## 1.   Priority Recommendations

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### Summary of mission outcomes
- A monetary and financial statistics (MFS) technical assistance (TA) mission visited Podgorica, Montenegro during December 5–19, 2018.
- Main objectives achieved:
  - Compile monetary data based on IMF standardized report forms (SRF 1SR and SRF 2SR) for depository corporations (DC).
  - Review adequacy of available data for other financial corporations (OFCs) and prepare groundwork for SRF 4SR.
  - Design a joint plan for regular reporting of monetary statistics to the IMF’s Statistics Department (STA).
- Key operational outcomes:
  - CBCG management and staff are keen to start reporting MFS to STA to improve international comparability and support monetary policy and macroprudential analysis.
  - Bridge tables developed with CBCG’s Directorate for Monetary and Fiscal Policy Research (FMFPR) automatically generate SRF 1SR and SRF 2SR from CBCG and ODC source data.
  - CBCG COA is sufficient for SRF 1SR compilation with mapping tables.
  - ODCs (commercial banks) COA and additional reporting forms, supplemented by some ad-hoc data from ODCs, are broadly sufficient for SRF 2SR compilation with mapping tables.
  - CBCG can start compiling MFS for CB and ODCs based on SRFs for national dissemination and reporting to STA; recommended start of regular reporting to STA with data of January 2018, by June 2019.
  - Historical monthly series could be compiled from January 2013 onwards and reported to STA.
  - CBCG is encouraged to automatize the compilation process to maintain data quality and timeliness.
  - CBCG should ensure availability of source data for a quarterly OFC survey; reporting forms for leasing and factoring companies are broadly consistent with SRF 4SR; engagement with ISA is encouraged to improve insurance company data.
  - Financial Access Survey reports noted; planned improvement includes adding gender breakdown in the ODC reporting system.

### Priority recommendations (selected)
- Target Date: June 2019
  - Start reporting to STA, on a regular monthly basis, SRF 1SR in line with the methodology of the MFSMCG 2016. Responsible Institution: CBCG.
- Target Date: June 2019
  - Start reporting to STA, on a regular monthly basis, SRF 2SR in line with the methodology of the MFSMCG 2016. Responsible Institution: CBCG.
- Target Date: June 2020
  - Ensure that source data for OFCs are appropriate for the compilation of SRF 4SR, including, by requesting data from insurance companies. Responsible Institution: CBCG.

### Financial system context and data environment
- Financial system structure:
  - Banks constitute around 92 percent of the financial system assets.
  - Fifteen banks operate in Montenegro; foreign-controlled banks (9 out of 15) hold around 73 percent of the banking sector’s assets.
  - OFC subsector constitutes around 8 percent of financial system assets.
  - Seven microcredit finance institutions constitute 1.3 percent of financial sector assets and are not allowed to perform deposit taking operations.
  - Insurance sector constitutes around 57.44 percent of OFC assets (end-2017 data in Table 2).
- Supervisory perimeter:
  - CBCG supervises commercial banks, microcredit financial institutions, financial leasing and factoring companies, companies for the purchase of receivables, and credit-guarantee companies (extension in November 2017).
  - Insurance companies supervised by the Insurance Supervisory Agency (ISA); investment and pension funds supervised by the Securities Exchange Commission (SEC).
- CBCG functions:
  - Performs traditional central bank functions including responsibility for financial stability.
  - Euro is legal tender in Montenegro.
  - Financial stability mandate carried out by Financial Stability Research and Statistics Department (FSRSD).
  - Monetary data compiled by Monetary Policy and Research Division (MPRD).

### Detailed technical findings and recommended actions
- Overall assessment:
  - CBCG’s data collection framework broadly appropriate for depository corporations in line with MFSMCG 2016; further work needed for OFCs.
  - COA revised in December 2017; further COA changes expected for alignment with ECB requirements.
  - Improved ODC reporting framework since 2013 in line with IFRS9 and European regulations; medium-term improvements planned.
  - CBCG does not supervise all OFCs; additional work required to ensure availability of source data for OFCs per MFSMCG 2016.
- Residency and institutional registers:
  - Official residency definition aligns with MFSMCG 2016.
  - Monstat responsible for maintaining register of institutions; CBCG and MOF have advisory roles.
  - Draft institution list prepared in 2017 for reference year 2015 (ESA 2010 basis); list experimental and needs improvement and officialization.
  - Recommended Action 1: Relevant authorities to officialize and continuously update the registry of institutions in Montenegro.
- Central Bank source data and processing:
  - COA is the source data for CBCG MFS compilation and is sufficient for SRF 1SR.
  - MPRD receives selected COA accounts from Directorate for Accounting (DA) that provide instrument, currency and some counterparty sector information.
  - Counterparty sector information is tracked separately for a pre-selected group of assets and liabilities and updated ad hoc when new counterparties appear.
  - Recommended Action 2: MPRD in cooperation with the DA and ITD will automatize the calculation of counterparty sector information for the relevant instruments of the CBCG’s balance sheet.
- Accounting and valuation:
  - Accrual accounting used; financial assets valued in accordance with IFRS9 in CBCG COA.
  - Debt securities issued by nonresidents recorded at fair value through other comprehensive income.
  - Eurobonds issued by Government of Montenegro classified as held to maturity and recorded at amortized cost.
  - While MFSMCG 2016 recommends market valuation for all securities, CBCG approach is consistent with IFRS9 and acceptable for MFS.
- Bridge tables and mapping:
  - Bridge table developed linking CBCG COA accounts to SRF 1SR items (based on data as of June 2018).
  - In most cases one-to-one mapping possible; some amendments/assumptions required and documented.
  - Interest receivables/payables identified at instrument level and allocated to counterparty sectors based on sectoral distribution of underlying instruments due to lack of counterparty sector info.
  - Given small amounts, initial use of assumptions acceptable; next step to add counterparty sector account information to all interest receivables/payables in CBCG COA.

