BANKING OMBUDSMAN ANNUAL REPORT 2014 · 2016-07-07 · Banking Ombudsman’s right on...

MONTENEGROBANKING OMBUDSMAN

BANKING OMBUDSMANANNUAL REPORT 2014

Podgorica, 2015

PUBLISHED BY: Banking Ombudsman Ulica Miljana Vukova bb 81000 Podgorica Tel: +382 20 230 695, 230 063 Fax: +382 20 230 695

WEB SITE: http://www.bankarskiombudsman.org

PREPARED BY: Banking Ombudsman, Assist. Prof. Halil Kalač

DESIGNED BY: Andrijana Vujović Nikola Nikolić

TRANSLATED BY: Translation Services Division, Central bank of Montenegro

Users of this publication are requested to make reference to the source of information whenever they use data from the Report.

CONTENTS

I INTRODUCTION 7

II PROTECTION OF BANKS’/MFIS’ CLIENTS/GUARANTORS 9

2.1. Banking Law 9

2.2. Consumer Credit Law 10

2.3. Law on Consumer Protection 11

III REGULATION ON BANKING OMBUDSMAN OPERATIONS 13

3.1. Banking Ombudsman competences 13

3.2. Banking Ombudsman’s authorisations 15

3.3. Out-of-court settlements conducted by the Banking Ombudsman 16

3.4. Banking Ombudsman decision-making 16

3.5. Cessation of proceedings before the Banking Ombudsman 17

3.6. Banking Ombudsman’s right on recommendation and opinion 17

IV WORKING CONDITIONS OF THE BANKING OMBUDSMAN 18

4.1. Material and technical conditions 18

4.2. Administration 18

4.3. Finances 18

V BANKING OMBUDSMAN`S SCOPE OF WORK 19

5.1. Banking Ombudsman 2014 Work Programme 19

5.2. Engagement in carrying out the Action Plan for the implementation of the National Consumer Protection Programme 2012-2015 20

5.3. Implementation of the Banking Ombudsman 2014 Work Programme 21

5.4. Implementation of the recommendation from Banking Ombudsman consultative hearing 21

VI BANKING OMBUDSMAN’S COOPERATION WITH THE COMMITTEE ON ECONOMY, FINANCE AND BUDGET OF THE PARLIAMENT OF MONTENEGRO, CBCG, BANKS, MFIs AND THE WORLD BANK 23

6.1. Cooperation with the Committee on Economy, Finance and Budget of the Parliament of Montenegro 23

6.2. Banking ombudsman’s cooperation with the CBCG 26

6.3. Banking ombudsman’s cooperation with banks and MFIs 26

6.4. Cooperation with the World Bank 29

VII BANKING OMBUDSMAN’S COOPERATION WITH OTHER INSTITUTIONS 30

7.1. Banking Ombudsman’s cooperation with NGOs 30

7.2. Cooperation of the Banking Ombudsman with the media 30

VIII DATA ON BANKING OMBUDSMAN’S OPERATIONS 32

8.1. Keeping records of clients and guarantors whose financial rights have been violated and correspondence with banks and MFIs 32

8.2. Data on loans granted and clients’ indebtedness with banks and MFIs in 2014 32

8.3. Statistical indicators of Banking Ombudsman’s operations 35

8.3.1. Admission of clients and guarantors 35

8.3.2. Clients’ and guarantors’ objections 37

8.3.2.1. Clients’ objections 38

8.3.2.2. Objections of guarantors on loans 39

8.3.3. Settling of clients’ and guarantors’ objections 40

8.3.4. Structure of clients’ and guarantors’ objections 41

8.3.5. The manner of settling clients’/guarantors’ objections 42

8.3.6. Processed clients’/guarantors’ objections 43

8.3.6.1. Structure of processed clients’/guarantors’ objections by year of concluded loan arrangements with banks/MFIs 43

8.3.6.2. Structure of the processed clients’ and guarantors’ objections by municipalities 44

8.3.7. Processed clients’/guarantors’ objections in 2014 45

8.3.7.1. Processed clients’/guarantors’ objections by the type of banking product 46

8.3.7.2. Types of processed guarantors’ objections 47

8.4. Processed clients’/guarantors’ objections to banks/MFIs 47

8.4.1. Banks subject to clients’ and guarantors’ objections 48

8.4.2. MFIs subject to clients’ and guarantors’ objections 49

IX BANKING OMBUDSMAN’S ACTIONS ON CLIENTS’ AND GUARANTORS’ OBJECTIONS 51

9.1. Settling of the clients’/guarantors’ objections (requests) before the Banking Ombudsman 51

9.1.1. Settling of verbal objections 51

9.2. The manner of settling processed clients’/guarantors’ objections 52

9.3. Completed proceedings upon clients’/guarantors’ objections by banks 53

9.4. Completed processed proceedings referring to MFIs 54

9.5. Banks’ and MFI’s action on clients’ and guarantors’ objections 55

9.5.1. Protection of clients and guarantors pursuant to the Banking Law 55

9.5.2. Banks’ and MFIs’ actions upon the clients’ and guarantors’ objections 57

9.5.2.1. Internal proceeding 57

9.6. Banking Ombudsman urgent requests to banks and MFIs 57

X BANKING OMBUDSMAN’S RECOMMENDATIONS TO BANKS AND MFIs AND THEIR IMPLEMENTATION 58

XI LEGISLATION IN PARLIAMENTARY PROCEDURE 61

11.1. Bill on Voluntary Financial Restructuring of Debts towards Financial Institutions 61

XII CONCLUSIONS, ASSESSMENTS AND SUGGESTIONS 63

12.1. Conclusions and assessments 63

12.2. Suggestions 64

XIII ANNEXES 65

13.1. Banking ombudsman work programme for 2015 65

13.2. Recommendation No. 01- 14/1 71

13.3. Financial plan for 2015 73

7I • Introduction

I INTRODUCTION

The Banking Ombudsman (the Protector of Clients’ Rights and Rights of Financial Institutions) submits the Banking Ombudsman Annual Report for 2014 to the Parliament of Montenegro. Pursuant to the Banking Law (OGM 17/08, 44/10, 40/11) and the Decision on the Banking Ombudsman (OGM 15/09, 2/12), the Banking Ombudsman has sub-mitted quarterly reports to the Central Bank of Montenegro (CBCG).

The Banking Ombudsman Annual Report contains an overview of:

• Activities on the implementation of the Action Plan of the Government of Montenegro – the Ministry of Econ-omy - for the implementation of the National Consumer Protection Programme 2012 – 2015;

• Activities on the implementation of the Banking Ombudsman Work Programme for 2014;• Statistical indicators of the Banking Ombudsman operations in the reporting period;• Citizens’ credit indebtedness, type and the causes of clients’/guarantors’ disputes with banks/MFIs, as well as

the actions taken upon their objections;• The actions aimed at the protection of clients’ rights that the Banking Ombudsman took upon their objections;• Proceedings which the Banking Ombudsman conducted regarding the protection of clients’/guarantors’ fi-

nancial rights;• Suggestions and recommendations to banks/MFIs for settling the disputes with clients/guarantors;• Statistics on the objections of banks’/MFIs’ clients/guarantors acted upon by the Banking Ombudsman;• Observations, conclusions on the clients’/ guarantors’ financial rights;• General assessment of the status of the clients’/guarantors’ financial rights in banks/MFIs and recommenda-

tions to banks/ MFIs for improving these rights.

The report is aimed at providing the CBCG, the Parliament of Montenegro, the Government of Montenegro – the Ministry of Economy, the banks and the MFIs and other entities, with the insight into the Banking Ombudsman’s work on settling the objections of banks’/MFIs’ clients/guarantors and the protection of their rights. The report con-tains the presentation of problems, difficulties and irregularities faced by clients and their guarantors in exercising their financial rights with banks and MFIs, as well as the measures and activities the Banking Ombudsman has taken throughout 2014 with a view to protecting their rights and removing the irregularities identified in banks’/MFIs’ operations.

The report contains an overview of the activities taken on the implementation of the Banking Ombudsman Work Programme for 2014, statistical indicators on submitted clients’/guarantors’ objections regarding the protection of

8 Banking Ombudsman • Annual Report 2014

their financial rights, the type and the causes of objections and conducting out-of-court proceedings, and the action taken by banks/MFIs upon clients’ objections. The report also contains an overview of actions taken by the Banking Ombudsman upon the clients’ requests, regarding the protection of their financial rights, suggestions and recom-mendations given to banks/MFIs aimed at settling the disputes with their clients. The report contains observations, conclusions and the assessment of the financial rights exercised by clients/ guarantors, and banks/MFIs over the reporting period.

In his operations, the Banking Ombudsman has obtained the data indicating the justification of submitted requests of clients/ guarantors for the protection of their financial rights. In addition, the report states the presence of obstacles in the exercising of these rights, existence of difficulties in the client/guarantor – bank/MFI relation and the difficulties in the management of the banks’/MFIs’ relations with clients and their guarantors.

The Banking Ombudsman expects the Parliament of Montenegro to carefully consider this report and take measures and activities within their powers and competence.

9II • Protection of banks’/MFIs’ clients/guarantors

II PROTECTION OF BANKS’/MFIS’ CLIENTS/GUARANTORS

Protection of clients is of utmost importance in preserving a sound market economy and population’s living stand-ard. The need to protect banks’/MFIs’ clients has particularly been stressed due to the results of the global economic crisis and its effects on the country’s economy, the economic and financial position of economic entities (households, companies). Our country’s economy has been facing the economic and financial crisis since Q4 2008. Before that, business policies of banks and MFIs in the Montenegrin banking sector led an expansive lending policy. With a view to attaining their business objectives and to strengthen position at the market (and maximise profit), banks and MFIs increased their lending activity during the pre-crisis period, particularly during the period 2005-2008. Such business policy resulted in granting loans according to lower criteria for assessing the creditworthiness of loan applicants and their guarantors.

During the crisis and due to its effects, a considerable number of loan beneficiaries faced difficulties in loan repayment, while a number of loan beneficiaries were unable to repay their loans. In these cases, banks started collecting these loans from guarantors, and a large number of guarantors were forced to repay client’s loans. A significant number of clients and guarantors sought protection from the Banking Ombudsman.

2.1. Banking Law

In the Banking Law (OGM 17/08, 44/10 and 40/11), in the part V - Bank Performance, chapter 6 - Protection of Cli-ents, articles 87 – 92 regulate the area of the protection of clients and their guarantors.

Pursuant to article 87 of the Law, a bank shall inform the client, upon his request, on condition of the loan or deposit account and provide him with the access to other information that may be available to the client in accordance with this law.

Article 88 of this Law defines that a bank shall post in its business premises on a visible location general operating conditions and their amendments as well.

General operating conditions, in the meaning of this law, shall be each document that contains standard operating conditions that may be applied to all clients of the bank, general conditions that refer to the relationship between the clients and bank, communication between the clients and bank and the general conditions of performing transactions between the clients and the bank.


The client may require from the bank additional explanations and instructions that refer to the implementation of general operating conditions.

Pursuant to article 89 of this Law, a bank shall calculate and report lending effective interest rate on loans granted and effective deposit rate on deposits taken and inform clients and public on the amount of effective interest rates in the manner specified in the regulation of the Central Bank.

Article 90 provides that a bank may not condition its credit granting by the use of its other services or the services of any of the bank related parties, which are not in relation with the main business.

Pursuant to article 91,a client that deems that the bank does not meet obligations from the signed contract may submit an objection to the competent organizational unit or other body of the bank authorized for decision making upon clients’ objections. A bank shall respond to the complainant referred to in paragraph 1 of this article in a reasonable timeframe and not later than 30 days as of the day of submission of objection.

2.2. Consumer Credit Law

The application of the Consumer Credit Law began in February 2014. This Law represents the adoption of legislation, which is in compliance with the EU standards, i.e. the Directive 2008/48/EC.

The Consumer Credit Law regulates the conditions and the manner of concluding consumer credit agreement, in which the consumer (client) is loan beneficiary, information and rights related to such arrangements, database access, and the supervision and legal protection of the client. Credit agreement is an agreement whereby the creditor grants or promises to grant credit to a consumer in the form of a deferred payment, loan or other similar financial accommodation, other than the agreements for the provision of services on a continuous basis or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments. The Law prescribes the information which must be contained in any advertising concerning consumer credit agreements. The Law includes provisions regulating the advertising of credit arrangements as well as specific elements of standard information, which are provided for the client with a view to enabling the comparison of different offers. Such informa-tion must be provided in a clear, concise and prominent way by means of a representative example. Since in advertising, the effective interest rate can be indicated only by providing an example, the example should be representative.

The Law defines information which must be provided to the client prior to reaching any decision on the credit agree-ment.

With a view to ensuring the highest possible level of transparency as well as the possibility to compare offers, the Law defines which information should be provided to the client regarding the credit conditions and expenses, as well as regarding the client’s obligations. The client can keep such information. Information should include data on the effec-tive interest rate applied to that specific loan, and the total expenses of the credit shall comprise all expenses, including fees, credit intermediary expenses, costs of opening and maintaining a banking account, or costs arising from ancil-lary services agreements, and all the other expenses, which the consumer is obliged to pay in connection to the loan agreement, except for the notarial costs.

