No credit institution in Montenegro has expressed interest in joining the clearing of international payments in foreign currency, the Central Bank (CBCG) said in response to the question why there is still no direct payment transaction with Serbia.
– CBCG does not have a mandate to influence the commercial affairs and conditions of banks and cannot oblige credit institutions that will use the payment system when performing international transactions with financial institutions in Serbia or any other country, except in the case of activities that would have a direct impact on financial stability, which is not the case here – the Communications Directorate of CBCG stated.
The issue of establishing direct payment transactions between Montenegro and the Republic of Serbia has been current for a decade and a half, and communication with the National Bank of Serbia (NBS) on this issue, as they stated, has not been interrupted.
– Namely, on September 13th, 2007, the governors of the central banks of Montenegro, the Republic of Serbia and Bosnia and Herzegovina concluded bilateral agreements on the clearing of international payments, with the aim of establishing regional multilateral clearing on the territory of these countries. The National Bank of Serbia is authorized as the system operator, i.e. the processor. As for this payment system, from 2007 until today, it is used by 13 out of 21 credit institutions in the Republic of Serbia and six out of 23 credit institutions in Bosnia and Herzegovina – stated the CBCG.
They pointed out that all prerequisites for the operationalization of this payment system have already been established.
– The necessary infrastructure has been provided since the signing of the agreement, that is, since 2008. Namely, from the technical, operational and functional aspect, the arrangement was tested after the signing of the agreement, and for the actual implementation it is necessary that one of the credit institutions in Montenegro shows interest and submits a request for the conclusion of the contract on participation in the clearing – the CBCG said.
They underlined that credit institutions have so far not shown interest in joining the clearing of international payments with the Republic of Serbia and Bosnia and Herzegovina. One non-systemic credit institution requested additional information at the end of 2022 without further activities.
– The reasons given by credit institutions are diverse and are directly related to their business models and strategic positions regarding international payment transactions with the region. Thus, certain institutions stated that they already offer preferential tariffs for cross-border payments to legal entities, other credit institutions stated that they already have a uniform tariff for the region within the banking group to which they belong, while they have agreed preferential tariffs for clients outside the group. Some credit institutions that have members in Serbia within the group and have agreements with members of the group in Serbia on the processing of payment orders to Serbia, stated that they have an extremely favorable clause for clients, where correspondent costs are not charged, and the entire amount is forwarded to the beneficiary’s bank.
Finally, some of the credit institutions have a small number of transactions with the Republic of Serbia, which does not justify the costs of increasing the complexity of the system, taking into account the implementation requirements and the availability of internal resources. Some credit institutions have a strategic position that the path to the optimal model should be sought within the framework of existing strategic initiatives for the improvement of cross-border payments that include all the countries of the Western Balkans, as well as in the context of the potential brought by the European perspective of the countries of the region. According to them, it would be a model that will provide modern and efficient payment traffic and added value for market participants and users of payment services – the CBCG stated.
When asked what banks and what clients would gain and what they would lose by establishing payment transactions with Serbia, the CBCG said that clients would have another payment system available for the realization of international payment transactions, i.e. credit institutions would have another payment system for international payments with Serbia and Bosnia and Herzegovina on offer.
– Whether it would be cheaper or more expensive than the one currently provided by SWIFT (Society for Worldwide Interbank Financial Telecommunication), it is impossible to assess in the context of Montenegro, considering that no bank is interested in using this system for now. We asked the NBS and the CBBH for a similar analysis of the impact on the reduction of costs for end users using this system in relation to the execution of payment transactions via SWIFT, however, we are not aware that such an analysis has been done. The assumption of non-use of this system due to the potential loss of large revenues of banks based on fees and the cartel behavior of banks on this basis is unsustainable, as is the statement that there are no costs for the end user of this system. The total fees calculated on the basis of international payment transactions with Serbia in 2021 were EUR 2.5 million, of which six banks received less than EUR 100,000 – the CBCG said.
In support of the unsustainability of this argument, as they stated, the fact that all credit institutions in Montenegro are very interested in the entry of Montenegro into the single euro payment area (SEPA) as soon as possible, which will enable consumers, business entities and executive authorities to pay and receive payments in euros under the same basic conditions, rights and obligations, as in the countries of the European Union, regardless of their location, speaks best.
– Also, we draw attention to the implementation of the project under the auspices of the Berlin Process, which refers to the creation of a multilateral arrangement connecting the central banks of the Western Balkans with the TARGET Instant Payment Settlement (TIPS) of the ECB, and that this was also verified by the analysis of all available scenarios for connecting the payment systems of the Western Balkan countries, which was carried out by the World Bank in March 2022. The experts of the World Bank (WB) and the central banks of the region concluded that the multilateral arrangement of TIPS connection is by far the most optimal scenario, which is more efficient than the scenario of connection with the NBS clearing system and the creation of new regional infrastructures or bilateral RTGS connection. TIPS is a new market infrastructure service launched by the Eurosystem in November 2018, which enables payment service providers to offer money transfers to their customers in real time, around the clock, every day of the year. This means that, thanks to TIPS, individuals and businesses can transfer money to each other within seconds, regardless of the opening hours of their local bank. In this particular case, for Montenegro, this would mean a significant reduction in costs for participants in the payment system with 24-hour availability for international payment transactions not only with Serbia, but also with the countries of the Western Balkans and EU members. The ECB believes that for the implementation of this idea, it is necessary for the countries of the Western Balkans to access the single market for payments in euros, SEPA – explained the CBCG.
Consequently, during the past two years, the CBCG is the first EU candidate country to fully harmonize its regulations in the field of payment transactions with EU regulations, while full compliance with the SEPA conditions will be ensured by the first quarter of 2024.
– However, apart from regulations in the field of payment transactions and supervision of credit institutions, there is a whole series of other legal acts, such as the Law on Prevention of Money Laundering and Financing of Terrorism, tax laws, and other acts that must be harmonized with the requirements of SEPA, and which are under the jurisdiction of the Government. A coordinated amendment of the law is a necessary condition for rounding off this process, which will primarily depend on the synchronized work of the Government of Montenegro and the CBCG. The initiative for Montenegro’s accession to SEPA was put on the list of priorities with the goal of Montenegro becoming a full member by the end of 2024 – concluded the CBCG.
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