### Allocation of interest/receivable-payable amounts and negative interest treatment
- Findings and guidance:
  - Initially continue using the assumptions made during the mission for allocation of interest/receivable payable amounts to the counterparty sectors in SRF 1SR.
  - Consider adding the counterparty sector account information to all interest receivables/payables in the CBCG’s COA as a next step.
  - Mission advised: negative accruals should diminish the value of the asset.
  - Example treatments observed:
    - For deposits of the MOF within the CB, an interest receivable was recorded on the asset side (despite negative rates).
    - For deposits of the CBCG within nonresident banks, an interest payable was recorded on the liability side.
  - For compilation of monetary data, both amounts are moved to the opposite sides of the balance sheet and classified under the respective instrument and counterparty sectors with a change in the sign to ensure that the negative interest accruals diminish the value of the asset.
  - CBCG to closely follow accounts to distinguish and properly classify actual interest receivables/payables from those that relate to negative interest rates.
- Recommended Action 3: For the allocation of interest/receivable payable amounts to the counterparty sectors in SRF 1SR, initially, the CBCG to continue using the assumptions made during the mission. As a next step, to consider adding the counterparty sector account information to all interest receivables/payables in the CBCG’s COA.

### Reclassification of Government Eurobonds bought on international markets
- Findings and impact:
  - CBCG had been classifying Eurobonds of the Government of Montenegro bought at international markets as claims on nonresidents (i.e., Securities included in official reserve assets in FC, in SRF 1SR).
  - Mission, in consultation with STA Balance of Payments Division, excluded these securities from official reserve assets and classified them as claims on government for monetary data compilation.
  - DMPFR and DA agreed in principle; DA indicated operational challenges for prior periods but willing to implement starting with data of 2019.
  - Impact on aggregates:
    - Mission’s CB survey net foreign assets are approximately 60 million lower and net domestic claims are approximately 60 million higher than previously calculated survey.
    - Decrease of around 50 million Euros in net foreign assets and respective increase in net domestic assets is due to reclassification of Eurobonds as claims on central government instead of claims on nonresidents.
    - 10 million Euros increase in foreign liabilities and respective decrease in liabilities to the central government is explained by reallocation of part of the SDR Allocation figures previously recorded as liabilities to the government as liabilities to nonresidents.
- Recommended Action 4: The CBCG to classify the Eurobonds of the government that were bought at the international markets as claims on government rather than international reserves.

### IMF accounts and Fund-related balances
- Findings and actions:
  - CBCG’s COA includes Reserve Position in the IMF (Other deposits included in official reserve assets, foreign currency, in SRF 1SR) with a balance consistent with IMF FIN records.
  - SDR Holdings balance is broadly consistent with IMF FIN records.
  - DA included a small amount of loans received from the IMF for poverty reduction purposes under SDR Holdings; mission reclassified this item as foreign currency holdings and on the liability side removed it from SDR Allocation and added it to Loans from the IMF.
  - A portion of SDR Allocations was recorded by DA in a separate liability account as deposits for settling obligations to IMF; mission classified that portion as SDR Allocation to align with IMF FIN records.
  - DA staff requested the mission’s help in contacting IMF FIN for further guidance on detailed classification of Fund accounts.
- Recommended Action 5: DA to ensure that the IMF Accounts are recorded consistent with the IMF’S FIN’s records.

### Migration to SRF 1SR, production timing and reporting deadlines
- Implementation plan and timing:
  - Based on the bridge table, MPRD will prepare SRF 1SR forms initially starting from January 2018, followed by historical series going back to 2013.
  - CBCG will produce SRF 1SR forms based on data starting from January 2013 to ensure historical time series for users.
  - Although CBCG’s COA changed with adoption of IFRS9 starting from January 2018, COA for periods 2013–17 provides needed granularity for SRF 1SR construction.
  - MPRD staff to focus first on producing SRF 1SR forms from January 2018 (IFRS9 consistent data), followed by 2013–17 period data.
- Recommended Actions:
  - 6. CBCG to migrate to SRF 1SR for the compilation of the central bank survey, using the bridge table developed during the mission initially based on data of January 2018 onwards followed by historical series for January 2013–December 2017.
  - 7. CBCG to fully automatize the compilation of SRF 1SR.
  - 8. CBCG to start reporting to STA, on a regular monthly basis, SRF 1SR for publication in IFS; initially with data of January 2018 onwards by June 2019.
  - 9. CBCG to start reporting to STA, SRF 1SR for publication in IFS; historical time series data for January 2013–December 2017 by December 2019.