The content of such information is prescribed by the Central Bank of Montenegro in accordance to this Law. All the additional information in relation to the information which the creditor might possibly provide to the client must be provided within a separate document.

The law also prescribes the form of the contract so as to provide the consumers with the insight into their rights and obligations arising from the contract, which must comprise all the necessary information presented clearly and

11II • Protection of banks’/MFIs’ clients/guarantors

briefly. With a view to ensuring full transparency, the consumer needs to be given all the information on the effec-tive interest rate and during the contractual relation the consumer must be informed on the changes in the variable interest rate as well as on the consequential changes in payments. The creditor is also obliged to put a report in the form of a repayment plan at the disposal of the consumer. The Law introduces other important innovations, such as credit intermediaries and also regulates their role in the process of consumer credit conclusion. Credit intermediary is a natural or legal person who is not acting as a creditor and who, in the course of his business or profession, for a fee or other agreed form of financial consideration, presents or offers credit agreements to consumers, assists consumers by undertaking preparatory work in respect of credit agreements or concludes credit agreements with consumers on behalf of the creditor.

The consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In the event of early repayment of credit, the creditor shall be entitled to compensation for justified costs directly linked to early repayment of credit, provided that the early repayment falls within a period for which the interest rate is fixed. The client shall be entitled to a reduction in the total cost of the credit by the remaining amount of interest rates and other costs for the remaining duration of the agreement. The manner of calculation of the compensation payed to the creditor by the client must be transparent and intelligible in the pre-contractual stage, and the credit agreement must be presented to clients in a clear and brief manner. The method of calculation must be simple and easily applied. The amount of the compensation for costs is defined and it may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the due date under the credit agreement exceeds 12 months.

The Law also defines the concept of variable interest rate, which is aimed primarily at the achieving a higher level of transparency and client protection. Effective interest rate (EIR) represents the key information for the client. It is used as an indicator of total credit expenses and it is expressed as a percentage applied on annual basis to the amount of credit obtained.

Some creditors take into account different expenses in calculating the effective interest rate.

This Law clearly and comprehensively defines the total credit expenses of the client. The effective interest rate is deter-mined by using the methodology defined in an act of the Central Bank.

In line with this Law, the consumer has a right to one-sided termination of the credit agreement within a period of 14 days, without giving any reason.

In the event of assignment of the credit agreement or transfer of the creditor’s rights under a credit agreement to a third person, the consumer is entitled, with his objections regarding the new creditor, to present objections that he was able to present to the original creditor. The original creditor is obliged inform the consumer of the assignment of the agreement,

The implementation of this Law is carried out under the supervision of the Central Bank.

2.3. Law on Consumer Protection

Law on Consumer Protection is based on EU Acquis Communautaire. It includes directives relating to the fundamen-tal rights of consumer protection, and directives regulating the consumer rights protection system.

Protection of the collective interests of consumers

The Law provides consumers with the possibility of filing a collective action for prohibition and prevention of unfair business practices and contractual provisions. In case the contracts contradict the regulations referring to consumer


protection, a collective action will be filed by public-legal entities or an organisation for consumer protection. In line with the provisions of this chapter of the Law, an individual consumer does not have active legitimation in the litiga-tion proceedings. The aim of collective action is to obtain a court-ordered prohibition on the future continuance of the actions which violate the collective interests of consumers, and, if possible, to remove the harm caused. The Law provides the possibility of collective protection of consumers’ rights referring to all actions which contradict current rules of consumer protection, set in this or any other law.

Extra-judicial protection

The Law also regulates the extra-judicial mechanisms for the settlement of consumer disputes, with a view to enabling the individual consumer to protect their rights in case of a dispute, without it necessary including spending significant time and money, or the usual formalities and lengthiness of court proceedings. Thus also relieves the pressure from the courts. The Banking Ombudsman conducts the extra-judicial proceedings for banks and MFIs. Board for out-of-court resolution of consumer disputes is an independent body, acting within the Chamber of Commerce of Montenegro.

Implementation of consumer protection

The Law regulates the consumer protection system, i.e. it sets the position and determines obligations of protection actors on the state and local levels, more closely defines the role, scope, financing and representing of the consumers by nongovernmental organisations for consumer protection, as well as the consumer information and education system.

The National Consumer Protection Programme

The strategic programme of Montenegro defines the policy of consumer protection and priority activities and condi-tions for its implementation. The Law prescribes that, every three years, a National Consumer Protection Programme should be adopted, containing an Action Plan for its implementation.

Pursuant to this Law, providers of consumer protection are the Government, Ministry, and other state administration authorities responsible for implementation of the consumer protection policy, Consumer Protection Council, local self-government units, Chamber of Commerce and other associations of participants on the market and consumer organisations that cooperate closely with a view to implementing consumer protection policy.

Information and Education of Consumers

This Law provides that consumers have the right to information and education on the basic consumer rights. Pursuant to this Law, consumers’ right to information and education is exercised in pre-school institutions, elementary and sec-ondary schools, faculties, consumer’s organisations and by means of public information. With a view to implementing this right, the Law defines the cooperation among competent ministries in preparation of curricula for consumer pro-tection within educational curricula, as well as their cooperation with educational institutions, and implementation of other activities of providing information and education in the field of consumer protection.

13III • Regulation on Banking Ombudsman operations

III REGULATION ON BANKING OMBUDSMAN OPERATIONS

3.1. Banking Ombudsman competences

Regulation defines the competences of the Banking Ombudsman. Regulation referring to the Banking Ombudsman operations, and its competences and authorisations is contained in the Banking Law (OGM 17/08, 44/10, 40/11) and the Decision on the Banking Ombudsman (OGM 15/09, 2/12).

The protection of financial rights of banks’/MFIs’ clients and guarantors is one of main objectives and tasks of our country. The degree of the realisation of this task has a significant influence on the achievement of a sound economy, its further development, financial stability as well as the achievement of better living standard. Violation of clients’ and guarantors’ rights is a parameter indicating the quality, stability and progressiveness of the banking system and financial institutions in each economy.

In modern market economy there are economic, i.e. financial systems with lower or higher degree of clients’/guaran-tors’ financial rights violation. Economically advanced countries confront the violation of financial rights in two ways.

1. By establishing overall legal system and taking measures to ensure legality in the operations of financial insti-tutions engaged in providing financial products and services, as well as the reinforcement of accountability for each illegality and financial rights violation.

2. By establishing a special, autonomous and independent institution, with the main goal to protect the financial rights from malpractices, illegal operations and abuse, and which has significant competences and authorisa-tions.

The Parliament of Montenegro adopted the Banking Law, defining the competence of the Banking Ombudsman in Article 92, while the CBCG adopted the Decision on the Banking Ombudsman. Thus the function of the protector of banks’ and MFIs’ clients is established as an independent entity, not an independent institution. Montenegro was among the first countries in the region to introduce the protector of clients of banks, MFIs and credit unions.

The establishing of the Banking Ombudsman as an independent entity, and his introduction into our jurisdiction was primarily induced by the necessity to provide an efficient and high quality institutional protection of the rights of clients of banks, MFIs and credit unions, additionally reinforcing Montenegro’s position of a country founded on the principles of the rule of law. In addition, the introduction of the Banking Ombudsman into the Montenegrin legal sys-


tem is significant from the aspect of the obligation to align Montenegrin legislation with the Acquis Communautaire and international standards in this area.

The experience and practice of the countries which have introduced the Banking Ombudsman, and the number of countries in which the Banking Ombudsman operates, undoubtedly confirm the necessity to introduce the protector of clients of banks, MFIs and credit unions into our system. In particular, the introduction of the Banking Ombuds-man is important for countries in transition since it proved to be one of the most efficient means of out-of-court super-vision of banks, MFIs and credit unions as well as the transformation of banking system into efficient banking system.

The Banking Ombudsman pursues a far wider mission, i.e. the improvement of the protection of clients and guaran-tors of banks and MFIs, within the entire protection system, and improving of financial education aimed at better understanding and use of financial products and financial markets, primarily the money market. Concurrently, its operations are aimed at supporting the more complete realisation of legality and good banking practice, on the model of advanced financial systems.

The protector of the rights of clients of banks, MFIs and credit unions in Montenegro has several specific features which are defined in legislation:

1. The Banking Ombudsman is not a separate authority, but a person elected by the Parliament who in any way does not interfere with the existing system of banks’/MFIs’ operations surveillance, but shall complement it.

2. The Banking Ombudsman is neither a replacement, nor a competition to any of the existing institutions, and shall not assume any of their functions.

3. The Banking Ombudsman has the power to neither change nor abolish acts of banks and MFIs, nor to pre-scribe sentences for illegal wrongful performance of activities.

4. In the out-of-court settlement, the Banking Ombudsman points to the violations of financial rights of clients and their guarantors, request the removal of irregularities, and propose settlement or the change of action or acts that have led to the violation of the financial right.

5. The activities of the Banking Ombudsman shall be expressed in the form of internal or public recommenda-tions, proposals, advices, initiatives, etc. having no binding legal power towards banks and MFIs.

6. The Banking Ombudsman is a person the clients can consult, free of charge and without particular formalities, for the protection of their financial rights.

The Banking Ombudsman shall adhere, in his operations, to the principles of fairness, independence, justice, equity, availability, consistency and informality.

Proceedings before the Banking Ombudsman shall be classified, and no person filing an objection or participating in any way in the ongoing proceedings, shall not be called for responsibility, nor be put in an unfavourable position on that account.

To protect clients’ financial rights adequately, the Banking Ombudsman establishes good communication with the Ministry of Economy, the Committee on Economy, Finance and Budget of the Parliament of Montenegro, the CBCG, the Association of Montenegrin Banks, banks, MFIs, NGOs, media and other entities participating in the clients’ and guarantors’ rights system.

Protector of clients of banks, MFIs and credit unions (the Banking Ombudsman):

1. Conducts the out-of-court proceedings upon clients’/guarantors’ objections. 2. Protects and strengthens the rights of clients and their guarantors by resolving issues of general importance.3. Works in cooperation with relevant institutions and organisations engaged in the financial rights protection.


Article 92 of the Banking, Law and the Decision on the Banking Ombudsman define the capacity, authorities, condi-tions, and the proceedings of clients’ rights protection:

• protects the financial rights of the clients of banks, MFIs and credit unions, secured by law and contract when they are violated by the acts, actions or failure to act of the banks, MFIs or credit unions in line with the law and best banking practice;

• Admits clients and guarantors whose rights have been violated;• Receives requests of clients and guarantors;• Considers requests (objections) of clients and guarantors;• Conducts out-of-court settlement of disputes;• Suggests settlement or another manner of the finalisation of the dispute to the parties;• Advises clients with respect to the further conduction of the dispute;• Gives recommendations to banks, MFIs, and credit unions for the improvement of their relationships with

clients;• Performs other operations contributing to the accomplishment of clients’ rights protection.

3.2. Banking Ombudsman’s authorisations

The Banking Ombudsman’s authorities are defined in the Banking Law and the CBCG Decision on the Banking Om-budsman. These legal acts define that the bank and the MFI, upon the request of the Banking Ombudsman, submit information and evidence on whether an internal proceedings on the subject of dispute was conducted upon the re-quest of client/guarantor, and if so, whether, during that proceedings, it assessed disputable facts and decided upon the client’s request for the protection of his rights, in accordance with the law and internal acts of a bank and/or MFI.

During the proceedings, the Banking Ombudsman may request from a bank or an MFI additional documentation and evidence necessary for the regular and complete determination of actualities and for assuming an attitude in dispute resolution.

In case the bank and/or MFI does not submit requested documentation in the written form, the Banking Ombudsman makes a written statement and delivers that statement to the client/guarantor together with written position or advice to the client on his further rights. The Banking Ombudsman may inform the public on the bank’s or MFI’s actions through media, in the actual case, if the client discloses such information.

In its quarterly reports, the Banking Ombudsman delivers detailed data individually on each bank and the MFI and on their acting in disputes with clients and their debtors. In its Annual Report, the Banking Ombudsman submits in-dividual data on which banks and MFIs violated the Banking Law with regard to the obligation of conducting internal proceedings.

At a meeting held on 7 May 2012, the Committee on Economy, Finance and Budget of the Parliament of Montenegro, held a consultative hearing on the subject: “Implementation of the Banking Law in the Part Referring to the Banking Ombudsman”.

The legal framework for the competences and authorities of the Banking Ombudsman was discussed, inter alia.

Due to problems, difficulties and irregularities that clients and their guarantors are facing in acquiring their financial rights with the banks and MFIs and with a view to their more efficient and in-depth resolution, the Committee as-sessed that the Banking Ombudsman’s authorities should be increased, similarly to other countries that have estab-lished the Banking Ombudsman. The procedure for amending the legislation to that end did not start in 2013 or in 2014.


3.3. Out-of-court settlements conducted by the Banking Ombudsman

One of the manners to protect financial rights of clients and guarantors is the out-of-court proceeding. The Banking Ombudsman implements the protection of the rights of clients and guarantors through out-of-court settlement in line with the Banking Law and the CBCG’s Decision on the Banking Ombudsman. The proceedings of financial rights protection before the Banking Ombudsman may be initiated by the client of the bank or MFI, who considers that the act, activity or failing to act of the bank or the MFI have caused the violation of his rights.

