The Central Bank of Montenegro has released its latest macro-financial assessment, indicating that the country’s economy achieved a real GDP growth of 3.2% during the first half of 2025. This growth occurred alongside a stable banking sector and overall financial stability, although the central bank has identified increasing systemic risks associated with rapid credit growth and high real estate prices.
The report highlights that the economic growth is driven by enhanced activity in key service sectors and ongoing investment inflows, which have helped support recovery despite a difficult external environment and pressure on household consumption. The Central Bank noted that domestic economic performance has remained resilient amid global volatility.
The banking sector demonstrated solid fundamentals throughout this period, with banks maintaining solvency, liquidity, and profitability. This stability was bolstered by consistent deposit growth and an increase in lending to both households and businesses. Additionally, asset quality indicators showed improvement, as the share of non-performing loans decreased, reinforcing the sector’s resilience.
<pNevertheless, the Central Bank cautioned that cyclical risks are becoming more pronounced. The most significant vulnerabilities arise from rapid credit growth—especially in housing and personal loans—which have seen double-digit increases, coupled with record-high property prices in new residential developments. This scenario raises concerns about potential corrections in the real estate market and increased sensitivity to changes in financing conditions.
In response to these developments, the regulator has adopted a firmer macroprudential approach. In 2024 and early 2025, the countercyclical capital buffer was raised in two increments to 1%, thereby enhancing banks’ ability to withstand potential shocks related to credit cycles and real estate dynamics. This measure is part of a broader policy framework designed to mitigate systemic risk while ensuring that the banking system can continue to facilitate economic activity.
The Central Bank also pointed out external risks that could impact growth and financial stability, including potential shocks from global demand fluctuations and changes in international trade and financing conditions. These factors could affect Montenegro’s economy through export channels, capital flows, and borrowing costs.
<pDespite these challenges, core indicators within the banking sector remain strong. Profitability has improved due to higher net income along with better returns on equity and assets. Regulatory oversight continues to emphasize a balance between supporting economic growth and managing excessive financial risk accumulation. The Central Bank's assessment underscores the importance of maintaining this balance as credit and property markets expand.
