Friday, December 25, 2009
Thursday, December 17, 2009
KOTOR, Montenegro (Reuters) - Slightly smaller than Connecticut, the Balkan state of Montenegro is a good place to view the clear waters of the Adriatic, charming medieval cities such as Kotor, and a financial crash in suspended animation.
Defaults and late bank payments are soaring, threatening the banking sector and overall economy of the European Union-applicant country. Formerly part of the Yugoslav Republic, Montenegro uses the euro currency from outside the eurozone.
Similar scenarios have played out in countries as varied as Ireland, Iceland and Latvia. And although tiny Montenegro is unlikely to rock the Western financial world, it could signal continued ructions in emerging Europe.
Gambling on a recovery in real estate prices, some Montenegrin banks are seeking to buy time with schemes including refinancing, opaque property funds and revolving credits.
"Banks are looking for a way to take out the toxic assets," said Dragan Prelevic, a leading real estate lawyer.
Global finance experts say some banks are also shuffling loans between themselves. One executive who spoke on condition of anonymity described banks borrowing from each other to finance loan repayments, a pattern of repeat borrowing that some clients also follow on a smaller scale.
"We do that every few months, that's how you survive," the executive said. "Unfortunately, it is legal."
Bankers across ex-Communist eastern Europe may have been too slow to recognise possible losses from bad debt in wake of the collapse of property markets, experts say.
Bank delay in declaring loans in default and disposing of the property used as collateral may not be a problem if real estate prices recover. If they don't, it could affect such parent banks as Hungary's OTP, Hypo Group Alpe Adria of Austria, Societe Generale and Slovenia's NLB.
Just on Monday Austria nationalised Hypo, which has a big presence in the Balkans including Montenegro, amid concerns it was on the brink of collapse. The bank's Montenegro spokeswoman declined comment for this article, citing its "very sensitive" current situation.
Central bank head Ljubisa Krgovic says a quarter of all credits in Montenegro are paid late, and 10 percent are non-performing and likely to be booked as losses.
By comparison in Ukraine -- where economic chaos prompted the International Monetary Fund recently to delay the release of a $3.8 billion (2.3 billion pounds) loan instalment -- about 30 percent of all loans were impaired at the end of the second quarter.
Montenegrin banks are required to keep just 10 percent of deposits on hand, so have had more leeway than in countries such as Serbia, which has a 40 percent reserve requirement.
BANKS "IN DENIAL"
Dave Perrault, an American former stock day-trader, has first-hand experience: he invested a million euros of his own money in real estate in the state of 650,000 in 2005.
Banks in Montenegro, which won independence from Serbia in 2006, "are at various stages of denial as to how badly they overvalued various properties in the boom," he said.
Some are extending grace periods or renegotiating terms, a move which keeps bad debt off their books.
Montenegro's largest bank, Crnogorska Komercijalna Banka (CKB), an OTP subsidiary, has restructured between a quarter and a third of its loans, said executive director Gyorgy Bobvos. International banks have tougher standards, he said.
Lawyer Prelevic said some banks in Montenegro are going further. "They are making parallel real estate funds that take it over. This is just buying time," he said.
In the past, some loans to real estate Special Purpose Vehicles (SPVs) could stay off bank balance sheets on the assumption they were safe investments. As falling real estate prices made the loans riskier, banks have been obliged to increase provisions for the loans that went bad.
Predrag Drecun, director of the largest domestically owned bank, Prva Banka, said the bank had wanted to create its own SPV to sell assets to a foreign investor, but it was barred by regulators following a government bailout last year.
Branka Pavlovic, chief executive officer of Societe Generale's Podgoricka Banka, said her bank had not used SPVs to keep assets off the books, but was considering creating one to fund a new headquarters office.
Crtomir Mesaric, chief executive officer of NLB Montenegrobanka, said its subsidiary had renegotiated less than 20 percent of retail loans.
Foreign banks have lent $3.6 billion to clients in Montenegro, according to Bank for International Settlements data for first-half 2009. Italian banks had the biggest exposure -- $2.23 billion, mainly through direct loans to Montenegrin banks and firms -- followed by German banks at $1.15 billion. This is tiny compared with the hundreds of billions European banks have lent to emerging Europe.
"If (Montenegrin) banks do not get rid of the toxic real estate they financed at huge prices, they will be faced with the need to tremendously capitalise the banks," the lawyer Prelevic said. "In that case I think some of them will be bankrupted."
The crisis has not diminished the charm of real estate in places such as Kotor, where medieval walls climb a steep mountain above the town and a placid bay.
In the mid-2000s Russians, lured by visa-free travel and the welcoming Montenegrins who share their Orthodox Christian faith, led a charge of foreign investors into the popular tourist country. Around Kotor, British and Irish were also big buyers.