A client of the bank or MFI may appeal to the banking ombudsman only if it has previously used all legal possibilities of protection of its rights in the proceedings before the bank or MFI.

The client or guarantor starts the proceedings before the banking ombudsman by submitting a written request (objec-tion) for the protection of rights, or by reporting a dispute in direct communication with the Banking Ombudsman, in case of which the banking ombudsman shall make a written statement on the initiation of the proceedings. The written request (objection) filed by the client/guarantor may be in the form of the questionnaire given by the banking ombudsman and filled in by the client/guarantor.

With the written request, the client shall submit the documentation and evidence of the rights violation. This is a precondition for conducting the proceedings and regular determination of actualities.

After the client has submitted the written request (objection) and documentation, the banking ombudsman shall in-troduce the client/guarantor with his rights.

The Banking Ombudsman shall conduct the proceedings for the resolution of the dispute occurred between the client/guarantor and the bank and/or MFI, in case he prejudged that the client already used all legal possibilities for protec-tion in the proceedings before the bank or MFI.

If the client/guarantor refuses to submit the requested documentation and evidence, the Banking Ombudsman may refuse to take into consideration the request (objection) of the client/guarantor.

The proceedings before the Banking Ombudsman do not prevent the client from initiating the lawsuit under the same matter before the competent court.

3.4. Banking Ombudsman decision-making

In the out-of-court proceeding, the Banking Ombudsman makes decisions pursuant to the Banking Law and the CBCG Decision on the Banking Ombudsman. In resolving the dispute between a client and a bank, the Banking Om-budsman may:

• Suggest settlement between the client/guarantor and the bank/MFI;• For the purpose of dispute settlement, recommend to the bank/MFI to amend the act, take actions or remove

drawbacks which have influenced the dispute between the client/guarantor and the bank/MFI;• Advise the client regarding to the finalization of the dispute.• After the proceeding, the Banking Ombudsman makes a position on the manner of dispute resolution be-

tween the client and the bank/MFI and delivers it in the form of the suggestion or recommendation for dispute resolution to the client/guarantor and to the bank/MFI.


3.5. Cessation of proceedings before the Banking Ombudsman

Pursuant to the provisions of the Banking Law and the CBCG Decision on the Banking Ombudsman, the Banking Ombudsman may cease the already initiated out-of-court proceeding when:

• It is determined that the bank/MFI has removed the violation of the client’s/guarantor’s rights; ;• The client has refrained from the request (objection) or has withdrawn the request (objection);• It is determined that the client has initiated the proceedings for the rights protection before the competent

court.

3.6. Banking Ombudsman’s right on recommendation and opinion

Pursuant to the provisions of the Banking Law and the CBCG Decision on the Banking Ombudsman, the Banking Ombudsman may give recommendations to banks/MFIs. On the basis of information and findings gathered in the proceedings he conducted, the Banking Ombudsman gives recommendations to banks/MFIs for the improvement of the relations with clients/guarantors in their operations. The recommendations refer primarily to improving manage-ment of relations to clients, improving application of good banking practice in banks’/MFIs’ operations, and resolution of individual disputes between clients/guarantors and banks/MFIs.

Once determining that violations of clients’ rights are caused by negligent and illegal acts of bank’s/MFI’s employees, the Banking Ombudsman may recommend the bank/MFI to impose adequate measures.


IV WORKING CONDITIONS OF THE BANKING OMBUDSMAN

4.1. Material and technical conditions

The Banking Law sets out that the CBCG provides material and technical working conditions for the Banking Om-budsman’s operations. The CBCG has provided the Banking Ombudsman with two offices in the CBCG building in Miljana Vukova St. in Podgorica. The Banking Ombudsman’s office is equipped with furniture, computer, printer, and telephone.

The office of the senior adviser for legal affairs and administrative secretary is equipped with furniture, computers, telephone, fax, scanner, copy-machine and other necessary inventory.

4.2. Administration

The CBCG employees perform administrative-technical operations for the Banking Ombudsman. The CBCG hired one law graduate – senior adviser and an administrative secretary to serve the Banking Ombudsman’s purposes.

4.3. Finances

The CBCG provides the finances for the Banking Ombudsman’s operations. In 2014, the CBCG Financial Plan for 2014 planned the amount of 60,383.00 euros for the Banking Ombudsman. The main share in expenses referred to administration expenses in the amount of 41,066.00 euros, followed by operating expenses (property maintenance, deprecation expenses) in the amount of 12,526.00 euros, and other expenses in the amount of 700.00 euros.

19V • Banking Ombudsman`s scope of work

V BANKING OMBUDSMAN`S SCOPE OF WORK

The establishment of the Banking Ombudsman in Montenegro in December 2010 introduced the protection of clients’ financial rights, similar to the one seen in market economies and their manner of operation, because the client is an important entity in financial markets, i.e. market economy. This type of protection makes the clients of banks/MFIs safer market participants, and provides better protection of the rights of clients as well as guarantors.

The global economic and financial crises impact induced the increase in the necessity to protect banks’/MFIs’ clients. This was primarily required due to the credit boom caused by banks and MFIs.

5.1. Banking Ombudsman 2014 Work Programme

The 2014 Work Programme specifies that, as a protector of the financial rights of clients of banks, MFIs and credit unions, and as an independent party, in the out-of-court settlements, the Banking Ombudsman participates in the resolution of disputed issues between clients and banks, i.e. MFIs and credit unions.

The most important programme commitments of the Banking Ombudsman in 2014 were:

• Admission of clients/guarantors at their request;• Analysis and resolution of requests for protecting the financial rights of banks’/MFIs’ clients in 2014;• Banking Ombudsman’s cooperation with the Government of Montenegro – Ministry of Economy and other

Ministries, banks, MFIs, the CBCG, the Association of Montenegrin Banks, courts, NGOs, the media and oth-er entities with a view to achieving higher degree in the protection of clients’/guarantors’ rights in Montenegro;

• Engagement in the application of EU standards in the area of protecting consumers - clients and guarantors;• Engagement in increasing clients/guarantors financial education by preparing educational material and or-

ganising educational forums.

The Banking Law (Article 92) and the Decision on the Banking Ombudsman set out competences, conditions and modus operandi of the Banking Ombudsman. Pursuant to the relevant legislation, the Banking Ombudsman carries out the following tasks:

• Reviews clients’/guarantors’ objections;• Initiates and conducts out-of-court proceeding of dispute resolution;• Proposes to disputed parties a settlement or other way of completion of a dispute;


• Advises clients with respect to the further conduction of the dispute;• Gives recommendations to banks/MFIs and credit unions for the improvement of their relationships with

clients;• Performs other operations contributing to the accomplishment of protecting clients’ rights.

5.2. Engagement in carrying out the Action Plan for the implementation of the National Consumer Protection Programme 2012-2015

The protection of clients’ rights is one of important systems of preserving the soundness of the economy and the living standard. The protection of clients’ financial rights is also an important condition for building the financial market and ensuring its high quality performance.

In 2014, the Banking Ombudsman was engaged in carrying out the Action Plan for the implementation of the National Consumer Protection Programme 2012-2015, with a view to implementing planned activities directed towards the introduction of European standards in this area.

a) Implementation of the Action Plan for the implementation of the National Consumer Protec-tion Programme 2012-2015

The Banking Ombudsman was engaged in carrying out the Action Plan for the implementation of the Government’s National Consumer Protection Programme 2012-2015, in the part referring to the protection of financial rights of clients and their guarantors.

The reinforcement of the rights of clients of banks and MFIs in 2014 was carried out through:

• Implementation of the new Consumer Protection Law in Montenegro;• The start of application of the new law referring to consumer financing – the Consumer Credit Law • Improvement of the clients’ awareness through media and improvement of the Banking Ombudsman’s web-

site;• Improvement of the mechanisms for resolving disputes between clients and banks/MFIs through banks’/

MFI’s programmes for protecting their clients/guarantors;• Improvement of client education through educational activities of banks/MFIs and other entities.

b) Education of clients (educated client – protected client)

The National Consumer Protection Programme in Montenegro has identified education entities. The Programme envisages the introduction of client (consumer) protection into the educational system of primary and secondary schools, and other educational institutions.

Higher level of financial education of clients may be achieved through:

• Raising the level of information on banking products and their use; • Expanding the banks’/MFIs’ employees’ financial education related to working with clients.

Banks and MFIs need to make additional efforts in educating their clients as well as their employees, particularly those that communicate with clients.

21V • Banking Ombudsman`s scope of work

5.3. Implementation of the Banking Ombudsman 2014 Work Programme

The 2014 Work Programme defines the basic tasks and activities of the Banking Ombudsman. The Programme primarily envisages activities on the actualisation of the implementation of the National Consumer Protection Pro-gramme 2012-2015 as a basic activity defined in article 92 of the Banking Law, and the Decision on the Banking Ombudsman.

Programme commitments of the Banking Ombudsman arise from its mission and the following basic objectives:

• Resolution of disputes between clients and banks/MFIs through out-of-court proceedings;• Implementation of legislation referring to the area of clients’ financial rights protection; • Implementation of the EU standards in this area adopted so far;• Education – increasing the level of financial literacy;• Improving clients’ level of information;• Insisting on the improvement of client protection with banks through improvement of client – bank/MFI

management.

The 2014 Work Programme is based primarily on provisions of Article 92 of the Banking Law, and the Decision on the Banking Ombudsman. These legal acts define the competences, conditions and modus operandi of the Banking Ombudsman. It is specified that, as a protector of the financial rights of clients of banks, MFIs and credit unions, and as an independent party, in the out-of-court settlements, the Banking Ombudsman participates in the resolution of disputed issues between clients and banks, i.e. MFIs and credit unions.

In 2014, the Banking Ombudsman carried out the following activities:

• Admission of clients and guarantors and responding to telephone calls;• Admission and recording of clients’/guarantors’ objections (requests) for financial rights protection;• Initiation of proceedings upon the clients’/guarantors’ oral objections;• Resolution of disputes upon clients’/guarantors’ objections;• Cooperation with the World Bank representatives on the manner of legal and natural persons’ non-perform-

ing loans workout, attending seminars and workshops on this subject;• Monitoring the implementation of new regulations, Consumer Credit Law and Law on Consumer Protection,

and insisting on the harmonisation of legislation and banking practice of banks and MFIs with the EU regula-tions;

• Cooperation with other entities in the area of client protection (NGO sector, legal authorities, inspections), to improve clients’ financial rights protection;

• Ensuring the improvement of financial education of clients – increasing the level of financial education of citizens (clients);

• Cooperation with the media, and engagement in the improvement of the level of information of clients’ and guarantors’ as well as citizens on the protection of their rights regarding banks and MFIs.

5.4. Implementation of the recommendation from Banking Ombudsman consultative hearing

Considering the significance of the recommendations of the Committee on Economy, Finance and Budget of the Par-liament of Montenegro given at a meeting held on 7 May 2012, when a consultative hearing on the subject: “Implemen-tation of the Banking Law in the Part Referring to the Banking Ombudsman” was held, the most important parts are presented in the following text. The Committee has concluded as follows:


• Since it is evident that present legal authorities are insufficient for attaining his function, it would be necessary to define the Banking Ombudsman’s status in order to implement assumptions of a more significant influence on eliminating banks malpractices by setting out of legal authorities and responsibilities in a precise manner;

• To shorten the proceedings and end disputes in proceedings in a more timely manner, the legal basis should be created by amending the Banking Law to sanction banks/MFIs that do not submit information and docu-ments to the Banking Ombudsman in due time;

• With a view to improving relations to clients/guarantors, banks/MFIs should increase the information of their clients by providing information and required data upon the written requests of guarantors/clients;

• Pursuant to Article 91 of the Banking Law, banks/MFIs are obliged to conduct internal proceeding upon the submitted proceeding and to provide statement on declared facts in dispute;

• Taking into consideration the effects of the economic crisis and large number of past due loans and loans not-repayable at all, banks and MFIs need to adopt client and guarantor protection programmes to be able to restructure loans, or otherwise facilitate clients’ and their guarantors’ loan obligations;

• Interest rates in Montenegro’s banking sector are high and additionally burden the economy, threatening its profitability and liquidity, and affecting population’s living standard unfavourably. Banks and MFIs are obliged to inform the clients and the public on the amount of lending and deposit effective interest rates;

Recommendations adopted by the Committee that referred to the Banking Ombudsman’s operations were not imple-mented in 2014.

23VI • Banking Ombudsman’s cooperation with the Committee on Economy ...

VI BANKING OMBUDSMAN’S COOPERATION WITH THE COMMITTEE ON ECONOMY, FINANCE AND BUDGET OF THE PARLIAMENT OF MONTENEGRO, CBCG, BANKS, MFIs AND THE WORLD BANK

6.1. Cooperation with the Committee on Economy, Finance and Budget of the Parliament of Montenegro

As at 10 March 2014, a consultative hearing regarding the issue of housing loans in Swiss Francs was held before the Committee on Economy, Finance and Budget of the Parliament of Montenegro.