### Other Depository Corporations (ODCs): data, COA, and reporting practices
- Reporting timeliness and validations:
  - Commercial banks provide detailed COA (balance sheet and profit and loss accounts) and additional supervisory reports to CBCG.
  - Banks provide monthly and quarterly financial statements to CBCG with T+8 and T+20 days timeliness, respectively.
  - CBCG has automatic validation processes to check consistency of COA with additional reports.
- Population and exclusion example:
  - Ekos Bank AD Podgorica (in liquidation since 2003) is not included in ODC reporting population.
  - MFSMCG recommends keeping institutions undergoing liquidation in the depository corporations survey while they own financial assets and liabilities.
  - Ekos Bank had assets of 8.5 million Euros as of end-2002 (0.2 percent of end-2017 assets of the ODC sector).
  - Liquidation process of Ekos Bank was finalized in December 2018 while the mission was ongoing.
- Recommended Action 10: CBCG to include in the Country Notes for IFS, the exclusion of Ekos Bank from the reporting population.
- Accounting and valuation frameworks:
  - ODCs broadly follow recommended compilation practices identified in MFSMCG 2016.
  - Commercial banks implemented International Accounting Standards 39 since 2013 and started complying with IFRS9 since January 2018.
  - Banks have been following Basel II regulatory framework since 2009.
  - Securities classified under IFRS9 into: (i) held for trading; (ii) measured at fair value through other comprehensive income (OCI); (iii) measured at fair value through profit and loss (PL); and (iv) valued at amortized cost.
  - Government securities are measured at fair value (bonds and other securities) through OCI or at amortized cost (treasury bills).
  - Loans mostly valued at amortized cost; some loans (Solely Payments of Principal Interest) measured at fair value through PL but mission classified them as loans for monetary statistics.
- Data sufficiency and gaps:
  - ODC COAs and supervisory reports are broadly sufficient for SRF 2SR compilation although supplementary information is needed in some cases:
    - (i) Additional tables need to be created for automatic calculations.
    - (ii) Additional requests should be added to ODC reporting forms for currency and counterparty breakdowns; interim quarterly requests and assumptions possible.
    - (iii) Assumptions used for insignificant amounts should be documented in the IFS Country Pages.
  - Interest is recorded on an accrual basis and reported separately from the underlying instrument; COA identifies interest amounts by instrument and currency but not counterparty sector. For SRF 2SR, accrued interest by instrument was allocated to counterparty sectors based on sector shares of the underlying instrument.
  - Interest in COA had three components: (i) interest due but not yet paid; (ii) interest accrued but not due; (iii) accruals on fees (loan processing fees/commissions). The mission treated (ii) and (iii) along with (i) as interest and classified them with the underlying instrument.
- Production plan for SRF 2SR:
  - Based on the bridge table, CBCG will prepare SRF 2SR forms initially for data starting from January 2018, followed by historical series going back to 2013.
  - DMPR staff to focus first on January 2018 IFRS9-consistent data then 2013–17.
- Recommended Actions:
  - 11. CBCG to create automatic tables for the calculation of the breakdowns indicated in Table 2 as inputs for the compilations of SRF 2SR forms.
  - 12. CBCG to add the additional data requests indicated in Table 2 to the existing reporting forms of ODCs as inputs for the compilations of SRF 2SR forms.
  - 13. CBCG to continue using the assumptions made during the mission and indicated in Table 3 to the extent possible by creating tables for automatic calculations.

### ODC survey differences, automation, and SRF 2SR migration
- Overview and key data differences:
  - Net foreign assets of ODCs calculated by the mission is approximately 5 million euro higher than the figures in the previously calculated survey.
  - Differences partly due to reclassification of advances payable to respective counterparty sectors and allocation of interest payable amounts to respective sectors including liabilities to nonresidents.
- Automation and mapping:
  - Mapping of ODCs’ reports to SRF 2SR should be fully automatized.
  - MPRD, in cooperation with ITD, should put in place an automated system for mapping SRF 2SR.
- Recommended Actions (ODC / SRF 2SR):
  - 14. CBCG to migrate to SRF 2SR for the compilation of the ODC survey, using the bridge table developed during the mission initially based on data of January 2018 onwards followed by historical series for January 2013–December 2017.
  - 15. CBCG to fully automatize the compilation of SRF 2SR.
  - 16. CBCG to start reporting to STA, on a regular monthly basis, SRF 2SR for publication in IFS; initially with data of January 2018 onwards by June 2019.
  - 17. CBCG to start reporting to STA, SRF 2SR for publication in IFS historical time series data for January 2013–December 2017 by December 2019.
  - 18. CBCG to start implementing the planned new data collection framework.

### Other Financial Corporations (OFCs) and reporting coverage
- Micro-credit institutions:
  - Under CBCG supervision and subject to same reporting requirements as commercial banks.
  - COAs and supplementary report forms provide sufficient granularity for mapping to SRF 4SR on a monthly and quarterly frequency.
- Leasing companies:
  - Expected to report granular data to the CBCG starting in early 2019, broadly sufficient for mapping to SRF 4SR.
  - Supervised by CBCG since November 2017; decision in April 2018 expects quarterly reporting starting with data of 2019Q1.
  - Existing report forms (2011–2018) provide some instrument and counterparty sector breakdown but are not sufficient for SRF 4SR mapping for pre-2019 periods; CBCG could request additional historical information.
- Factoring companies:
  - Outside regulatory perimeter and reported to the Tax Administration; starting from 2019Q1 those obtaining CBCG operating license will also report to CBCG.
- DMPFR developments:
  - New reporting forms for leasing (and factoring) companies starting from 2019Q1 found sufficient for SRF 4SR compilation.
  - Proposed forms for OFCs not supervised by CBCG (insurance companies, pension and investment funds) to be discussed at the FSC.
- Insurance companies:
  - Progress in reporting due to European Union requirements.
  - COA provides some instrument breakdown but not by counterparty sector and currency.
  - Instrument breakdown could be improved; sector and currency breakdowns need to be introduced.
  - Given largest share in OFC subsector, coverage of insurance companies in OFC reporting is essential.
- Recommended Action 19: Following the regular reporting of SRF 1SR and SRF 2SR forms, CBCG to ensure that the source data for OFCs are appropriate for the compilation of SRF 4SR including by requesting data from insurance companies through the Insurance Supervisory Agency.

### Other information, metadata, dissemination, and Financial Access Survey improvements
- Dissemination and metadata:
  - Mission assisted CBCG to draft relevant part of the IFS Country Notes. Deviations from MFSMCG 2016 are noted in the draft country notes which will be updated by CBCG as necessary and provided to STA for publication (Appendix III).
  - CBCG has been reporting to STA interest rate information using 6SR forms and will continue using SRF 6SR.
  - CBCG will use monetary data based on SRFs for dissemination on their website and intends to use revised series to disseminate monetary data.
  - Recommended Actions:
    - 20. Along with reporting of SRF 1SR and SRF 2SR forms, CBCG to provide country notes for Montenegro to STA for publication in IFS and use of the IMF’s European Department.
    - 21. CBCG to compile national disseminated MFS using the SRFs 1SR and 2SR.
- Financial Access Survey improvements:
  - Inclusion of some OFCs under CBCG supervision will provide more information (number of branches, outstanding loans and acquired funds).
  - Planned new data collection framework for ODCs will yield more information on depositors, deposit accounts, borrowers, loan accounts, outstanding loans, outstanding deposits broken down by type (households vs. small and medium enterprises) and gender of customers.
  - CBCG could also collect information on internet banking (i.e. number of internet banking accounts).

