While relations between official Podgorica and Belgrade have never been better, it cannot be said that the benefits of this cooperation are felt by citizens and businessmen. One of the unresolved issues is the establishment of direct payment transactions between Montenegro and Serbia. The Central Bank of Montenegro told the RTCG portal that all conditions exist, but only one bank expressed interest in the job. They believe that a solution should be sought within the Berlin process through the connection of the Central Banks of the Western Balkan countries and the European Central Bank (ECB). They note that the ECB is currently considering the CBCG’s request for a systemic solution to the issue.
Finance Minister Aleksandar Damjanović announced in mid-July that the Government department had initiated the issue of direct payment transactions between Montenegro and Serbia, and that a letter had been sent to the Central Bank of Montenegro (CBCG).
“I expect proposals for the establishment of direct payment transactions between Montenegro and Serbia to be considered soon, in order to eliminate the long-standing business barrier in doing business and reduce costs for citizens and the economy”, said Damjanović at the time.
Prime Minister Dritan Abazović said last month during his stay at the regional conference in Belgrade that he remains committed to the implementation of the initiative for Serbia and Montenegro to establish a joint payment system.
These announcements were welcomed by employers at the time.
“The key reason, obviously, was the lack of readiness of the competent authorities to find a solution, and not the provision of some technical and normative assumptions, which was an explanation that was communicated years ago and used to justify the imposition of additional transaction costs on the economy,” said the Union of Employers. of Montenegro (UPCG).
They believe that the solution to this issue is simple and that only good will is needed.
“Direct payment transactions between Montenegro and Serbia do not exist, although the solution is very simple – banks in both countries should conclude bilateral agreements on opening accounts, through which business transactions would be paid. This would overcome the existing situation characterized by business entities, with high commissions charged by third-party banks, have to wait longer than two days for the money to ‘lie’ in their account”, states the UPCG.
Although Serbia has been the largest foreign trade partner of Montenegro for decades, apart from announcements, and what seemed to be goodwill, there is still no solution to the issue of payment transactions between the two countries.
Payments still through foreign banks
Payment transactions with Serbia are now carried out in the same way and under the same conditions as with any other country – through foreign correspondent banks.
“For the exchange of messages, the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network is used. International payment transactions with Serbia are in most cases carried out through correspondent banks from Germany, although recently the number of correspondent banks from other EU countries has been increasing. transactions are carried out through banks from the same group or with the correspondent bank with which the key exchange (RMA) was carried out, they are carried out on the same day and at lower costs. Otherwise, the realization of these payment transactions takes two to three days”, explained the CBCG.
For answers to the question of whether and when we can expect the fulfillment of the promise and the establishment of direct payment transactions, the Ministry of Finance referred us to the Central Bank of Montenegro (CBCG), and they state that this issue has been current for a decade and a half, and that communication with It was not interrupted by the National Bank of Serbia (NBS).
Please note that there have been attempts to solve the problem before. Back in September 2007, the governors of the central banks of Montenegro, the Republic of Serbia and Bosnia and Herzegovina concluded bilateral agreements on the clearing of international payments, with the aim of establishing regional multilateral clearing on the territory of these countries. The last communication and exchange of experiences with the NBS and the Central Bank of Bosnia and Herzegovina on this matter, according to the CBCG, was in September and October of this year. They emphasize that the necessary infrastructure is provided from the very start.
Only one bank is interested
CBCG states that they held meetings with credit institutions in October.
“Only one non-systemic credit institution expressed interest in principle in joining the clearing of the international payment system with the Republic of Serbia and Bosnia and Herzegovina, while the final decision will be made when they are more detailed with all the costs. Other credit institutions have not shown interest in joining the clearing of international payments with The Republic of Serbia and Bosnia and Herzegovina,” stated the CBCG.
The reasons given by the banks are, they say, diverse. Some institutions, as they state, explained that they already offer preferential tariffs for cross-border payments to legal entities, some do not charge the costs of foreign banks, while some banks announced that they have a small number of transactions with the Republic of Serbia, so this does not justify the costs of increasing the complexity of the system.