The consultative hearing was attended by the representatives of Hypo Alpe Adria Bank (HAAB), CBCG, Association of Montenegrin Banks, the Banking Ombudsman and the representatives of the Ministry of Finance and the Centre for the Protection of Consumers (CEZAP).

The Banking Ombudsman has been receiving clients’ objections regarding the earmarked housing loans in Swiss Francs as of the beginning of their work in 2011. During the credit boom in 2006 and 2007, Montenegrin citizens took housing loans in Swiss Francs with the HAAB. Total number of performing loan sub-accounts is 5181.

Objections referred mainly to the fact that because of the significant change in the Swiss Franc to euro exchange rate since the beginning of the crisis (2009), the monthly instalments for loans granted by the HAAB have constantly been increasing.

Upon contacting the Banking Ombudsman (visits, phone calls, object submission), the clients presented the following objections:

1 Loans granted in Swiss francs are present in the South East Europe countries. These loans are widespread in the region, specifically in Serbia, Croatia and Bosnia and Herzegovina. In Serbia there are around 22,000 sub-accounts of housing loans in Swiss francs containing currency clause. Collective lawsuits were instigated against three banks. Reasons for the lawsuit are the recovery of the consequences the loan beneficiaries suffered due to the contracted currency clause in Swiss francs and unilateral interest rate changes.

In Croatia there are 120,000 sub-accounts of loans in Swiss francs. Collective lawsuits were instigated against eight banks because of the currency clause in Swiss francs and interest rate change. In Croatia, hearings upon this matter are already underway.

As per available data, in Bosnia and Herzegovina there are 10,000 sub-accounts of loans in Swiss francs. Collective lawsuit was instigated.


• Clients did not understand the banking product with the currency clause and the manner of its use;• The HAAB has not informed clients on possible risks in using the product;• The clients filed requests for HAAB’ loans in euros, and the pre-contract was signed in euros;• When final contracts were made, the CHF currency clause that the loan has the exchange value in euros was

included;• The clients were offered contracts containing deficiencies and formulations which provided a superior position

of HAAB in this loan arrangement; • Large number of clients signed the exchange risk clause after signing the loan contract, yet some clients did

not sign the statement;• Clients have been misled by the HAAB’s advertising activities;• After many years of settling obligations, clients’ debts have increased so that are they now indebted more than

when they had been granted the loan;• Regardless of the increased debt, i.e. the changes in primary loan repayment plan, they did not receive month-

ly calculations for increased debts, or new loan repayment plans;• They were informed on the increase of their debt amount at the HAAB counter when they went to settle the

obligation;• Clients were not informed on the interest calculation and the reasons for the debt amount increase arising

from it;• In their objections, the clients requested the HAAB to relieve them from difference in exchange rates, interests

and other increased costs, which the bank did not comply to;• Monthly instalments grew due to currency and interest clause, and they exceeded their monthly salaries;• The HAAB did not respond to their objections, verbal or written;• The HAAB transferred the complete risk to loan beneficiaries; • Clients did not understand the currency clause as explained by the HAAB, and it is unclear whether the cur-

rency clause is valid as at the contract date, or as at the obligation settlement date, and that they requested it to be valid as at the contract date.

The analysis of the objections gave rise to the following issues:

• ??That the loan agreements were deficient because of the above mentioned irregularities and illegalities;• ??That the HAAB violated the Law Contracts and Torts, Consumer Protection Law and the banking code;

The Banking Ombudsman’s proceedings

In line with the legislation, the Banking Ombudsman instigated the proceedings for out-of-court resolution of disputes with the HAAB upon clients’ objections, and received answers containing the HAAB’s position.

The HAAB’s position:

In its response, the HAAB stated that they granted earmarked housing loans in Swiss Francs and that, during the reference period, they actively informed all clients on risks they were assuming and the results of eventual changes in exchange rates that may appear in the future.

The HAAB pointed out that clients, beneficiaries of loans in Swiss Francs, were fully informed how the possible ex-change rates changes may affect the amount of their debt. The interest rate at which these loans were granted had been the most favourable in the market. The interest rate was this favourable over the following few years until early 2009, when exchange rates experienced high fluctuations. Prior to this, the Swiss Franc loan beneficiaries, were in more favourable position and had lower interest rates than the clients with loans granted in euros.

The Bank has offered the conversion of the total debt into euros.


In addition to regular loan documents, beneficiaries of loans in Swiss Francs also signed the statement of being fully aware of risks they were assuming. According to the loan contract provisions, the HAAB was willing to offer each client the conversion of debt into euros. Some solutions also offered rescheduling, with the possibility to prolong the repayment deadline. The contract has always guaranteed debt conversion from Swiss Francs to euros. The HAAB claimed that, during the loan contract duration, it did not correct initially contracted interest rates. HAAB also point-ed that, based on the placement of housing loans into Swiss Francs, it borrowed Swiss Francs.

The examination proceedings of the Banking Ombudsman

Through aggressive advertising, the HAAB placed the banking product “housing loans in Swiss Francs” at the Mon-tenegrin money market during the credit boom. This is a high-risk product, because both principal and interest are susceptible to change. During the period of use, this banking product proved to be highly problematic. It turned out that many clients did not understand the banking product and the manner of its use. The reasons were the insufficient awareness of clients on possible risks when using the product, and that they were misled by the advertising activities.

The contracts on this product, the rights and obligations of contracting parties contain many deficiencies and incom-pleteness. The loan contracts ensure the HAAB superior relation relative to the clients.

The currency clause was incompletely formulated in contract. As a result of currency clauses, this banking product’s beneficiaries had increased principal relative to the contracted one. After long period of loan repaying (six and more years), clients owe more than when they were granted loans. For these reasons, clients requested the currency clause to be valid as at the contract date, not as at the obligation settlement date.

The use of this banking product is accompanied by four types of interest; nominal, effective, intercalary and default. The nominal interest rate in this banking product differs from contract to contract. The contracts defined that the default interest rate is calculated according to bank’s business policy, which is an illegal manner of calculating interest in market economy.

The HAAB failed to send new loan repayment plans to clients when the obligations increased, which created additional confusion with the clients and induced fear of enormous increase of their debt. To find out their debt balance, clients had to visit the HAAB’s counters, where they were informed on their debts that increased month by month. Clients were not up to date with the debt increase arising from principal increase or from the interest on the increased princi-ple, or the increase due to LIBOR’s trends and whether there were changes in fixed margin. In the agreements made, the HAAB transferred the complete risk accompanying the banking products to loan beneficiaries.

The HAAB did not resolve problems arising from the use of this banking product. It insisted that problem might only be resolved by converting the total debt into loans into euros, with the possibility to prolong the repayment deadline, where they assessed it possible. Clients who did not accept such solution could resolve their requests only through court proceeding. Thus, the HAAB excluded the possibility of resolving the problem by agreement.

The Banking Ombudsman’s proposal for resolving the dispute

Today, it may be stated that housing loans in Swiss Francs product are not problematic only to its beneficiaries, but also to the HAAB, since it has been classified into the NPL portfolio.

The HAAB needs to settle with clients because, being professional, it could not anyhow offer the citizens loans refer-ring to Swiss Franc with variable interest rate and principal.

Such combination of variable interest rate and principal during the exchange rate fluctuation for a long-term period is completely unacceptable. The HAAB violated clients’ rights because it did not completely inform them on all param-eters necessary for decision making.


The HAAB did not explain the indebtedness risk in franks during the exchange rate fluctuations to its clients. The clients had been told that the interest rate on loans in Swiss Francs was more favourable. The risk stemming from the combination of the currency clause and the variable interest rate increased to limits making it completely unaccepta-ble. The statements of clients whose rights have been violated convincingly state that the HAAB suggested them that the Swiss Francs is a sound currency.

The solution is that the HAAB offers clients to amend the contract and to determine the principal in euros with fixed interest rate as at the date of signing the contract.

In the case that the deal is not made, the court proceeding should focus on the audit of the loan contract, pursuant to the principles of equivalency, fairness, diligence and equality of contracting parties, which assumes special economic anal-ysis and submitting concrete evidence which would be the basis for the application of the contracting law principles.

Since HAAB did not act accordingly to the clients’ objections in internal proceedings, and it refused to accept the Banking Ombudsman’s proposal for resolving the dispute, the clients decided to file a collective lawsuit. Some 230 clients approached CEZAP, with the objections regarding the housing loans in Swiss Francs. CEZAP filed a collective legal action before the court, because clients have been misled during the granting of the products as a result of inap-propriate loan contracts. The objective of the lawsuit is a fair loan. CEZAP believes that the HAAB misled clients by binding loan repayment to the Swiss Francs, and failing to point the clients to the high risk arising from the currency clause.

6.2. Banking ombudsman’s cooperation with the CBCG

As in the previous years, in 2014, the Banking Ombudsman regularly informed the CBCG on their operations, sub-mitted quarterly reports and the annual report on their operations, updated the CBCG on clients’ and guarantors’ objections to operations of banks and MFIs. Ombudsman also gave proposals and suggestions aimed at improving the situation in the area of client/guarantor protection. The Banking Ombudsman cooperated with the CBCG in the implementation of the new legislation in the area of consumer protection and consumer crediting, which applicable as of 2014.

6.3. Banking ombudsman’s cooperation with banks and MFIs

In line with his 2014 Work Programme, the Banking Ombudsman continued their cooperation with banks/MFIs, with a view to resolving clients’/guarantors’ objections, as well as the problems and difficulties in pursuing clients’ financial rights protection. In addition to resolving individual cases these contacts were aimed at:

• improving Banking Ombudsman’s cooperation with banks/MFIs and the successful resolution of problems arising from that cooperation;

• Improving the clients/guarantors protection programme by introducing innovations in the dispute resolution;

The Banking Ombudsman informed the chief executive officers and their associates on clients’/guarantors’ objections referring to their bank/MFI.

The Banking Ombudsman insisted that the banks/MFIs show better understanding of clients’/guarantors’ economic position caused by the economic and financial crisis, and that they comprehensively analyse the problems stated in clients’/guarantors’ objections referring to difficulties in loan repayment. Due to the consequences of the economic and financial crisis, it is necessary to accept more and more requests for loan restructuring, as well as for the reduction of interest rate and the total costs payed by clients/guarantors. By means of loan restructuring, the collection from mortgage and fiduciaries, and other forms of enforcement collection, which give rise to existential issues of clients/guarantors, should be avoided.


In their practice so far, the Montenegrin banks have not, within their statutory powers, done enough to collect the debts first from loan beneficiaries, and only then from guarantors. As a result, a large number of guarantors repay loans of people they guaranteed.

Due to significant number of guarantors that indicated the problem of repaying other’s loans, the Banking Ombuds-man requested from banks/MFIs to comply with the clients’/guarantors’ objections.

The Banking Ombudsman requested from banks’/MFIs’ management to settle disputes between the banks and cli-ents/guarantors through the internal proceedings before the bank/MFI more often.

The out-of-court settlement, a novelty in Montenegro, conducted by the Banking Ombudsman, should also be used more in resolving the disputes between banks and clients/guarantors. More efforts should be invested in raising the level of information and education of banks’ employees in direct contact with their clients.

Interest rates

The Banking Ombudsman stressed that the banking interest rates were too high and that entrepreneurs, households, as well as the professional public shared that view. With such high interest expenses and overall lending conditions, it is rather difficult to maintain the living standard and intensify economic activity. The Banking Ombudsman empha-sised that Montenegrin banking system needs to refocus on the client (consumer).

Pursuant to Article 92 of the Banking Law (OGM 17/08, 44/10 and 40/11) and Article 12 of the Decision on the Bank-ing Ombudsman (OGM 15/09 and 2/12), in the Recommendation dated 26 March 2014, the Banking Ombudsman requested the banks to lower their interest rates (nominal and effective) on overdrafts and credit cards of citizens.

The Banking Ombudsman justified the Recommendation by stating that the banks’ interest rates (nominal and effec-tive) on overdrafts and credit cards are unreasonably high; and that they burden the households’ income and budget as well as contribute to the living standard deterioration.

As at 1 January 2014, realised overdraft in the citizens’ (retail) current account sub-accounts amounted to 70,062 million, while the allowed overdraft was 28 million. Weighted average nominal interest rate (WANIR) amounted to 17.61% while weighted average effective interest rate (WAEIR) was 18.01% at the annual level (Source: Credit Registry – reports of banks and MFIs).

Retail credit card sub-accounts totalled at 33,173, with the contracted amount of debt amounting to 52.6 million euros and the real amount of debt being 29.1 million euros. WANIR amounted to 15.43%, while WAEIR was 15.70%, at the annual level. (Source: Credit Registry – reports of banks and MFIs).

Banks cannot justify such high interest rates on these banking products, and they should reduce them substantially.

The growth of the said interest rates continued in 2014, regardless of the fact that all the parameters indicated that they should be reduced.

Annual inflation rate was negative in January 2014. Deposit interest rates were below 3% in 2013, showing a declining trend in the first months of 2014. Retail deposits as well as total deposits are on an uptrend. With the minimised infla-tionary risk, the price of capital (deposits) below 3% at the annual level, deposits on a continuous uptrend, the logical question would be why the interest rates on overdraft remain at such high levels (around 24% in the first months of 2014), and on credit cards (a somewhat lower rate).