### Resources, training, technical cooperation, and implementation risks
- DMPFR staff are well informed about monetary data and MFSMCG 2016 and cooperate with AD and SD; further ITD support is needed to automatize SRF compilation.
- Creation of automatized tables by ITD based on existing data would reduce manual work and improve data quality.
- Staff turnover implies need for continued training on MFS methodology. As of December 2018, the MPRD has four officials, including the Head of the Division.
- One CBCG official participated in introductory and advanced MFS training; another staff member applied for the introductory course at the Joint-Vienna Institute in April 2018.
- Mission informed CBCG about the balance sheet approach (BSA). Once key statistics (monetary statistics, international investment position and government finance statistics) are reported, STA could provide HQ-based guidance on creating a BSA matrix; CBCG staff could also attend regional BSA workshops.
- CBCG indicated a TA may be needed on SRF compilation for OFCs; STA staff ready to provide technical support from IMF headquarters via e-mail for remaining SRF/DC issues.

### Action Plan: selected priority milestones, indicators, and target completion dates
- Compile and start reporting to STA a monthly central bank survey based on SRF 1SR, starting with data of January 2018. Target Completion Date: June 2019.
- Produce historical series for SRF 1SR with data from January 2013 onwards. Target Completion Date: December 2019.
- Compile and start reporting to IMF-STA a monthly ODC survey based on SRF 2SR, starting with data of January 2018. Target Completion Date: June 2019.
- Produce historical series for SRF 2SR with data from January 2013 onwards. Target Completion Date: December 2019.
- Compile national disseminated MFS using the SRFs 1SR and 2SR. Target Completion Date: June 2019.
- Automatize the compilation of SRF 1SR. Target Completion Date: June 2019.
- Create and maintain an official registry of institutions in Montenegro. Target Completion Date: December 2019.
- Automatize calculation of counterparty sector information for relevant CBCG balance sheet instruments. Target Completion Date: June 2019.
- For allocation of interest/receivable payable amounts to counterparty sectors in SRF 1SR, continue using mission assumptions initially and consider adding counterparty sector account information to all interest receivables/payables in CBCG’s COA. Target Completion Date: June 2019.
- Reclassify Government Eurobonds bought in international markets as claims on government rather than international reserves; exclude Eurobonds held by CBCG from official reserves. Target Completion Date: June 2019.
- Ensure IMF Accounts are recorded consistent with IMF’s FIN’s records (SDR Allocation consistency). Target Completion Date: June 2019.
- Include in IFS Country Notes the exclusion of Ekos Bank from reporting population metadata. Target Completion Date: June 2019.
- Create automatic tables for breakdowns indicated in Table 2 as inputs for SRF 2SR compilation. Target Completion Date: June 2019.
- Automatize compilation of SRF 2SR. Target Completion Date: June 2019.
- Add additional data requests indicated in Table 2 to existing ODC reporting forms. Target Completion Date: June 2019.
- Continue using and automatizing mission assumptions indicated in Table 2. Target Completion Date: June 2019.
- Implement the planned new data collection framework for ODCs. Target Completion Date: January 2020.
- Start preparing source data for SRF 4SR, including by requesting data from insurance companies. Target Completion Date: June 2020.

### Appendices and additional notes (high-level)
- Appendix I: List of ODCs in Montenegro (includes 16 named institutions; one bank in liquidation: Ekos banka AD Podgorica; liquidation finalized in December 2018).
- Appendix II: Bridge tables for SRF 1SR and SRF 2SR and the Depository Corporations Survey have been shared bilaterally with the authorities.
- Appendix III: MFS Metadata for the IFS Country Notes includes:
  - Date of Fund Membership: January 18, 2007
  - Standard Sources: Central Bank of Montenegro (CBCG), Statistical Office (Monstat)
  - Exchange Rates: Euro market rate; euro is legal tender since April 1, 2002.
  - Central Bank: Consists of the CBCG only; classifications based on ESA 2010.
  - Beginning in January 2013, data are based on an SRF for central banks, in accordance with MFSMCG 2016.
  - CBCG’s chart of accounts was revised in December 2017; starting from January 2018, data are based on the new chart of accounts.
  - As of January 2018, securities are valued based on International Financial Accounting Standards.
  - CBCG’s holdings of Government of Montenegro bonds are classified as held to maturity and recorded at amortized cost.
  - Interest receivables and payables are allocated into counterparty sectors based on the shares of these sectors within the underlying instrument.
  - Other Depository Corporations comprises commercial banks; one bank in liquidation from 2003 to 2018 is not included in the reporting population.
  - Data are available to the CBCG on a monthly basis with around T+8 days timeliness.
  - On assets and liabilities, interest accruals and currency/type allocations were made based on shares of underlying instruments and deposit types.

*Source: IMF mission report (December 5–19, 2018) to the Central Bank of Montenegro on monetary and financial statistics.*