Land and property sales in Kotor and its surrounding region tripled in euro terms from 2005 to 2006 and again the next year.
While foreigners financed abroad, domestic banks lent easily to locals, often using optimistic property valuations to back up loans. Some borrowers used the same property as collateral at different banks.
"The risks ... were compounded by the fact that one, the loans had largely been collateralised by real estate; and two, the widening credit/deposit gap was financed by the domestic banks borrowing from their foreign mothers," said Jan-Peter Olters, the World Bank representative in Montenegro.
In the walled city of Kotor, Mayor Marija Maja Catovic reflects on a situation often seen elsewhere: "It was euphoria and most people were thinking only about quick money, not the long term."
Now the real estate market has essentially frozen. Even a visit by Playboy model and actress Pamela Anderson to view property earlier this year was no help. She left without buying.
Some see parallels with eurozone member Ireland, flung into crisis after its booming property market slumped in 2007.
"The same as in Ireland, a lot of the developers will have to throw the keys back, as we say in Ireland, because they just can't service the debt," said Kieran Kelleher, managing director for real estate agency Savills in Montenegro and Croatia.
The real estate boom helped make Montenegro one of the big success stories in the Balkans in recent years, with GDP growth of 8.6, 10.7 and then 7.5 percent for the three years ending in 2008. This year it is likely to contract four or five percent.
Many expect Montenegro to turn to the IMF in 2010. The government estimates it will need 100-200 million euros in external financing, the central bank puts this at 300 million, and some bankers see the shortfall nearer 500 million euros.
As is common in the Balkans, politics complicates the picture. Prime Minister Milo Djukanovic's brother, Aco, is the largest shareholder of the biggest domestically owned bank, Prva Banka, which received a 2008 bailout loan of 44 million euros.
That loan has since been repaid, and the central bank banned the bank from making new loans. But central bank head Krgovic said regulating the bank was a challenging task. "You are under special pressure," he told Reuters.
The prime minister said he bows out of Prva Banka decisions: "We should extend a hand to any bank, no matter who the shareholders are," he told Reuters.
Drecun of Prva Banka said 10 percent of its loans are "problematic" but the bank still had greater liquidity than required by law.
He said his bank, anticipating a revival, was now moving more aggressively than its rivals to collect the real estate collateral for non-performing loans, and had gathered between 20-30 million euros worth in recent months.
"If you wait until the second half of next year, we are awaiting the recovery of the real estate market," he continued. "It is no problem for us to hold for two years. But we think that in six months to one year we will sell all assets."
(Additional reporting by Boris Groendahl in Vienna and Petar Komnenic in Podgorica; editing by Sara Ledwith)
Posted by Conference Organizer at 9:48 AM
Thursday, December 10, 2009
Podgorica | 10 December 2009 | Bojana Barlovac
Montenegrin Prime Minister and President of Democratic Party of Socialists (DPS) Milo Djukanovic is planning to step down from all state and party functions by the end of the year, Montenegrin media reports.
Djukanovic voiced his possible withdrawal from political and party life in an interview with Reuters.
The prime minister expressed his hope that the country will gain EU candidate status in 2010. Even if the country completes EU negotiations within three years, as the he hopes, he does not expect to stay in office that long.
"I don't think it is necessary to carry out my whole mandate as prime minister," Reuters quoted Djukanovic as saying. He went on to say that he had "given enough to politics, more than 20 years".
If this happens, it would be Djukanovic's second withdrawal since he stepped down as Prime Minister in 2006 and returned to the office in February 2008. Before that, Djukanovic served three consecutive terms as Prime Minister from 1991 to 1998 and was the country's President from 1998 to 2002.
Posted by Conference Organizer at 2:45 PM
Tuesday, December 08, 2009
Montenegrins are more inclined to trust in members of the clergy than they are in politicians, according to the results of the latest survey conducted by the Centre for Democracy and Human Rights (CEDEM).
Released this fall, the survey shows that the Serbian Orthodox Church enjoys the trust of 69% of Montenegrins, while only 45.9% trust their government. The Montenegrin Orthodox Church is trusted by 39.2% of the public, while police have the trust of 45.2% of Montenegrins, slightly higher than the 41.1% who trust the country's judiciary.
Despite the fact that 66.2% of Montenegrins chose to vote in the March 29th national election, and only 30.9% of those surveyed by CEDEM said they trust political parties, a full 95% of survey participants reported that they would vote for one of the 16 registered parties if an election were held now.
The survey suggests that Prime Minister Milo Djukanovic's ruling Democratic Party of Socialists (DPS) would receive 48.7% of the vote. Asked to explain why some would vote for the DPS when they do not trust the party, University of Montenegro political science Professor Milos Becic credited Djukanovic. "The people believe he is the chosen one."