For comparison, interest rate on the banking product – overdraft in the EU amounts to 7.9%, in Croatia it is 11.39% and in Macedonia it is 11.2%.


Credit cards such as Visa or MasterCard are tied to the euro and limits and rates are denominated in this currency. Since the EURIBOR is below 1%, the question arises why are the interest rates on credit cards so high? Interest rates on credit cards in the neighbouring countries are around 14%, and 13.50% in the EU.

The Banking Ombudsman has requested the banks to provide information on the acceptance of the Recommendation and its implementation within 30 days.

The Recommendation of the Banking Ombudsman was delivered to the Chairmen of the Boards and CEOs of the banks, the CBCG and the UBCG (Association of Banks of Montenegro).

Banks’ responses

As at 26 March 2014, the Banking Ombudsman submitted the Recommendation to the CEOs and to the Chairmen of the Executive Boards.

The Ombudsman gave a 30 day deadline for the banks to consider the Recommendation and send feedback on the implementation. The Recommendation was sent to the addresses of 10 banks offering the said banking products in the Montenegrin money market.

The following five banks gave their response to the Banking Ombudsman within the 30 days deadline: NLB, CKB, HAAB, Hipotekarna, and Societe General Montenegro. Five banks did not respond to the Recommendation of the Banking Ombudsman.

The banks accepted the Recommendation of the Banking Ombudsman that these issues should be discussed and that opinions on them should be given. The banks are interested in making their interest rates more acceptable in the Montenegrin market, stating that they represent a variable category dependant on several factors. Some of the banks performed the analyses of the most important factors influencing the interest rates on the banking products in question. The factors influencing the interest rates may be divided into two groups: the external and internal factors. External factors are the one related to the holding banks (parent banks). In their response the banks stated internal financing by parent banks as the most important factor in this group.

Internal factors are those present in the money market. Supply, demand and other elements of the market determine the price of these banking products. The opinion of the majority of banks is that risks are the most important internal factors, with credit risk being the most influential, given that it is very prominent in the Montenegrin market.

The banks support this claim with data on high percentage of NPLs in total loans in Montenegro, stating that at 18.5%, this percentage is significantly exceeds that of the regional countries. As yet another reason the banks stated high costs of collecting their receivables in the court of law, which are considerably higher than in the EU.

Banking Ombudsman’s opinion

• In their responses, the banks engaged in describing the situation in the market and reasons conditioning the level of interest rates on these banking products. The banks failed to provide data on the levels of their inter-est rates on the said banking products in the first months of 2014, and whether they intended to lower them.

• The Banking Ombudsman expected a more professional and responsible treatment of the Recommendation with regard to these issues because it considers about 104 thousand of banks’ clients in Montenegro.

Banking Ombudsman’s position

• In their operations with clients, the banks need to be more transparent in reference to this are of consumer crediting.


• Advertising of banking products, overdrafts and credit cards, should be done at the banks’ web sites. The banks are obliged to do so pursuant to the Consumer Credit Law, Chapter II – Information.

• The position of the Banking Ombudsman is that the clients should not have to pay such high costs for using these banking products; and that interest rates on these products should be lowered.

• The Banking Ombudsman will continue to monitor trends of interest rates and other costs referring to clients in this area of consumer crediting.

In mid-2014, the CBCG recommended the banks and MFIs to lower the interest rates, because their levels were threat-ening the financial stability. The deadline for lowering the interest rates was the end of September. The CBCG an-nounced that in case the rates were not lowered it would limit them. In October, the banks lowered their interest rates by 1 percentage point in relation to September, thus avoiding interest rate limitation by the CBCG. The banks announced further interest rates reduction by the end of 2014. However, no significant interest rate reduction occurred by the end of the said period. Banking interest rates remain high, suppressing the economy, burdening the living standard, slowing down the economic activity and discouraging investors.

6.4. Cooperation with the World Bank

International conference:

“Presentation of Podgorica Approach – Conditions for Success”

On 26 May 2014, in cooperation with the World Bank, the CBCG and the Ministry of Finance organised the interna-tional conference titled: Presentation of Podgorica Approach – Conditions for Success. The conference was aimed at presenting this model of resolution of NPLs, which represent one of the major problems of the financial sector.

The issue of NPLs dates back to 2008 when they accounted for 4.4% of total loans. This condition deteriorated over time, thus at end-2013 NPLs amounted to 448.7 million euros, or 18% of total loans.

The conference launched the framework for the “Podgorica Approach” model for NPL restructuring. The project is expected to yield concrete solutions, based on the Law on Voluntary Financial Restructuring of Debt to Financial Institutions.

Following the example of some economies, the “Podgorica Approach” would create a basis for a long-term and pros-perous growth of Montenegro’s economy. The implementation of this project included a comprehensive list of activities contributing to this program of national interest. Our country is not the first one with the problem of NPLs, but it is the first country in the region to start implementing the European models NPL resolution. The coordinator of the program on behalf of the World Bank, Luigi Passamonti, stated that many countries are facing the issue of NPLs and that it is important that banks, clients and monetary institutions invest efforts in resolving it.

The Banking Ombudsman took active participation in the public hearing regarding the Draft Law on Voluntary Re-structuring of Debt to Financial Institutions and supported NPL workout in the corporate sector as well as requested the resolution of this issue with natural persons where loans were secured not only through mortgages bat also by guarantors.

The implementation of the said Law would result in creditworthy clients, banks that are able to collect instead of writ-ing off their receivables, all of which would create an environment favourable for lending activity increase. This would result in lower systemic risk and stronger overall financial stability. In the near future, the real sector would have clients able to meet their financial obligations, while the banking sector would reinforce its financial stability. This Law is not yet adopted in the Parliament of Montenegro.


VII BANKING OMBUDSMAN’S COOPERATION WITH OTHER INSTITUTIONS

7.1. Banking Ombudsman’s cooperation with NGOs

Citizens’ associations have an important role in the area of consumer protection, primarily referring to the area of consumer protection and the area of operations with banks/MFIs. In the reporting period, the Banking Ombuds-man made contacts and cooperated with several NGOs dealing with the consumer protection and clients’/guarantors’ financial rights. The Banking Ombudsman cooperated with the NGOs “EKOM”, “CEZAP” (Centre for the Protection of Consumers) and “TVOJ EURO” (your euro) which dealt with the issues of clients and guarantors’ financial rights pro-tection. The NGO “CEZAP” participated in the activities of protecting clients and guarantors, beneficiaries of housing loans disbursed in Swiss Francs, meeting their demand on submitting collective lawsuit, for the attaining of financial rights of these loans’ beneficiaries.

7.2. Cooperation of the Banking Ombudsman with the media

Cooperation with the media was a priority activity in the Banking Ombudsman Work Programme for 2014. Special emphasis was put on providing clients and their guarantors with more complete and biased information on their financial rights protection.

Through printed and electronic media and the internet page (www.bankarskiombudsman.org), the Banking Ombuds-man regularly and in due time informed clients and guarantors, and the public on their activities performed in 2014.

In line with statutory authorities, the most frequently used forms of providing information and announcements were:

• printed media (statements, interviews);• electronic media; • the Banking Ombudsman webpage

Close cooperation with printed and electronic media enabled the clients and guarantors to follow the work of the Banking Ombudsman through newspaper articles, and TV and radio shows, whereas these have been highlighted:

31VII • Banking Ombudsman’s cooperation with other institutions

- POBJEDA.ME – 29 March 2014 - CDM – 22 March 2014 - POBJEDA.ME - 12 March 2014 - PORTAL ANALITIKA.ME - 05 March 2014- VIJESTI – 06 February 2014 - ANTENA M - March 04.2014 - BANKAR.ME - 31 March 2014 - BANKAR.ME - 25 March 2014 - PORTALANALITIKA.ME - 11 March 2014 - ANTENA M - 01 February 2014 - ANTENA M – 21January 2014- RTCG - DNEVNIK – 12 September 2014

The information, reports, releases and other data at the Banking ombudsman’s internet page www.bankarskiombuds-man.org are regularly updated.

Clients and guarantors were regularly informed through the webpage on all the issues regarding the work of the Bank-ing Ombudsman.

The page also published the Banking Ombudsman Recommendations to Banks and MFIs, releases, regular reports, and other significant information regarding the Banking Ombudsman’s work.

Cooperation with the media significantly helped in raising the level of information of clients, guarantors and other society, and better understand the importance of out-of-court protection of banks’/MFIs’ clients, and the possibility of protecting rights with other competent authorities.


VIII DATA ON BANKING OMBUDSMAN’S OPERATIONS

8.1. Keeping records of clients and guarantors whose financial rights have been violated and correspondence with banks and MFIs

The Banking Ombudsman keeps independent records. These records include clients and guarantors who have con-tacted the Banking Ombudsman, the records of filed objections and proceedings with the banks and MFIs.

Clients and guarantors can contact the Banking Ombudsman via e-mail, by filling in and emailing the questionnaire to the Banking Ombudsman. The questionnaire can be found at the Banking Ombudsman webpage: www.bankarski-ombudsman.org, link: Forms/Questionnaires.

8.2. Data on loans granted and clients’ indebtedness with banks and MFIs in 2014

As at 31 December 2014, total banks’ loans amounted to 1,839.1 million euros, or 117.2 million euros (0.94%) less than at end-2013. As at the same date, total MFIs’ loans amounted to 32.8 million euros, while they amounted to 31.6 mil-lion euros as at 31 December 2013.

As at 31 December 2014, the number of loan sub-accounts amounted to 130,915, and the number of clients amounted to 111,886, while the number of loan sub-accounts amounted to 130,006 as at 31 December 2013. The number of MFIs clients amounted to 21,217 as at 31 December 2014, while in2013that number was 20,920. The number of guarantors in banks amounted to 37,201 as at 31 December 2014 or by 6,515 guarantors (15%) less than as at 31 December 2013 - when it amounted to 43,716.

Table 1 shows the number of loans and clients of banks and MFIs as at 31 December 2014.

33VIII • Data on Banking Ombudsman’s operations

Table 1 – Active loans with banks and MFIs as at 31 December 2014

Description Balance as at

Total active loans 31 December 2013 31 December 2014

1. Banks’ loans

Sub-accounts 130,006 130,915

Loan beneficiaries 110,189 111,886

Debt balance (in thousand euros) 1,946,376 1,839,159

WANIR 8.68 8.41WAEIR 9.36 9.22

2. MFIs’ loans

Sub-accounts 22,771 23,040


Debt balance (in thousand euros) 31,611 32,846

WANIR 20.70 21.33WAEIR 26.38 25.66

Source: Credit registry – reports of banks and MFIs

Retail loans

Data on the number of active loan sub-accounts, number of guarantors, and data on total debt arising from loans show also the indebtedness of clients arising from loans and their indebtedness with banks and MFIs.

Table 2 shows the number of active credit sub-account with banks in 2014, as well as total debt as at 31 December 2014.

Table 2 - Retail loans, balance of active sub-accounts with banks as at 31 December 2014


31 December 2013 31 December 2014

1. Retail loans

Active sub-accounts 121,697 122,079Loan beneficiaries 104,948 106,365Debt balance (in thousand euros) 839,359 844,778Indebtedness per natural person/client (in thousand euros) 8.00 7.94

WANIR 9.40 9.14WAEIR 10.11 10.10Loans secured by guarantors 38,758 33,128Guarantors 43,716 37,201Amount of debt secured by guarantors (in thousand euros) 285,021 263,760

% guarantor coverage of retail loans 31,85 27,14Loans secured by mortgage or fiduciary 14,466 14,751Debt arising from loans secured by mortgage or fiduciary 396,771 389,048

2. Loans for purchase of apartments and remodelling

sub-accounts 13,728 13,077Debt balance (in thousand euros) 318,888 308,519WANIR 7.04% 6.56%WAEIR 7.43% 7.45%



Number of loan sub-accounts of natural persons amounted to 122,079 as at 31 December 2014, while it amounted to 121,697 as at 31 December 2013. The number of credit sub-accounts recorded a slight increase in 2014. The debt arising from retail loans with banks amounted to 844.7 million euros and it increased by 5.4 million euros in relation to 2013.

In 2014, the number of guarantors declined by 6,515 or 15% in relation to 2013. In 2014, the amount of debt secured by guarantors amounted to 263.7 million euros. Indebtedness per individual client amounted to 7.94 thousand euros, while in 2013 this amount was 8.00 thousand euros.

Credit cards

The number of natural persons’ credit card sub-accounts was 37,157 as at 31 December 2014. This is a slight increase in relation to 2013 when it amounted to 33,173. The number of clients in 2014 amounted to 30,681, also a slight increase compared to 2013. As at 31 December 2014, the debt from credit cards amounted to 26.683 million euros, recording a slight decline in relation to 2013 when it amounted to 29.0 million euros. In 2014, the contracted amount per credit cards amounted to 51.1 million euros, with the utilisation percentage of 52.19%, which is lower than in 2013. Annual decline in debt, limit and the utilisation percentage per credit cards recorded in 2014 was a result of high interest rates on this banking product.

Table 3 shows the balance of natural persons’ credit cards as at 31 December 2014 and 2013.