### 1.   Priority Recommendations ____________________________________________________________________ 5

### 1.   Priority Recommendations ____________________________________________________________________ 5

### Summary of mission outcomes
- A monetary and financial statistics (MFS) technical assistance (TA) mission visited Podgorica, Montenegro during December 5–19, 2018.
- Main objectives achieved:
  - Compile monetary data based on IMF standardized report forms (SRF 1SR and SRF 2SR) for depository corporations (DC).
  - Review adequacy of available data for other financial corporations (OFCs) and prepare groundwork for SRF 4SR.
  - Design a joint plan for regular reporting of monetary statistics to the IMF’s Statistics Department (STA).
- CBCG management and staff are keen to start reporting MFS to STA to improve international comparability and support monetary policy and macroprudential analysis.
- Bridge tables developed with CBCG’s Directorate for Monetary and Fiscal Policy Research (FMFPR) automatically generate SRF 1SR and SRF 2SR from CBCG and ODC source data.
- Source data sufficiency:
  - Central bank (CBCG) chart of accounts (COA) is sufficient for SRF 1SR compilation with mapping tables.
  - ODCs (commercial banks) COA and additional reporting forms, supplemented by some ad-hoc data from ODCs, are broadly sufficient for SRF 2SR compilation with mapping tables.
- CBCG can start compiling MFS for CB and ODCs based on SRFs for national dissemination and reporting to STA; recommended start of regular reporting to STA with data of January 2018, by June 2019.
- Historical monthly series could be compiled from January 2013 onwards and reported to STA.
- CBCG is encouraged to automatize the compilation process to maintain data quality and timeliness.
- OFC sector coverage: CBCG should ensure availability of source data for a quarterly OFC survey due to the sector’s potential growth; reporting forms for leasing and factoring companies are broadly consistent with SRF 4SR; engagement with ISA is encouraged to improve insurance company data.
- Financial Access Survey reports noted; planned improvement includes adding gender breakdown in the ODC reporting system.

### Priority recommendations (Table 1)
- Target Date: June 2019
  - Priority Recommendation: Start reporting to STA, on a regular monthly basis, SRF 1SR in line with the methodology of the MFSMCG 2016.
  - Responsible Institutions: CBCG
- Target Date: June 2019
  - Priority Recommendation: Start reporting to STA, on a regular monthly basis, SRF 2SR in line with the methodology of the MFSMCG 2016.
  - Responsible Institutions: CBCG
- Target Date: June 2020
  - Priority Recommendation: Ensure that source data for OFCs are appropriate for the compilation of SRF 4SR, including, by requesting data from insurance companies.
  - Responsible Institutions: CBCG

### Financial system context and data environment
- Financial system structure:
  - Banks constitute around 92 percent of the financial system assets.
  - Fifteen banks operate in Montenegro; foreign-controlled banks (9 out of 15) hold around 73 percent of the banking sector’s assets.
  - OFC subsector constitutes around 8 percent of financial system assets.
  - Seven microcredit finance institutions constitute 1.3 percent of financial sector assets and are not allowed to perform deposit taking operations.
  - Insurance sector constitutes around 57.44 percent of OFC assets (end-2017 data in Table 2).
- Supervisory perimeter:
  - CBCG responsible for supervision and licensing of commercial banks, microcredit financial institutions, financial leasing and factoring companies, companies for the purchase of receivables, and credit-guarantee companies (extension in November 2017).
  - Insurance companies supervised by the Insurance Supervisory Agency (ISA); investment and pension funds supervised by the Securities Exchange Commission (SEC).
- CBCG functions:
  - Performs traditional central bank functions including responsibility for financial stability.
  - Euro is legal tender in Montenegro.
  - Financial stability mandate carried out by Financial Stability Research and Statistics Department (FSRSD).
  - Monetary data compiled by Monetary Policy and Research Division (MPRD).

### Detailed technical findings and recommended actions
- Overall assessment:
  - CBCG’s data collection framework broadly appropriate for depository corporations in line with MFSMCG 2016; further work needed for OFCs.
  - COA revised in December 2017; further COA changes expected for alignment with ECB requirements.
  - Improved ODC reporting framework since 2013 in line with IFRS9 and European regulations; medium-term improvements planned.
  - CBCG does not supervise all OFCs; additional work required to ensure availability of source data for OFCs per MFSMCG 2016.
- Residency and institutional registers:
  - Official residency definition aligns with MFSMCG 2016.
  - Monstat responsible for maintaining register of institutions; CBCG and MOF have advisory roles.
  - Draft institution list prepared in 2017 for reference year 2015 (ESA 2010 basis); list experimental and needs improvement and officialization.
  - Recommended Action 1: Relevant authorities to officialize and continuously update the registry of institutions in Montenegro.
- Central Bank source data and processing:
  - COA is the source data for CBCG MFS compilation and is sufficient for SRF 1SR.
  - MPRD receives selected COA accounts from Directorate for Accounting (DA) that provide instrument, currency and some counterparty sector information.
  - Counterparty sector information is tracked separately for a pre-selected group of assets and liabilities and updated ad hoc when new counterparties appear.
  - Mission recommends automatizing counterparty sector information with DA and ITD to maintain data quality and timeliness.
  - Recommended Action 2: MPRD in cooperation with the DA and ITD will automatize the calculation of counterparty sector information for the relevant instruments of the CBCG’s balance sheet.
- Accounting and valuation:
  - Accrual accounting used; financial assets valued in accordance with IFRS9 in CBCG COA.
  - Debt securities issued by nonresidents recorded at fair value through other comprehensive income.
  - Eurobonds issued by Government of Montenegro classified as held to maturity and recorded at amortized cost.
  - While MFSMCG 2016 recommends market valuation for all securities, CBCG approach is consistent with IFRS9 and acceptable for MFS.
- Bridge tables and mapping:
  - Bridge table developed linking CBCG COA accounts to SRF 1SR items (based on data as of June 2018).
  - In most cases one-to-one mapping possible; some amendments/assumptions required and documented.
  - Interest receivables/payables identified at instrument level and allocated to counterparty sectors based on sectoral distribution of underlying instruments due to lack of counterparty sector info.
  - Given small amounts, initial use of assumptions acceptable; next step to add counterparty sector account information to all interest receivables/payables in CBCG COA.

