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Understanding the banking dynamics in Montenegro: Analysis and outlook

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In a recent interview, Miloš Miketić, President of the Banking Association Committee of the Chamber of Economy of Montenegro (PKCG), shed light on the prevailing conditions and upcoming challenges in Montenegro’s banking sector.

Miketić highlighted that despite the prevailing perception of high interest rates, the current rates are not as inflated as perceived. He emphasized that banking operations are multifaceted, making it challenging to transparently explain cost structures to customers. He noted that while recent reductions in interest rates are beneficial to citizens, they pose challenges for banks, particularly in terms of reduced income.

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The reduction in interest rates across various banking products, from housing to cash loans, reflects a positive response from commercial banks to initiatives by the Central Bank of Montenegro (CBCG). However, Miketić cautioned that this adjustment could strain banks’ profitability, especially considering the influx of surplus funds into the market.

Miketić underscored the importance of considering future expectations and economic trends when evaluating interest rates. He highlighted the correlation between interest rates, real estate prices, and economic activity, emphasizing the need for a balanced approach to lending.

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Addressing the challenges facing the banking sector, Miketić identified excess liquidity as a significant concern. He explained that while increased deposits have bolstered banks’ assets, they also present challenges in managing liquidity and aligning it with economic activity.

Looking ahead, Miketić emphasized the importance of strategic borrowing for both infrastructure development and current consumption. He advocated for domestic borrowing for immediate needs and leveraging foreign creditors for large-scale infrastructure projects.

Miketić also discussed ongoing initiatives aimed at enhancing cooperation between the banking sector and regulatory authorities, such as the proposed memorandum of cooperation between the Tax Administration and banking institutions. This initiative seeks to streamline data sharing processes, reducing administrative burdens for both banks and customers.

In conclusion, Miketić stressed the importance of internal efficiency and process optimization in addressing external challenges. He emphasized the role of the banking sector in supporting economic growth and called for continued collaboration between stakeholders to foster a robust and sustainable economy in Montenegro.

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