Table 3 - Balance of natural persons’ credit cards with banks, 31 December 2014



1.2. Credit cards

Active sub-accounts 33,173 37,157



Approved credit card limit (in thousand euros) 52,598 51,130

Approved credit card limit utilisation in % 55.22 52.19

WANIR 15.43% 15.12%

WAEIR 15.70% 15.18%


Current account – Overdraft loans

In 2014, the number of overdraft loan sub-accounts amounted to 70,231, while in 2013, this number was 70,062, arising from natural persons’ current account to which the banks approved the overdrafts. In 2014, overdrafts were used by 67,143 natural persons, compared to 67,356 in 2013. As at 31 December 2014, balance of debt arising from this type of loan amounted to 14.1 million euros, while in 2013 it was 13.9 million euros. Utilisation rate was 48.1% of total approved overdraft which amounted to 29.4 million euros. The percentage of utilisation was affected by high interest rate of 16.7%.


Table 4 – Balance of overdrafts on natural persons’ current accounts as at 31 December 2014



Overdrafts (on natural persons’ current accounts)

Sub-accounts 70,062 70,231

Clients 67,356 67,143


Approved limit 28,842 29,439

Approved limit utilisation in % 48.27 48.15

WANIR 17.61% 16.33%

WAEIR 18.01% 16.70%


8.3. Statistical indicators of Banking Ombudsman’s operations

8.3.1. Admission of clients and guarantors

The Banking Ombudsman’s office was regularly contacted by clients and guarantors in person, by phone, e-mail or by submitting requests (objections). The clients who submitted the request for the protection of their financial rights had regular communication with the Banking Ombudsman Office in writing or verbally with a view to receiving informa-tion on proceedings regarding their submitted requests (objections).

In the reporting period, some 456 clients and guarantors asked for the Banking Ombudsman’s protection. Compared to 2013, the recorded index was 93. Table 5 shows the structure of contacts with the Banking Ombudsman.

Table 5 - The structure of clients/guarantors contacts with the Banking Ombudsman in 2014

No. Type QI QII QIII QIVTotal

I+II+III+IV 2014

Total I+II+III+IV

2013

Growth in %

Index 7/8

1 2 3 4 5 6 7 8 9 10

1 In person 55 70 60 45 230 214 7 107

2 Telephone call 44 60 40 32 176 219 -19 81

3 Registered mail 7 14 20 9 50 53 -6 94

4 Total 106 144 120 86 456 486 - 7 93

Graph 1 shows the structure of contacts with the Banking Ombudsman in 2014 in percentage terms.


Graph 1 – The structure of contacts with the Banking Ombudsman in 2014

Graph 1 reveals that the largest percentage of contacts with the banking ombudsman in 2014 referred to contacts in person.

Graph 2 shows contact structure comparison between 2013 and 2014.

Graph 2 – The number and structure of clients/guarantors contacts with the Banking Ombudsman, 2013/2014

In 2014, the banking Ombudsman was contacted by 342 clients, or 75% and 114 guarantors or 114% of total number of contacts.

The total number of clients and guarantors who contacted the Banking Ombudsman in 2014 was lower by 30 than in 2013.

The number of telephone contacts declined. The reason for this lies in the effects of the enhanced information of cli-ents/guarantors on the forms of protection of their rights, as well as their information on out-of-court protection.

However in 2014 the number of visits increased by 16 compared to 2013. The number of processed requests in the reporting period amounted to 59, of which 50 referred to banks, 6 to MFIs and 3 to MFs. The number of processed objections referring to clients was 46 while 13 objections referred to guarantors.

Table 1 shows that in 2014 visits to the Banking ombudsman declined by 7% in relation to 2013. This is indicates that there were less reported violations of financial rights. In terms of statistics, the given contacts sample leads to the conclusion that the number of banks’/MFIs clients whose rights have been violated is declining, as well as that the banks pay more attention to avoid such violations. In 2014, as well as in 2013, there were no reported instances of fraudulent guarantorship, which indicates that this occurrence has been under control or even completely eliminated.


However there are numerous ongoing court proceedings dating from the previous period (credit boom) when there were instances of fraudulent guarantorship.

The most common questions for the Banking Ombudsman

The out-of-court proceedings for the protection of clients’/guarantors’ financial rights commences with the establish-ment of the Banking Ombudsman. The most common question that clients/guarantors have for the Banking Ombuds-man referred to the forms of clients/guarantors protection, as well as to the out-of-court protection:

• Banking Ombudsman competences;• Out-of-court protection of clients’ financial rights before the Banking Ombudsman;• Procedure for the protection of financial rights before the Banking Ombudsman;• Procedure for submission of objections/objections, requests for protection of financial rights before the Bank-

ing Ombudsman;• Possibility of protection of clients’ rights before other entities;• Procedure of reporting criminal offences in guaranteeing;• Manner of exemption from collateral occurred due to criminal offences in guaranteeing and the like. Unbe-

lievable

The clients and guarantors paid visits to the Banking Ombudsman as the most frequent manner of communication. In all types of clients’ and guarantors’ addressing, the Banking Ombudsman provided information on types of clients’ and guarantors’ protection, out-of-court protection, on obligation of initiating internal procedure with the bank or MFI with which the client signed the contract. Prior to submitting an objection (request) to the Banking Ombudsman, client/guarantor is obliged to submit an objection regarding the protection of his/her rights and terminate internal procedure before the bank or MFI. Pursuant to the Banking Law, banks are obliged to conduct an internal procedure upon the submission of an objection from the client or guarantor in a written form, to submit the decision to the ap-pealer, within 30 days.

If a client or guarantor is not satisfied with the internal procedure decision of a bank or MFI, he/she can submit an ob-jection (request) for the protection of his/her financial rights to the Banking Ombudsman. In case the bank/MFI fails to conduct an internal procedure upon the submission of an objection from the client or guarantor in a written form, the bank/MFI will have violated the Banking Law. Upon the expiration of the 30th day from the day of the submission of the objection to the bank/MFI, the client/guarantor may submit the objection to the Banking Ombudsman. The client/guarantor may also initiate court proceedings.

8.3.2. Clients’ and guarantors’ objections

Clients (natural and legal persons) contacted the Banking Ombudsman. Objections referred to all types of banking products and services offered by banks and MFIs. In regards to banking products, the main percentage of clients’/guarantors’ objections referred to loans.

In regards to loans, most objections referred to the credit boom (2005-2009), especially to the period from 2006 to end-2008.

During the credit boom period (2006 -2009) banks increased their lending activity in order to increase profit and their presence at the market using aggressive marketing. In their lending activities, the banks did not adhere to the credit and other risk protection criteria and standards of banking operations, primarily to the credit risk, by granting loans to persons with inadequate creditworthiness (of the client/guarantor). A large number of persons with poor creditwor-thiness were accepted as guarantors. During the enforcement of loan contracts, this created problems to banks, clients and their guarantors. The global economic and financial crisis additionally worsened these problems.


8.3.2.1. Clients’ objections

a) Natural persons

In 2014, similarly to previous years, the objections of natural persons referred mostly to the use of the following bank-ing products and services: loans, accounts, electronic cards and deposits. The most of objections referred to loans – housing, earmarked, non-earmarked, revolving and other loans. In regards to accounts, most of objections referred to the amount of costs for opening, maintenance and closing accounts. These objections were also present regarding the electronic cards.

During the credit boom, many citizens made different credit arrangements with banks and MFIs for using loans for different purposes. The economic crisis, the impact of which could be felt in Montenegro as of Q4 2008, disclosed all problems related to clients’ and guarantors’ creditworthiness and failures in credit arrangements with banks and MFIs.

Clients and their guarantors reported income decline, termination of employment and irregular salary as the global economic and financial crisis consequences which affected their ability to repay loans. These induced problems re-garding loan repayment as well as unilateral termination of loan contract by banks and MFIs, initiation of enforced collection procedure from fiduciaries, mortgage or collection of receivables from guarantors. Collection of loans from guarantors made these persons bitter for having to repay other people’s loans.

Objections of clients – citizens on banks’ and MFIs’ actions referred mostly to misunderstanding of their deteriorated financial condition, compared to the time of loan disbursement. This was mostly due to the economic crisis.

Many citizens were facing freezing of salaries by banks and MFIs, for the collection of receivables, bringing them into very unfavourable economic situation. Clients were also facing the problem regarding the unilateral contract termina-tion and the initiation of the enforced collection procedure of receivables from fiduciaries and mortgages by banks and MFIs. There is a general feeling of fear of the results of such procedures, i.e. of losing their residential units, or commercial premises which they use to secure their existence. For the purpose of solving their problems regarding debt servicing, many clients tried to restructure their liabilities, but in most cases this was not an acceptable option for banks and MFIs. However, many of them faced non-acceptance of loan reprogramming by banks and MFIs, thus facing an almost non-exit situation..

A number of clients filed objections concerning the lack of information on the interest rates’ changes and high amount of accrued interests on loans. High currency risk in loans with currency clause and accrued default interests for de-fault burdened loan beneficiaries in Swiss Francs. A number of clients complained on banks’ and MFIs request for additional mortgage or fiduciaries aimed at secured lending or restructuring, beyond common standards (OECD) or non-releasing of fiduciaries of mortgage from a part of the property, proportionally to the amount of repaid amount of loan. A number of clients pointed to the problem that banks/MFIs do not release fiduciaries and mortgages from a part of property proportionally to the repaid loans, to be able to continue their commercial operations.

In addition, clients objected to lack of information and the pre-contract phase, as well as to the time of concluding a loan contract, and on time of loan contract realisation, thus making total loan arrangement often not clear.

A considerable number of clients made objections to charging of high interest rates on overdrafts on current accounts, and/or high interest rate on revolving loans, as well as cards.

b) Legal persons

The Banking Ombudsman admitted the representatives of legal persons, primarily entrepreneurs, partnerships and limited liability companies.


During the credit boom, a number of commercial entities, entrepreneurs and limited liability companies became over-indebted.

Due to the global, economic and financial crises impact, their economic and financial condition deteriorated, and they were unable to repay their loans in due time. These commercial entities found theme selves in a rather difficult economic and financial situation which was reflected in the loss of market position, difficulties in purchasing raw and processed materials, which affected their profitability, solvency and, particularly, liquidity.

Companies and entrepreneurs complained about banks/MFIs. The objections refer to lack of understanding by banks for their position caused by the global economic crisis, as well as unwillingness to take a role of a partner in an effort to overcome difficult economic situation that affects both clients and banks. They point out that the banks refuse to reschedule loans or accept to do so, but only under conditions that are far less favourable in comparison to underlying contract.

Legal persons complained that banks/MFIs, despite high amounts of fiduciaries and mortgages taken for securing loans (above the OECD standards), require additional collaterals. They point out that they are facing a problem that the banks do not want to release fiduciaries and mortgages on loans, in proportion to repaid debt, where possible.

They objected that the banks perform approvals of new loans, under less favourable conditions with regard to interest rates, which hinders their business operations, particularly liquidity.

Clients point out that the banks sometimes freeze accounts, which affects business operations, particularly liquidity. Faster economic recovery and retention of existing jobs is not possible under this type of lending conditions. Conse-quently, this results in unfavourable conditions for starting new businesses and creating new jobs.

Companies became illiquid and consequently could not repay credit obligations to banks/MFIs. A significant number of legal persons was past due in repaying loans or was unable to repay loans at all, thus banks faced the problem of not being able to collect these loans. The percentage of NPLs with banks is high.

Banks tried to collect their loan receivables from collaterals. Many companies and entrepreneurs see the solution in restructuring credit obligations to banks. The CBCG initiated, and the Government gave a proposal of the law on vol-untary financial restructuring of NPLs. The proposal is still in the parliamentary procedure.

8.3.2.2. Objections of guarantors on loans

Citizens borrowed increasingly during the credit boom period. Banks and MFIs often requested guarantors as col-lateral for the loans. Thus, a number of citizens became guarantors for loans. With the advent of economic crisis, many people who used guarantors as a form of securing their loans found themselves in worsened financial position, compared to the period when they took the loans. This was primarily the result of reduced income, reduced family budget, loss of jobs, delays in payment of salaries, and the like. Consequently, people were unable to timely repay loans. As a result of delays in servicing of obligations, banks/MFIs started to collect loans from guarantors that belonged to the category “payer”. The banks usually regulate guaranteeing by means of loan agreements as a guarantor payer. A large number of citizens who were guarantors had to repay loans instead of the client, i.e. to repay someone else’s loan.

Many people entered into obligatory relations without receiving sufficient information about their legal obligations arising from it. When they accepted to be guarantors, many did not know what the guarantor payer actually meant.

In 2014, the most of objections also referred to why banks and MFIs do not charge loans from clients to whom they granted loans, but from their guarantors. The Banking Ombudsman stated that these objections are adequate in terms of moral norms, but hardly achievable, due to the creditor’s right to charge loan from guarantors. In good banking


practice, banks should do their best to collect loan from loan beneficiary, and only then from his guarantor. The Bank-ing Ombudsman suggested conducting the internal proceeding before bank/MFI to these guarantors. In their internal proceedings, the banks/MFIs refused to negotiate in that direction. Substantial number of guarantors’ objections to banks/MFIs also refers to granting loans to clients with low credit rating. They also complained of granting of several loan to one client, in several banks/MFIs using single loan supporting documents. They pointed out that banks/MFIs granted many loans to a single person (client), not taking into account his indebtedness. Guarantors also complained on the lack of information by bank/MFI on client’s creditworthiness during the guaranteeing. Some banks did not ask for the presence of guarantor when signing the loan contract by the client (non-establishing of client’s ID). A number of guarantors complained to granting of loans by banks/MFIs based on forged documents and guaranteeing and based on other criminal acts, fraud, misuse of personal data, and the like.