*Source: IMF mission report (December 5–19, 2018) to the Central Bank of Montenegro on monetary and financial statistics.*

### 26.     Recommended Action:

### 26.     Recommended Action:

### Allocation of interest/receivable-payable amounts and negative interest treatment
- Findings and guidance:
  - For the allocation of interest/receivable payable amounts to the counterparty sectors in SRF 1SR, the CBCG to initially continue using the assumptions made during the mission and, as a next step, to consider adding the counterparty sector account information to all interest receivables/payables in the CBCG’s COA.
  - The mission advised on the correct treatment of negative interest accruals (due to negative interest rates): negative accruals should diminish the value of the asset.
  - Example treatments observed:
    - For deposits of the MOF within the CB, an interest receivable was recorded on the asset side (despite negative rates).
    - For deposits of the CBCG within nonresident banks, an interest payable was recorded on the liability side.
  - For compilation of monetary data, both amounts are moved to the opposite sides of the balance sheet and classified under the respective instrument and counterparty sectors with a change in the sign to ensure that the negative interest accruals diminish the value of the asset.
  - Going forward, the CBCG will closely follow the account to distinguish and properly classify actual interest receivables/payables from those that relate to negative interest rates.
- Recommended Action (from text):
  3. For the allocation of interest/receivable payable amounts to the counterparty sectors in SRF 1SR, initially, the CBCG to continue using the assumptions made during the mission. As a next step, to consider adding the counterparty sector account information to all interest receivables/payables in the CBCG’s COA.

### Reclassification of Government Eurobonds bought on international markets
- Findings:
  - CBCG had been classifying Eurobonds of the Government of Montenegro bought at international markets as claims on nonresidents (i.e., Securities included in official reserve assets in FC, in SRF 1SR).
  - The mission, in consultation with the Balance of Payments Division of STA, excluded these securities from official reserve assets and classified them as claims on government for monetary data compilation.
  - DMPFR and DA agreed in principle; DA indicated operational challenges for prior periods but willing to implement starting with data of 2019.
  - Effects discussed in paragraph 33.
- Impact on aggregates:
  - The mission’s CB survey net foreign assets are approximately 60 million lower and net domestic claims are approximately 60 million higher than previously calculated survey.
  - The decrease of around 50 million Euros in net foreign assets and respective increase in net domestic assets is due to reclassification of Eurobonds as claims on central government instead of claims on nonresidents.
  - The 10 million Euros increase in foreign liabilities and respective decrease in liabilities to the central government is explained by reallocation of part of the SDR Allocation figures previously recorded as liabilities to the government as liabilities to nonresidents.
- Recommended Action (from text):
  4. The CBCG to classify the Eurobonds of the government that were bought at the international markets as claims on government rather than international reserves.

### IMF accounts and Fund-related balances
- Findings and actions taken by mission:
  - CBCG’s COA includes Reserve Position in the IMF (Other deposits included in official reserve assets, foreign currency, in SRF 1SR) with a balance consistent with IMF FIN records.
  - SDR Holdings balance is broadly consistent with IMF FIN records.
  - DA included a small amount of loans received from the IMF for poverty reduction purposes under SDR Holdings; the mission reclassified this item as foreign currency holdings and on the liability side removed it from SDR Allocation and added it to Loans from the IMF.
  - A portion of SDR Allocations was recorded by DA in a separate liability account as deposits for settling obligations to IMF; the mission classified that portion as SDR Allocation to align with IMF FIN records.
  - DA staff requested the mission’s help in contacting IMF FIN for further guidance on detailed classification of Fund accounts.
- Recommended Action (from text):
  5. DA to ensure that the IMF Accounts are recorded consistent with the IMF’S FIN’s records.

### Migration to SRF 1SR, production timing and reporting deadlines
- Implementation plan:
  - Based on the bridge table created during the mission, MPRD will prepare SRF 1SR forms initially starting from January 2018, followed by historical series going back to 2013.
  - CBCG will produce SRF 1SR forms based on data starting from January 2013 to ensure historical time series for users.
  - Although CBCG’s COA changed with adoption of IFRS9 starting from January 2018, COA for periods 2013–17 provides needed granularity for SRF 1SR construction.
  - MPRD staff to focus first on producing SRF 1SR forms from January 2018 (IFRS9 consistent data), followed by 2013–17 period data.
- Recommended Actions (from text):
  6. CBCG to migrate to SRF 1SR for the compilation of the central bank survey, using the bridge table developed during the mission initially based on data of January 2018 onwards followed by historical series for January 2013–December 2017.
  7. CBCG to fully automatize the compilation of SRF 1SR.
  8. CBCG to start reporting to STA, on a regular monthly basis, SRF 1SR for publication in IFS; initially with data of January 2018 onwards by June 2019.
  9. CBCG to start reporting to STA, SRF 1SR for publication in IFS; historical time series data for January 2013–December 2017 by December 2019.

