August 8 (SeeNews) - International rating agency Standard & Poor's said on Friday it has categorised Montenegro’s banking industry in the second highest group in its Banking Industry Country Risk Assessment (BICRA).
“This category reflects the Republic of Montenegro's (BB+/Negative/B) high economic risk, very high credit risks exacerbated by the dramatic loan growth of the past three years, and the strained financial profile of Montenegrin banks,” the rating agency said in a statement.
The ranking also reflects the stable political climate and benefits derived from the dominance of few large Central and Eastern European (CEE) banks, the statement added.
Other countries in Montenegro’s Group 9 include Nigeria, Costa Rica, Guatemala, Lebanon, and Vietnam. Montenegro ranks ahead of Ukraine (Group 10), but behind Kazakhstan (Group 8), and is among the most risky in CEE.
BICRAs classify countries into one of ten groups ranging from the strongest banking system (Group 1) to the weakest (Group 10) from the perspective of country risk.
There were eleven active banks in Montenegro, a country of 620,000 people, at the end of March, with Crnogorska Komercijalna Banka (CKB) topping the list in term of assets. CKB is owned by Hungary's OTP Bank.
“High customer demand and aggressive lending by the domestic banks have led to very high credit risks, accentuated by exceptionally rapid credit growth and very high indebtedness of a population country with such low wealth levels,” S&P said, adding the domestic credit to nonfinancial public enterprises (NFPEs) grew by 165% in 2007, and accounted for almost 90% of GDP by year end.
Montenegrin commercial banks' credit portfolio rose by an annual 81% to 2.7 billion euro ($4.1 billion) at the end of June.
Montenegro's BICRA ranking is underpinned by the country's stable political environment, converging wealth levels, and strong economic growth, especially in a Balkan context, the statement said. The ruling coalition led by the Democratic Party of Socialists remains focused on economic reforms and EU accession.
Montenegro's prospects of joining the EU were boosted in October 2007 when the country signed a Stabilisation and Association Agreement (SAA) with the bloc. The Adriatic republic decided in a 2006 referendum to restore its independence and broke its loose union with Serbia that replaced rump Yugoslavia in 2001.
The growth of Montenegro’s gross domestic product is expected to remain solid at 6.0% in 2008 and is being driven by very strong foreign direct investment (FDI) and domestic demand, the statement said.
The country attracted 1.0 billion euro in FDI in 2007, up 56.4%. However, FDI fell by an annual 12.5% to 465.76 million euro in the first half of the year mainly due to a 24.2% fall in the FDI outflow, which comprises withdrawals of non-resident investments and resident investments abroad.
($=0.6614 euro)
Crnogorska Komercijalna Banka A.D. is among the biggest banks in SEE. You can download our SEE Top 100 ranking
here or subscribe to our free Top 100 newsletter
here