One of the most common guarantors’ objections includes insufficient activity by banks and MFIs to collect receivables from clients and collection from the guarantors. Guarantors often complain about the lack and unavailability of docu-mentation on the loan beneficiary, loan agreement and the amount of client’s debt as well as other guarantors with both banks and MFIs.

8.3.3. Settling of clients’ and guarantors’ objections

Following the assessment of grounds of clients’/guarantors’ objections on the violation of their financial rights, the Banking Ombudsman gave a n opinion on whether their rights were violated or not. In those cases where the Bank-ing Ombudsman determined the violation of financial rights, in line with the legislation, the Banking Ombudsman advised that the first step should be to initiate internal proceedings before the bank/MFI, and to turn to the Banking Ombudsman for the out-of-court proceedings only in case they fail to satisfy their rights. The clients/guarantors were introduced to the procedure of the initiation of internal proceedings before the bank/MFI. It was explained that they need to submit a written objection to the bank/MFI.

The bank/MFI is obliged to conduct an internal proceeding against the objection within a legal timeframe, no later than 30 days, and to inform the client/guarantor on the decision upon the objection within that timeframe.

With regard to forged guarantors’ documentation, misuse of the documentation referring to one guarantorship, for obtaining multiple loans, falsifying signatures and other criminal activities in the procedure of loan granting and guaranteeing, the Banking Ombudsman advised the clients to turn to the police and competent judiciary bodies for protection.

A number of clients/guarantors complained about the lengthy procedures before the competent institutions. The Banking Ombudsman referred them to Ombudsman for Human Rights and Freedoms to file objections regarding the trial in reasonable timeframe.

A number of clients and guarantors requested advice on how to be protected from situation where more than 50% of their salaries or pensions are deducted for the purpose of loan repayment. The Banking Ombudsman advised them to be persistent in exercising their right to have 50% of their income blocked and taken from their earnings. In case the bank/MFI violated this rule, they were advised to turn to the Banking Ombudsman.

The number of guarantors who receive compensation from the clients whose loans they are repaying is very small. They were explained that they had a right to request compensation from client in the court of law. If they were repaying client’s loan, they had the right to request other guarantors to also participate in loan repayment. If this did not happen, they were legally entitled to request proportionate compensation from other guarantors in the court of law.

The Banking Ombudsman offered a possibility to advise clients and guarantors about conducting proceedings before judicial authorities, until resolution of dispute, providing the client/guarantor wants it.


8.3.4. Structure of clients’ and guarantors’ objections

All contacts with the Banking Ombudsman and objections on banks and MFIs mostly referred to concluded loan ar-rangements during the period 2005-2009. In addition to most dominant objections about the use of loan as a banking product, there were also objections about the use of other banking products like electronic cards, accounts, deposits, and costs that banks and MFIs charged to clients while providing services during the reporting year.

Table 6 below shows the structure of total objections to the Banking Ombudsman in 2014.

Table 6 - Structure of Clients’/guarantors’ objections to the Banking Ombudsman

Complainants Number Objection resolution Number Structure of total objections Number

Total objections 456 Clients 46Directed to initiate internal proceeding before the bank/MFI

444

Clients 342 Guarantors 13 Clients 271

Guarantors 114 Completed 59 Guarantors 173

Unjustified objections 98

Out of the total number of clients and guarantors who addressed the Banking Ombudsman (456) a significant number (173) were referred to initiate the internal proceedings before the bank/MFI.

Considerable number (150) requested advice on how to initiate the proceedings for the protection of their financial rights before the competent institutions. Clients/guarantors who objected on time-consuming court proceedings were referred to the Ombudsman for Human Rights and Freedoms.

A number of guarantors (30) with the issue of forged guarantorship sought advice on how to protect themselves from the repercussions of the forged guarantor documentation, and the abuse of documentation meant for one guarantor-ship for the approval of multiple loans with banks and MFIs.

A number of clients/guarantors (105) sought advice on how to protect themselves from blocked wages or pensions, and deduction of more than 50% of their income for the purposes of loan repayment.

Unjustified objections amounted to 98.

Graph 3 – Clients’/guarantors’ objections in 2014

Graph 3 illustrates the percentage ratio of objections made by clients/guarantors who appealed before the Banking Ombudsman. Analysis by quarters reveals that the dynamics of clients’ and guarantors’ appeals to the Banking Om-budsman was uneven. The most appeals by the clients/guarantors took place in Q2 and Q3 2014.


Graph 4 shows the quarterly analysis of objections in percentage terms in 2014.

Graph 4 – Quarterly analysis of appeals to the Banking Ombudsman in 2014

The majority of objections and contacts occurred in Q2 and Q3. In line with the legislation, 444 clients were referred to initiate internal proceedings before the bank/MF, prior to resorting to the out-of-court proceedings before the Bank-ing Ombudsman. This number referred to 271 clients and 173 guarantors, or in percentage terms: 61% clients and 39% guarantors.

8.3.5. The manner of settling clients’/guarantors’ objections

Oral objections (requests)

The Banking Ombudsman resolved oral objections of clients and guarantors in the following manner:

1. Clients/guarantors who made oral objections were pointed to, where the assessment without initiating a pro-cedure was possible, that their rights were not violated by bank/MFI, and that their financial distress is not a result of the violation of agreement made with the bank/MFI, but rather a consequence of exposing themselves to a high risk arising from the loan agreements or guarantorship for a high-risk client, and that it is their obli-gation.

2. A number of clients/guarantors were advised to initiate internal proceedings for the protection of their rights before the bank/MFI, by submitting their written objection to the bank/MFI, as they are obliged to do so in the process of financial rights protection.

3. Clients/guarantors who had previously initiated the proceedings for the protection of their financial rights before the competent institutions (prosecutors’ office, police, and courts) were advised to persist in pursuing the activities aimed at protecting their financial rights before the competent institutions, and to be patient.

4. Guarantors with forged guarantorship, who have previously initiated procedures before competent institu-tions, and who are now faced with time-consuming proceedings, were advised to address the Ombudsman for Human Rights and Freedoms.

5. Guarantors who complained that the banks/MFI do not treat all the guarantors in a specific loan in the same manner, have the right to request equal treatment of all guarantors from the bank/MFI. They are lawfully entitled to require other guarantors on that loan to show solidarity in loan repayment, and if the repayment is not proportional, to settle the issue among themselves, or, in case they should fail to settle, they are entitled to ask for compensation before the court.

6. The Banking Ombudsman does not have legal authorisations to decide upon disputes between the employee (client/guarantor) and the employer, between clients and their guarantors. The Banking Ombudsman referred them to the provisions of the Law on Contracts and Torts, Labour Law and Law on Enforcement and Securing of Claims.


8.3.6. Processed clients’/guarantors’ objections

Table 7 includes the total number of processed objections of clients/guarantors, as well as the number of completed proceedings in 2014. Out of total number of objections processed in 2014, 61% referred to clients and 39% to guaran-tors. All the objections processed in 2014 were completed.

8.3.6.1. Structure of processed clients’/guarantors’ objections by year of concluded loan arrangements with banks/MFIs

During 2014, 59 written requests (objections) were submitted by clients/guarantors to the Banking Ombudsman. The structure of processed clients’/guarantors’ objections by year of concluded loan arrangements shows that most of filed and processed clients’/guarantors’ objections to banks/MFIs referred to the 2005-2009 credit boom period.

Table 7 gives an overview of objections to the Banking Ombudsman by the year of concluding loan arrangements, from 2005 to 2014.

Table 7 – Processed clients’/guarantors’ objections by the year of loan arrangement concluding

Contract year 2004 2005 2006 2007 2008 2009 2010 2011 2012 1013 2014

Objections - - 3 14 9 2 5 2 2 1 1

There was only one objection arising from concluded loan arrangements with banks/MFIs in 2014. This speaks in favour of the decrease in violated clients’ and guarantors’ financial rights in loan arrangements concluded in 2014.

Graph 5 shows submitted objections by year of making loan arrangements.

Graph 5 - Processed objections by year of making loan arrangements

Graph 5 shows that the highest number of objections to loan agreements was made in 2007.

Graph 6 shows the structure of processed objections presented in percentages by year of making loan arrangements.


Graph 6 - shows the structure of processed objections presented in percentages by year of making loan arrangements

As much as 28% of objections were made in 2007, while 23% were made in 2008, the period of credit boom.

8.3.6.2. Structure of the processed clients’ and guarantors’ objections by municipalities

Table 8 shows an overview of processed clients’ and guarantors’ objections in 2014, by municipalities

Table 8 - Processed clients’ and guarantors’ objections in 2014, by municipalities

Municipality Number of processed objections

Podgorica 33

Nikšić 7

Cetinje 4

Danilovgrad 3

Bar 2

Ulcinj 2

HercegNovi 1

Petrovac 1

Andrijevica 1

Plužine 1

Plav 1

Bijelo Polje 1

Beograd 1

Sarajevo 1

Banking Ombudsman received objections of clients/guarantors from 12 Montenegrin municipalities as well as one from Sarajevo and one from Belgrade. The majority of objections came from Podgorica, Nikšić, Cetinje, Danilovgrad, Bar and Ulcinj.


Graph 7 – Processed clients’ and guarantors’ objections in 2014, by municipalities

Graph 7 shows the structure of total processed objections by municipalities.

Graph 8 shows the structure of objections by municipalities in percentage terms.

Graph 8 – Structure of objections by municipalities in percentage terms

8.3.7. Processed clients’/guarantors’ objections in 2014

A total of 59 proceedings were initiated and completed in 2014.

Table 9 shows an overview of Banking Ombudsman proceedings by type of client and guarantor, initiated and com-pleted in the reporting period, compared to 2013.


Table 9 – Overview of processed and completed proceedings in 2013 and 2014

No. Item 2013 2014 Index

1. Conducted proceedings 68 59 78

JSC, LTD, entrepreneur 6 1 3

Citizens 62 58 73

- guarantors 26 13 52

- clients 42 46 116

2. Concluded proceedings 63 59 73

3. Transferred to January 2014 5 - 5

4. Disputes with banks 62 50 94

5. Disputes with MFIs and MF 5 9 2

Of total number of processed objections in 2014, one objection referred to a legal person, while the remaining 62 objec-tions referred to natural person, 26 of which were guarantors and 42 were clients.

8.3.7.1. Processed clients’/guarantors’ objections by the type of banking product

Table 10 provides an overview of processed clients’ objections by types of banking products.

Table 10 - Objections by types of banking products

No. Banking product Objections in 2013 Objections in 2014

1. Loans 23 22

- Debt on loan 10 11

- Loan rescheduling 2 5

- Interest on loan 7 1

- Calling of mortgage 2 5

- Deletion of mortgage 1 -

- Loan insurance premium 1 -

2. Accounts 7 11

- Current account/overdraft freezing 3 6

- New birth fee freezing 1 -

- Outgoing payment 1 -

- Account maintenance fee 1 2

- Foreign transactions 1 -

- Outstanding severance pay - 1

- Non-issuing of balance - 2

3. Deposits 6 5

- Frozen foreign currency deposits s 3 3

- Time savings 2 1

- Misuse of time savings 1 1

4. Cards 6 8

- Debt on payment cards 6 8

TOTAL 42 46


Graph 9 shows the structure of processed clients’ objections by banking products

Graph 9 – Structure of processed clients’ objections by banking products

Processed objections refer mostly to loans. They also refer to payment cards, accounts, deposits, mortgage realisation, fees and other expenses.

Graph 10 shows the structure of processed objections by the banking product in 2013 and 2014.

Graph 10 – Structure of objections by the banking product in 2013 and 2014

8.3.7.2. Types of processed guarantors’ objections

In the total of 13 initiated proceedings, guarantors objections referring to freezing of salaries/overdraft or pensions accounted for 11. The remaining two referred to guarantors’ objections to loans granted on the basis of criminal activi-ties, fraud, forging and misuse of identification documents, dating from the credit boom period. Guarantor’s objec-tions mostly referred to non-performing of all types of loan collection from users (movable and immovable property, mortgage), and disproportional collection from all guarantors. They also complained on freezing salaries and pensions by banks/MFIs, granting of loans using forged and misused guarantors’ documents and IDs, fraud, granting of loans to non-creditworthy clients, non-issuing of loans due to guaranteeing, high interest rates on loans

8.4. Processed clients’/guarantors’ objections to banks/MFIs

Out of the total number of processed requests (objections) during the reporting period, 50 objections referred to banks and 6 to MFIs.


Graph 11 – Processed objections referring to banks and MFIs in percentage terms

Graph 11 shows the percentage structure of total processed objections referring to banks and to MFIs.

8.4.1. Banks subject to clients’ and guarantors’ objections

Of total number of processed requests, 50 objections referred to banks’ operations.