Becic adds that the DPS is "probably the best organised political party in Europe", as fieldworkers are directly in contact with voters, not just during campaigns, but constantly. While many say they distrust the DPS, they will vote for it anyway because of the party's extensive groundwork.
Despite attempts to introduce the idea of individual responsibility, Montenegrins still cling to the notion that the state is, and should be, responsible for almost everything, Becic says."They believe the state should provide jobs for everyone, the state should provide pensions for everyone, etc." That was demonstrated in the CEDEM survey when 36.8% of respondents said the government should do everything in its power to keep the aluminum plant KAP afloat.
A further 22.3% of Montenegrins said the government should provide financial bailouts for the plant, while 9.2% said the government should not. Nearly 32% voiced no opinion. In 2005, the government privatised 65% of the plant before buying back 50% of those shares in June.
The survey showed a slight increase in support for Montenegro joining NATO. A February 2008 poll showed 29.5% of Montenegrins in favour of joining the Alliance, while the October 2009 survey showed 31.2% in favour.
Becic says the campaign to sell NATO to Montenegrins is "simply sad, totally uninteresting and counterproductive". The professor says the campaign will continue to spin its wheels until ethnic Serb political parties are brought onboard, or Djukanovic directs DPS fieldworkers to start singing the benefits of membership.
Posted by Conference Organizer at 3:36 PM
Wednesday, December 02, 2009
Montenegrin Deputy Prime Minister Svetozar Marovic said that there are no obstacles for Montenegro to establish diplomatic relations with Kosovo.
In an interview with Beta news agency Marovic said that Serbia should not be angry to Montenegro due to Podgorica's decision and ongoing preparations for opening its consular department in Pristina.
When asked whether Montenegro would withdraw recognition of Kosovo's independence if the International Court of Justice advisory opinion on the legality on the issue, that is discussed in the Court from 1 to 11 December, proves to be in favour of Serbia, the minister didn't answer directly.
"I am not convinced that we can expect all the major countries that have recognised Kosovo's independence to bring their decision into question... If the Court decides recognition was illegal, then Montenegro will see what to do," the agency quoted Marovic as saying.
He added that Montenegro has about 10,000 displaced people from Kosovo, a thousand of whom would like to return to their hometowns and it is up to the governments of Kosovo and Montenegro to resolve it.
According to the agency, the deputy prime minister expressed his belief that Serbia and Montenegro should be 'the most friendly' countries in the region.
Posted by Conference Organizer at 2:12 PM
Countries supporting and oppossing Kosovo's controversial decleration of independence presented their views to the International Court of Justice, ICJ, Wednesday.
The hearings, which began on Tuesday and will run until 11 December, are looking at whether the decision of Kosovo’s provisional institutions of self-government’s in February 2008 to unilaterally declare independence from Serbia is in accordance with international law.
Serbia and Kosovo on Tuesday had three hours each to present their case. A further 29 UN member states, including the US and Russia, are over the next days unveiling their arguments to the Court.
On Wednesday representatives from Albania, Germany, Saudi Arabia and Argentina put forward their views. The first three countries have recognised Kosovo's independence, but Argentina has not.
Saudi Arabia's Ambassador to the Netherlands, Abdullah A. Alshaghrood, stated clearly his country's support for Kosovo: ''We agree with the conclusions by Kosovo and others that the declaration of independence was not a violation of international law.
We are confident that the Court will take into consideration the substantial progress in Kosovo and in the region,'' he added.
Sussanne Wasum Rainer, a legal adviser to Germany's foreign office, agreed, and noted that Kosovo's existence cannot be ignored. ''There is now a state of Kosovo which cannot be ignored. The existence of this state is based on the exercise on the right of self-determination by the people of Kosovo,'' she said.
But Suzana Ruiz Cerutti, head legal adviser to Argentina's foreign ministry noted that Kosovo's unilateral declaration of independence ''breaches an obligation to respect the territorial integrity of Serbia, the obligation of peaceful settlement of disputes and principle of non-intervention. The resolution has no legal basis in the principle of self-determination,'' she said.
Professor Jochen Frowein from Albania's delegation argued that secession is not prohibited by international law. ''Secession is not regulated by international law. There is no rule of international law prohibiting secession.
''There are few cases when the secession is violating international law. When intervention by third states, be it by use of force or other means is decisive for the declaration of independence, this is a severe violation of international law,'' he said, but noted that in Kosovo's case this was not so.
Other countries will present their opinions in the coming days. Countries appear according to alphabetical order.
Posted by Conference Organizer at 2:09 PM