### Other Depository Corporations (ODCs): data, COA, and reporting practices
- Reporting timeliness and validations:
  - Commercial banks provide detailed COA (balance sheet and profit and loss accounts) and additional supervisory reports to CBCG.
  - Banks provide monthly and quarterly financial statements to CBCG with T+8 and T+20 days timeliness, respectively.
  - CBCG has automatic validation processes to check consistency of COA with additional reports.
- Population and exclusion example:
  - Ekos Bank AD Podgorica (in liquidation since 2003) is not included in ODC reporting population.
  - MFSMCG recommends keeping institutions undergoing liquidation in the depository corporations survey while they own financial assets and liabilities.
  - Ekos Bank had assets of 8.5 million Euros as of end-2002 (0.2 percent of end-2017 assets of the ODC sector).
  - The mission considered exclusion of Ekos Bank acceptable given small size and noted it in the IFS Country Notes.
  - The liquidation process of Ekos Bank was finalized in December 2018 while the mission was ongoing.
- Recommended Action (from text):
  10. CBCG to include in the Country Notes for IFS, the exclusion of Ekos Bank from the reporting population.
- Accounting and valuation frameworks:
  - ODCs broadly follow recommended compilation practices identified in MFSMCG 2016.
  - Commercial banks implemented International Accounting Standards 39 since 2013 and started complying with IFRS9 since January 2018.
  - Banks have been following Basel II regulatory framework since 2009.
  - Securities classified under IFRS9 into: (i) held for trading; (ii) measured at fair value through other comprehensive income (OCI); (iii) measured at fair value through profit and loss (PL); and (iv) valued at amortized cost.
  - Government securities are measured at fair value (bonds and other securities) through OCI or at amortized cost (treasury bills).
  - Loans mostly valued at amortized cost; some loans (Solely Payments of Principal Interest) measured at fair value through PL but mission classified them as loans for monetary statistics.
- Data sufficiency and gaps:
  - ODC COAs and supervisory reports are broadly sufficient for SRF 2SR compilation although supplementary information is needed in some cases:
    - (i) Additional tables need to be created for automatic calculations.
    - (ii) Additional requests should be added to ODC reporting forms for currency and counterparty breakdowns; interim quarterly requests and assumptions possible.
    - (iii) Assumptions used for insignificant amounts should be documented in the IFS Country Pages.
  - Interest is recorded on an accrual basis and reported separately from the underlying instrument; COA identifies interest amounts by instrument and currency but not counterparty sector. For SRF 2SR, accrued interest by instrument was allocated to counterparty sectors based on sector shares of the underlying instrument.
  - Interest in COA had three components: (i) interest due but not yet paid; (ii) interest accrued but not due; (iii) accruals on fees (loan processing fees/commissions). The mission treated (ii) and (iii) along with (i) as interest and classified them with the underlying instrument.
- Production plan for SRF 2SR:
  - Based on the bridge table, CBCG will prepare SRF 2SR forms initially for data starting from January 2018, followed by historical series going back to 2013.
  - Despite IFRS9 adoption from January 2018, COA for 2013–17 provides needed granularity; DMPR staff to focus first on January 2018 IFRS9-consistent data then 2013–17.
- Recommended Actions (from text):
  11. CBCG to create automatic tables for the calculation of the breakdowns indicated in Table 2 as inputs for the compilations of SRF 2SR forms.
  12. CBCG to add the additional data requests indicated in Table 2 to the existing reporting forms of ODCs as inputs for the compilations of SRF 2SR forms.
  13. CBCG to continue using the assumptions made during the mission and indicated in Table 3 to the extent possible by creating tables for automatic calculations.

*Source: 1mneea2019002 - 26.     Recommended Action*

### 47.     The ODC survey compiled by the mission (based on the SRF 2SR) slightly differs from

### 47.     The ODC survey compiled by the mission (based on the SRF 2SR) slightly differs from

### Overview and key data differences
- The net foreign assets of ODCs calculated by the mission is approximately 5 million euro higher than the figures in the previously calculated survey.
- The difference is partly due to:
  - Reclassification of advances payable in the respective counterparty sectors; these were previously classified as other items net due to lack of information on the counterparty sector.
  - Interest payable amounts which were not allocated to respective sectors are now allocated including as liabilities to nonresidents.

### Automation and mapping to SRF 2SR
- It is important that the process for mapping of the ODCs’ reports to SRF 2SR is fully automatized.
- To maintain quality and timeliness, the MPRD, in cooperation with the ITD, should put in place an automated system for mapping SRF 2SR.

### Recommended Actions (ODC / SRF 2SR)
- 14. The CBCG to migrate to SRF 2SR for the compilation of the ODC survey, using the bridge table developed during the mission initially based on data of January 2018 onwards followed by historical series for January 2013–December 2017.
- 15. The CBCG to fully automatize the compilation of SRF 2SR.
- 16. The CBCG to start reporting to STA, on a regular monthly basis, SRF 2SR for publication in IFS; initially with data of January 2018 onwards by June 2019.
- 17. The CBCG to start reporting to STA, SRF 2SR for publication in IFS historical time series data for January 2013–December 2017 by December 2019.

### Planned CBCG data collection framework for ODCs
- CBCG is in the process of setting up a framework to collect granular information from the ODCs, to be implemented by 2020.
- The planned new framework aims to collect granular data in line with the ESA 2010 and MFSMCG 2016 methodology.
- Once implemented, the framework will address the issues identified by allowing a flexible way of presenting ODCs’ data.
- An overview of CBCG’s planned data collection framework is provided in Table 4 (Source: CBCG).
- Recommended Action:
  - 18. CBCG to start implementing the planned new data collection framework.

### Other Financial Corporations (OFCs) and reporting coverage
- Micro-credit institutions:
  - Under CBCG supervision and subject to same reporting requirements as commercial banks.
  - COAs and supplementary report forms provide sufficient granularity for mapping to SRF 4SR on a monthly and quarterly frequency.
- Leasing companies:
  - Expected to report granular data to the CBCG starting in early 2019, broadly sufficient for mapping to SRF 4SR.
  - Started being supervised by the CBCG since November 2017; decision in April 2018 expects quarterly reporting starting with data of 2019Q1.
  - Existing report forms (2011–2018) provide some instrument and counterparty sector breakdown but are not sufficient for SRF 4SR mapping for pre-2019 periods; CBCG could request additional historical information.
- Factoring companies:
  - Outside regulatory perimeter and reported to the Tax Administration; starting from 2019Q1 those obtaining CBCG operating license will also report to CBCG.
- DMPFR developments:
  - DMPFR has developed new reporting forms for leasing (and factoring) companies starting from 2019Q1; mission found these sufficient for SRF 4SR compilation.
  - DMPFR plans reporting forms for OFCs not supervised by CBCG (insurance companies, pension and investment funds) with similar granularity as leasing companies; proposed forms to be discussed at the FSC.
- Insurance companies:
  - Have made progress in reporting due to European Union requirements.
  - Currently have a COA providing some instrument breakdown but not by counterparty sector and currency.
  - Instrument breakdown could be improved; sector and currency breakdowns need to be introduced.
  - Given their largest share in the OFC subsector, coverage of insurance companies in OFC reporting is essential.
- Recommended Action:
  - 19. Following the regular reporting of SRF 1SR and SRF 2SR forms, CBCG to ensure that the source data for OFCs are appropriate for the compilation of SRF 4SR including by requesting data from insurance companies through the Insurance Supervisory Agency.

