However, the plan to collect the debts by activating loan collateral envisaged only smaller debtors. In their case it is much easier to take over the real estate pledged as loan collateral. The large companies remain protected. For example, the management of the KAP [Aluminum smelting complex], according to the bank, refuses to even discuss loan repayments and "there's nothing the bank can do in this case". The court will have to decide about the relations between the most important financial company and the largest company in Montenegro. At the same time, officials from the Central Bank have entered the Montenegro Bank. Officially they are carrying out an inspection, while the true task is to identify current cash deposits available to the bank and allow the Central Bank to take the control of the future activities of the Montenegro Bank and other banks. Unofficially, the Central Bank has already taken over the Montenegro Bank in the role of a liquidation administrator.
Should we panic?
"All banks have big problems and this should be viewed as the beginning of the clearing up of balances," says Bozidar Gazivoda, the director of the Montenegro Bank. Allegedly, nothing unusual is taking place. The old financial system that accumulated debts by giving loans to the economy, which did not increase the capital and pay back the loans, has finally collapsed. We are now facing the clearing up of old accounts.
The problem is, however, more serious than could be interpreted from the calm statements of the most important banker in Montenegro. When in November 2000 banking laws were amended and modified banks were given a grace period until May 11, 2001 to align their books and activities with the new laws. Besides the founding capital of about $2.5 million, the new law specifies that banks must be liquid at all times and pay their obligations. Of course, the Central Bank, whose final decision, according to the new law, can push banks into bankruptcy or into liquidation, is supposed to control to what extent and in which way banks fulfill their legal obligations.
However, before the deadline set by the law, in mid December 2000, the Monetary Council and the Central Bank instructed the Montenegro Bank to clean up its accounts and prescribed measures for its recovery. That initiated the current debate regarding the collection of debts and opened the problem of debtor-creditor relations in Montenegro. The Podgorica Police has filed criminal charges against the former management of the Montenegro Bank and the state prosecutor is collecting evidence in order to find out whether the dishonest management charges are valid.
The appointment of Bozidar Gazivoda, until recently a member of the Monetary Council, for the director of the Montenegro Bank was treated with suspicion by the citizens. Namely, the fact that the new management tolerates the measures of the Central Bank and the Monetary Council, although they are obviously in violation of the law, gives credence to the assumption that the whole procedure is related to the imminent liquidation of the bank. The liquidation should, allegedly, hide the participants in suspicious business deals in Montenegro, which were conducted through the Montenegro Bank during the years of the so-called transition and privatization. Thus, numerous Montenegrin "busimessmen" would enter the new political era with a clean image and, more importantly, with full pockets of legalized property and without any evidence regarding its origin.
The bank management denies that. Gazivoda claims that the Montenegro Bank cannot be liquidated. That would amount to the liquidation of the financial system in Montenegro. "In practice the whole Montenegrin debt has passed through the Montenegro Bank, which was in practice the state bank," says Gazivoda. Because of its size the bank is now on the top of the pyramid of debtor-creditor relationships, and "numerous problems, from the privatization issue, to the question of capability of new, now privately owned companies to be profitable, influence the Montenegro Bank".
"Our problem is that our lack of liquidity was not a product of our mismanagement, but the product is inability and refusal of debtors to repay loans," says Gazivoda. He explains that "companies are now facing double damages. First, there are no new loans that may not or cannot be returned. Secondly, the old loans must be repaid. This situation is the result of the fact that companies in Montenegro used to base their business policy on inflation. The fact that they are now protesting indicates that the logic of inflationary credits has become the mode of thinking here."
Thanks to inflationary loans, which were mostly used for the buying of social and at times even personal peace of some citizens, the accounts of this bank, gray economy and the bankruptcy of the Montenegrin economy have become one and the same thing. That is why the new measures for the restructuring and recovery of the bank can only be viewed as an attempt to draw an acceptable line between the financial and economic problems. But, acceptable for whom?
The Montenegro Bank should be put back on its feet at any cost, agree both the monetary authorities and its management. The implementation of the mentioned measures is necessary, and if necessary the bank can be revitalized through bankruptcy, says Gazivoda. He backs up this claim with data about a good property balance sheet. Discounting debts made before 1989, the external balance sheet of the bank, according to the professional services, is positive. Namely, the more recent obligations towards the subjects abroad are about $3.5 million while the bank is owed about $7.8 million. Besides the bank is currently selling office space in London, whose value is assessed at about $4-5 million. The management is also counting on the repayment of $600,000 that the Serbian police took from its employees some time ago...
If all of this is added up, paper property of the bank still makes it a large and alive financial institution, capable for conducting business in free market conditions. According to the management, the lack of liquidity of the bank is on the level of only $7-8 million and "an injection of $20 million would make the bank functional again".
These estimates to a certain extent explain a big pressure on the domestic debtors to as soon as possible settle their debts. They are a target also because only in their case it is possible to collect some debts by force. Is that justified? Mihailo Banjevic, the director of KAP, claims that these pressures prejudge the court decision regarding the disputed claims of the Montenegro Bank, based on "loan shark type" interest rates.
On the other hand, there are warnings that the lack of liquidity has its consequences. Customers are leaving. The problem is especially pronounced in connection with the foreign owners of companies in Montenegro. Their payments and financial transactions going through the Montenegro Bank have been frozen. One of the customers from Italy, as we unofficially found out, currently is unable to free up about $7.5 million. How many similar customers are out there? Bad news about banks spread quickly. And a lousy state bank inidcates a bad and irresponsible state.
That is why the official optimism of the bankers cannot delete the impression that the story about the Montenegrin debts and the agony of the Montenegro Bank is at its beginning. That is proven by the plan, as Monitor learned, that the so-called old debts and old foreign currency savings be converted to state obligations!
Thus, most likely, citizens and state-owned companies will take on themselves most of obligations and save the Montenegro Bank. And who will save the citizens from suspect banking practices? A quiet bankruptcy of the financial system of Montenegro, initiated in this bank, does not provide an answer to this question.
According to current estimates, total debts, internal, external and mutual, are about $500 million. About 80 percent of this debt falls on the Montenegro Bank. Either because the bank guaranteed loans or because it gave loans. This estimate is still unofficial, and the Central Bank has finally engaged its employees, who are together with USAID experts daily going to work to the Montenegro Bank as well as some other banks and companies. The need to settle the accounts is obviously dominated by the interest to satisfy demands from abroad, as the inclusion in the international financial system requires a clean balance sheet.
The New Ljubljanska Bank has already expressed interest to enter the financial market of Montenegro as one of the future owners of the Montenegro Bank. The largest Montenegrin Bank does not hide that Slovene bankers are their role models. Namely, the New Ljubljanska Bank was created from the old, state-owned Ljubljanska Bank, which was used for all the debts and guarantees of the former Republic of Slovenia. But, the old bank was not destroyed in the process. It still officially exists with all the debts and a couple of employees, while the New Ljubljanska Bank is successfully conquering new markets. The effect of this manipulation is obvious. The new chance to live and continue in business was obtained at somebody else's account. But the role model is a role model. Will we also have the old and new Montenegro Bank?