“Some credit institutions have a strategic position that the path to the optimal model should be sought within the framework of existing strategic initiatives for the improvement of cross-border payments that include all the countries of the Western Balkans, as well as in the context of the potential brought by the European perspective of the countries of the region. According to them, it would be a model that will to provide modern and efficient payment transactions and added value for market participants and users of payment services”, according to the CBCG.
They say that they will continue discussions with the non-systemic credit institution that has expressed interest in principle in joining the clearing of international payments with the Republic of Serbia and Bosnia and Herzegovina so that it will receive as precise information as possible about costs and all other necessary prerequisites before making a decision.
The CBCG points out that with the aforementioned activities, they have exhausted their mandated frameworks related to joining the clearing of international payments with the Republic of Serbia and Bosnia and Herzegovina.
They note that when it comes to the implementation of the agreement on the clearing of international payments in foreign currency, they do not have the mandate to influence the commercial affairs and conditions of banks, and that they cannot oblige credit institutions which payment system they will use when performing international transactions with financial institutions in the Republic of Serbia or any other country, except in the case of activities that would have a direct impact on financial stability, which, as they point out, is not the case here.
In 2020, banks earned 1.7 million euros and spent 2.48 million euros
The CBCG states that by analyzing the level of fees calculated on the basis of payment transactions with the Republic of Serbia, which they conducted in October, they determined that the banks’ income on this basis in 2020 was 1.7 million euros, or 2.48 million euros in 2021.
“The total value of sent and received international payment transactions to and from Serbia amounts to 998.2 million euros in 2020, i.e. 1.48 billion euros in 2021. Credit institutions earned income from fees based on sent and received international payment transactions to and from Serbia 1.7 million euros in 2020, i.e. 2.48 million euros in 2021. This means that on this basis credit institutions earned 0.17% of the total value of transactions, of which six out of 11 credit institutions on this basis, the institution’s income was less than 100,000 euros per year,” said the CBCG.
Seek a solution under the auspices of the Berlin Process
When asked how to solve this long-standing issue, the CBCG points to the analysis of the World Bank from March of this year, which, as they state, unequivocally shows that the implementation of the project under the auspices of the Berlin Process – the creation of a multilateral arrangement connecting the central banks of the Western Balkans with the European Central Bank (ECB) – TARGET Instant Payment Settlement (TIPS) is the most optimal and efficient option for providing cheap and fast cross-border payments.
“TIPS is a new market infrastructure service launched by the Eurosystem in November 2018. It enables payment service providers to offer funds transfers to their customers in real time and around the clock, every day of the year. This means that thanks to TIPS, citizens and companies can transfer money to each other within a few seconds, regardless of the working hours of their local bank. In this particular case, for Montenegro, this would mean a significant reduction in costs for participants in the payment system, with 24-hour availability for international payment transactions not only with with the Republic of Serbia, but also with all the countries of the Western Balkans, as well as with EU members,” explained the CBCG.
They note that last month the governor of the CBCG, Radoje Žugić, sent a joint request to the ECB with the governors of the countries of the Western Balkans, for the implementation of that solution.
“The ECB is currently considering this request, which would ensure efficient cross-border payments in the Western Balkans in a systemic way,” the Central Bank of Serbia told Portal RTCG.
One of the reasons for the lack of direct payments between the two countries was that Montenegro is not part of the eurozone, but only uses the euro as currency.
“Given that Montenegro uses the euro, the process of establishing international payment traffic through the Berlin process will be as simple as possible. CBCG is developing payment traffic in three directions: for internal payment traffic, EU-compatible instant payment, which will initially be compatible with SEPA and to EPC requirements (a tender for this project will be launched soon); Creation of a multilateral arrangement connecting the central banks of the Western Balkans with TIPS ECB; Creation of a national regulatory framework for joining SEPA, the single European payment area”, concludes the CBCG, local media reports.