements to the current structure, processes and tools for credit risk supervision.
However, the bankruptcies did not affect the wider banking system, which has been assessed as stable by international institutions. The International Monetary Fund (IMF) has said that no spillovers were observed following the bankruptcy of the two banks, with the system-wide capital adequacy ratio being comfortably above the regulatory minimum. Moreover, the share of non-performing loans (NPLs) sank to 4.7% as of April 2019 following the closure of the two banks.
The IMF also noted that Montenegro’s banking sector is stable with improving asset quality, strong credit growth, high liquidity, and is well capitalised. However, the number of banks is too high for the country’s tiny population of just over 620,000 people, which may create earnings challenges.
Montenegro’s authorities should put efforts into furthering risk-based supervision, introducing macroprudential measures when warranted, harmonising banking laws with the EU directives, and completing the planned asset quality review by the end of 2020, the IMF said.
According to the latest central bank data, Montenegrin commercial banks' assets increased 3.9% y/y to €4.58bn at the end of October after
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