### Other information, metadata, and dissemination
- The mission assisted CBCG to draft the relevant part of the IFS Country Notes. Deviations from the MFSMCG 2016 are noted in the draft country notes which will be updated by CBCG as necessary and provided to STA for publication (Appendix III).
- CBCG has been reporting to STA interest rate information using 6SR forms, including treasury bill rate, weighted average deposit rate, lending rate and Montenegro Stock Exchange Index; CBCG will continue sending this information using SRF 6SR.
- CBCG will use monetary data based on SRFs for dissemination on their website and intends to use revised series to disseminate monetary data.
- Recommended Action:
  - 20. Along with reporting of SRF 1SR and SRF 2SR forms, CBCG to provide country notes for Montenegro to STA for publication in IFS and use of the IMF’s European Department.
  - 21. CBCG to Compile national disseminated MFS using the SRFs 1SR and 2SR.

### Financial Access Survey improvements
- Inclusion of some OFCs under CBCG supervision will provide more information (number of branches, outstanding loans and acquired funds).
- More information will be available for ODCs with the planned new data collection framework.
- Expected improvements include: number of depositors, number of deposit accounts, number of borrowers, number of loan accounts, outstanding loans, outstanding deposits broken down by type (households vs. small and medium enterprises) and gender of customers.
- CBCG could also collect information on internet banking (i.e. number of internet banking accounts).

### Resources, training, technical cooperation, and implementation risks
- DMPFR staff are well informed about monetary data and MFSMCG 2016 and cooperate with AD and SD; further ITD support is needed to automatize SRF compilation.
- Creation of automatized tables by ITD based on existing data would reduce manual work and improve data quality.
- Staff turnover implies need for continued training on MFS methodology. As of December 2018, the MPRD has four officials, including the Head of the Division.
- One CBCG official participated in introductory and advanced MFS training; another staff member is applying for the introductory course at the Joint-Vienna Institute in April 2018.
- Mission informed CBCG about the balance sheet approach (BSA). Once key statistics (monetary statistics, international investment position and government finance statistics) are reported, STA could provide HQ-based guidance on creating a BSA matrix; CBCG staff could also attend regional BSA workshops.
- CBCG indicated a TA may be needed on SRF compilation for OFCs; STA staff is ready to provide technical support from IMF headquarters via e-mail for remaining SRF/DC issues.

### Action Plan: selected priority milestones, indicators, and target completion dates
- Compile and start reporting to STA a monthly central bank survey based on SRF 1SR, starting with data of January 2018. Target Completion Date: June 2019.
- Produce historical series for SRF 1SR with data from January 2013 onwards. Target Completion Date: December 2019.
- Compile and start reporting to IMF-STA a monthly ODC survey based on SRF 2SR, starting with data of January 2018. Target Completion Date: June 2019.
- Produce historical series for SRF 2SR with data from January 2013 onwards. Target Completion Date: December 2019.
- Compile national disseminated MFS using the SRFs 1SR and 2SR. Target Completion Date: June 2019.
- Automatize the compilation of SRF 1SR. Target Completion Date: June 2019.
- Create and maintain an official registry of institutions in Montenegro. Target Completion Date: December 2019.
- Automatize calculation of counterparty sector information for relevant CBCG balance sheet instruments. Target Completion Date: June 2019.
- For allocation of interest/receivable payable amounts to counterparty sectors in SRF 1SR, continue using mission assumptions initially and consider adding counterparty sector account information to all interest receivables/payables in CBCG’s COA. Target Completion Date: June 2019.
- Reclassify Government Eurobonds bought in international markets as claims on government rather than international reserves; exclude Eurobonds held by CBCG from official reserves. Target Completion Date: June 2019.
- Ensure IMF Accounts are recorded consistent with IMF’s FIN’s records (SDR Allocation consistency). Target Completion Date: June 2019.
- Include in IFS Country Notes the exclusion of Ekos Bank from reporting population metadata. Target Completion Date: June 2019.
- Create automatic tables for breakdowns indicated in Table 2 as inputs for SRF 2SR compilation. Target Completion Date: June 2019.
- Automatize compilation of SRF 2SR. Target Completion Date: June 2019.
- Add additional data requests indicated in Table 2 to existing ODC reporting forms. Target Completion Date: June 2019.
- Continue using and automatizing mission assumptions indicated in Table 2. Target Completion Date: June 2019.
- Implement the planned new data collection framework for ODCs. Target Completion Date: January 2020.
- Start preparing source data for SRF 4SR, including by requesting data from insurance companies. Target Completion Date: June 2020.

### Appendices and additional notes (high-level)
- Appendix I: List of ODCs in Montenegro (includes 16 named institutions; one bank in liquidation: Ekos banka AD Podgorica; liquidation finalized in December 2018).
- Appendix II: Bridge tables for SRF 1SR and SRF 2SR and the Depository Corporations Survey have been shared bilaterally with the authorities.
- Appendix III: MFS Metadata for the IFS Country Notes includes:
  - Date of Fund Membership: January 18, 2007
  - Standard Sources: Central Bank of Montenegro (CBCG), Statistical Office (Monstat)
  - Exchange Rates: Euro market rate; euro is legal tender since April 1, 2002.
  - Central Bank: Consists of the CBCG only; classifications based on ESA 2010.
  - Beginning in January 2013, data are based on an SRF for central banks, in accordance with MFSMCG 2016.
  - CBCG’s chart of accounts was revised in December 2017; starting from January 2018, data are based on the new chart of accounts.
  - As of January 2018, securities are valued based on International Financial Accounting Standards.
  - CBCG’s holdings of Government of Montenegro bonds are classified as held to maturity and recorded at amortized cost.
  - Interest receivables and payables are allocated into counterparty sectors based on the shares of these sectors within the underlying instrument.
  - Other Depository Corporations comprises commercial banks; one bank in liquidation from 2003 to 2018 is not included in the reporting population.
  - Data are available to the CBCG on a monthly basis with around T+8 days timeliness.
  - On assets and liabilities, interest accruals and currency/type allocations were made based on shares of underlying instruments and deposit types.

*Source: IMF mission report excerpt (Montenegro, Monetary and Financial Statistics assessment).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1mneea2019002.pdf_