Table 11 shows summary of Banking Ombudsman’s proceedings against banks in 2014 compared to 2013.

Table 11 - Summary of Banking Ombudsman’s proceedings by banks in 2014 and 2013

Bank Proceedings in 2013 Proceedings in 2014

1. Crnogorska Komercijalna Banka Ad Podgorica 16 23

2. Erste Bank AD Podgorica 19 10

3. Hypo Alpe-Adria Bank AD Podgorica 5 5

4. NLB Montenegrobanka AD Podgorica 3 5

5. Prva Banka Crne Gore osn. 1901. Godine AD Podg. 4 4

6. Universal Capital Bank AD Podgorica - 2

7. Invest Banka Montenegro AD Podgorica - 1

8. Societe Generale Banka Montenegro AD Podgorica 8 -

9. Hipotekarna Banka AD Podgorica 2 -

10. Atlas Banka AD Podgorica 3 -

11. Komercijalana Banka AD Budva 2 -

Total 62 50

Table 11 shows that the majority of objections referred to and Crnogorska Komercijalna Banka AD Podgorica (23) and Erste bank AD Podgorica (10).

Graph 12 shows the percentage distribution of processed objections by banks.


Graph 12 - Percentage distribution of processed objections by banks in 2014

Graph 12 shows that the majority, or 46%, of total number of processed objections with banks referred to Crnogorska Komercijalna Banka AD Podgorica and 20% to Erste bank AD Podgorica.

Graph 13 shows the overview of processes objections against banks in absolute amounts for 2013 and 2014.

Graph 13 - Overview of processed objections by banks in 2014 and 2013

Graph 13 shows the decrease in the number of objections in 2014 in most of banks compared to 2012, except in Crnogorska Komercijalna Banka which recorded increase.

8.4.2. MFIs subject to clients’ and guarantors’ objections

Table 12 shows the summary of Banking Ombudsman’s proceedings against MFIs in 2014 compared to 2013.

Table 12 - Summary of Banking Ombudsman’s proceedings by MFIs in 2013 and 2014

MFI Proceedings in 2013 Proceedings in 2014

1. MFI Monte Credit d.o.o. Podgorica 4 3

2. MFI Alter Modus d.o.o. Podgorica 1 2

3. MFI Montenegro Investments Credit d.o.o. Podgorica - 1

Total 5 6

Table 12 shows that the number of processed objections against MFIs was significantly lower in 2014 and on 2013.


Graph 14 shows the overview of processed objections against MFIs in 2013 and 2014.

Graph 14 - Overview of processed objections by MFIs in 2014 and 2013

The number of processed objections against MFIs dropped significantly in 2014. It is known that they decreased their lending activity.

Graph 15 - Overview of processed clients’/guarantors’ objections by MFIs in 2014

Graph 15 shows that the majority of objections, 50% referred to MFI Monte Credit d.o.o. Podgorica (former Agroinvest d.o.o. Podgorica).

51IX • Banking Ombudsman’s actions on clients’ and guarantors’ objections

IX BANKING OMBUDSMAN’S ACTIONS ON CLIENTS’ AND GUARANTORS’ OBJECTIONS

9.1. Settling of the clients’/guarantors’ objections (requests) before the Banking Ombudsman

9.1.1. Settling of verbal objections

Out of 456 contacts by clients/guarantors in 2013, the Banking Ombudsman found non-breaching of financial rights in 98 cases. Clients/guarantors who presented their verbal objections to the Banking Ombudsman, and whose rights have not been violated, were told that they should not submit an objection to the bank/MFI, because their financial rights were not violated by bank/MFI but that they could address the bank regarding potential reliefs in meeting their obligations. Some were explained that the difficulties they were facing had been the result of risks they entered upon agreeing on a loan or any other banking product or service.

The guarantors, whose rights have not been unlawfully violated by bank/MFI in a way that is not in line with the loan agreement, and who are repaying someone else’s loan, were advised to ask for compensation for the repaid loan (pursu-ant to the Law on Contracts and Torts) by the client whose loan they are repaying. If this cannot be achieved in their mutual communication, they, pursuant to the aforementioned law, have the right to file a lawsuit against the client and ask for compensation of the repaid funds in the court of law.

The Banking Ombudsman does not have legal authority to decide on disputable relations between citizens (client/guarantor) or employer and employee. These problems should be resolved in other way, mostly in the relations be-tween guarantors’ clients or mortgage debtors and clients. These relations are settled in court instead of out-of-court proceeding. Clients and guarantors whose rights have been violated where there is no criminal act in the proceeding of regulating loan or guaranteeing a loan may conduct an out-of-court proceeding before the Banking Ombudsman.

If bank/MFI does not treat all guarantors equally as per loans contract, guarantors may ask an equal treatment from the bank/MFI. They have the legal right to request solidary repayment of loan from other guarantors, and if they do not do it, or do it in the disproportional ratio, to mutually agree on it. If this fails, they have the right for compensation through court procedure.


In the cases when client/guarantor instigated the proceeding for the protection of his rights before other component authorities (police, Prosecutor’s office, court), the Banking Ombudsman advised to continue activities on protecting their financial rights before these institutions. According to the Decision on the Banking Ombudsman, the Banking Ombudsman may cease the proceedings when he determines that the client has initiated the proceedings for the rights protection before the competent court.

Clients/guarantors who complained to the Banking Ombudsman that their documentation has been forged or mis-used, that they have been conned or that their personal identification documents were misused, were advised to ad-dress competent authorities (the police authorities and the prosecutor’s office) immediately and to report criminal offense, as well as to ask for protection of their rights by those institutions.

9.2. The manner of settling processed clients’/guarantors’ objections

Table 13 shows an overview of the manner of resolution of proceedings in 2012 and 2013.

Table 13 - An overview of the manner of proceeding resolution in 2013 and 2014

No. Type 2013 2014

1. Proposal for dispute resolution 14 9

2. Advise 40 37

3. Cessation of proceedings 14 9

- Due to instigated court proceedings 12 5

- Sent to the competent authority 2 4

Rejected requests 4

Total 68 59

Table 13 shows an overview how the Banking Ombudsman settled processed clients’ and guarantors’ objections.

The most proceedings involved cases where the bank or MFI and client or guarantor could not internally reach an agreement but instead, one or both parties, decided to settle the dispute before the court, without out-of-court pro-ceedings. The Banking Ombudsman urged both parties to opt for out-of-court proceedings more often when settling disputes between clients/guarantors and banks/MFIs, with a view to avoiding lengthy court proceedings and high expenses, and maintain a healthy relationship.

Graph 16 shows the percentage of resolved objections by banks/MFIs in 2014.

Graph 16 – The manner of resolution of processed clients’ guarantors’ objections in 2014


Banks/MFIs need increase their acceptance of the out-of-court dispute resolution with their clients because of mul-tiple benefits. The out-of-court proceedings preserve a sound relation between a client/guarantor and bank/MFI. The out-of-court proceedings offer faster way to settle disputes; also it is a good way to avoid high legal costs and court proceedings that are usually lengthy. More than ever, clients and guarantors need to use the out-of-court resolution of disputes with banks/MFIs even more frequently, since it is a way to achieve faster and cost-effective exercise of rights.

Graph 17 - Resolved proceedings with banks and MFIs in 2014 and 2013

Graph 17 shows that the percentage of dispute resolution before the court is still high. Cases of proceedings cessation in 2014 recorded annual decline, mainly as a result of court proceedings instigation.

9.3. Completed proceedings upon clients’/guarantors’ objections by banks

Table 14 shows conducted proceedings upon clients’/guarantors’ objections in 2014 and 2013 by banks.

Table 14 - Overview of settled proceedings, by banks, in 2013 and 2014

Bank Completed proceedings in 2013

Completed proceedings in 2014

1. Crnogorska Komercijalna Banka AD Podgorica 16 23

2. Erste Bank AD Podgorica 19 10

3. Hypo Alpe-Adria Bank AD Podgorica 5 5

4. NLB Montenegrobanka AD Podgorica 3 5

5. Prva Banka Crne Gore osn. 1901. Godine AD Podg. 4 4

6. Universal Capital Bank AD Podgorica - 2

7. Invest Banka Montenegro AD Podgorica - 1

8. Societe Generale Banka Montenegro AD Podgorica 8 -

9. Hipotekarna Banka AD Podgorica 2 -

10. Atlas Banka AD Podgorica 3 -

11. Komercijalana Banka AD Budva 2 -

Total 62 50

Table 14 shows a downtrend in the number of completed and conducted proceedings in 2014 compared to 2013, which is conditioned by the number of conducted proceedings.


Graph 18 shows percentage overview of finalized proceedings by banks in 2014.

Graph 18 - Percentage overview of finalized proceedings by banks in 2014

Graph 18 shows that the highest share of settled proceedings upon clients’/guarantors’ objections with banks referred to Crnogorska Komercijalna Banka AD Podgorica and Erste Banka AD Podgorica.

Graph 19 shows overview of finalized proceedings by banks in 2014 and 2013.

Graph 19 - Finalized proceedings by banks in 2014 and 2013

Graph 19 shows an overview of completed objections by banks in 2014 and 2013. There is an evident annual decline in the number of finalized proceedings in many banks in 2014, a trend also present in respect of conducted proceedings.

9.4. Completed processed proceedings referring to MFIs

Table 15 shows an overview of completed proceedings by MFIs in 2014 and 2013.

Table 15 - Overview of completed proceedings by MFIs

MFI Concluded proceedings in 2013

Concluded proceedings in 2014

1. MFI Monte Credit d.o.o. Podgorica 4 3

2. MFI Alter Modus d.o.o. Podgorica 1 2

3. MFI Montenegro Investments Credit d.o.o. Podgorica - 1

Total 5 6


Table 15 shows that the number of finalized and conducted proceedings against MFIs in 2014 recorded virtually no change in relation to 2013.

Graph 20 gives an overview and the percentage distribution of finalized objections by the MFI, and their percentage structure with regard to the total number of finalized proceedings by the MFI.

Graph 20 – Percentage structure of finalized proceedings by the MFI

Table 15 shows that the majority of finalized proceedings upon clients’/guarantors’ objections with MFIs refer to MFI Monte Credit ltd. Podgorica or as much as 50%.the total settled objections referring to MFIs.

Graph 21 gives an overview of completed conducted proceedings by the MFI for 2014 and 2013.

Graph 21 – Overview of completed conducted proceedings by the MFI for 2014 and 2013

9.5. Banks’ and MFI’s action on clients’ and guarantors’ objections

9.5.1. Protection of clients and guarantors pursuant to the Banking Law

This part of the report will focus on the manner in which the banks and MFIs enforced the legislation in the area of cli-ent/guarantor protection. Protection of clients is defined in Chapter 6 of the Banking Law (OGM 17/08, 44/10, 40/11) providing the obligation of banks and MFIs to inform clients.

a) The manner of informing the client is defined in Article 87. This article stipulates the obligation of banks and MFIs to inform the client, upon his request, on condition of the loan or deposit account and provide him with the access to other information that may be available to the client.

b) Disclosure of general operating conditions is defined in Article 88 of the Banking Law. A bank is obliged to post in its business premises on a visible location general operating conditions and their amendments as well.


General operating conditions, in the meaning of this law, are each documents that contain standard operat-ing conditions that may be applied to all clients of the bank, general conditions that refer to the relationship between the clients and bank, communication between the clients and bank and the general conditions of performing transactions between the clients and the bank. The client may require from the bank additional explanations and instructions that refer to the implementation of general operating conditions.

c) A bank is obliged to post in its business premises on a visible location general operating conditions and their amendments as well. General operating conditions, in the meaning of this law, are each documents that con-tain standard operating conditions that may be applied to all clients of the bank, general conditions that refer to the relationship between the clients and bank, communication between the clients and bank and the gen-eral conditions of performing transactions between the clients and the bank. The client may require from the bank additional explanations and instructions that refer to the implementation of general operating condi-tions.

d) Article 91 stipulates the law procedure in case of client’s objection. A client that deems that the bank does not meet obligations from the signed contract may submit an objection to the competent organizational unit or other body of the bank authorized for decision making upon clients’ objections. A bank is obliged to respond to the complainant in a reasonable timeframe and not later than 30 days as of the day of submission of objection.

The Banking Ombudsman noticed that some banks/MFIs did not adhere to the provisions of the said articles of the Banking Law specifically in reference to the entire area of client/guarantor protection. The banks failed to provide clients and guarantors with sufficient information on their banking products or obligations arising from contracts. In addition, the banks failed to disclose their effective interest rates in a transparent manner, the variable interest rate was often unclearly defined in contracts and difficult to measure, and there were also cases where its variability is defined in line with the bank’s business policy, which is illegal in market operations. The Banking Ombudsman stresses these issues because a large number of those loans granted during the credit boom were still in the process of realization in 2014, even beyond. The frequency of conducting internal proceedings upon clients’/guarantors’ objections was rather high. One of the Banking Ombudsman’s recommendations to the banks and MFIs referred to their obligation to con-duct the internal proceedings in an adequate and up-to-date manner in 2014.

In 2014, the banks/MFIs started to take the obligation of client protection defined in the Banking Law more seriously. This refers to better information of clients and guarantors, conducting internal proceedings, disclosing effective inter-est rates, defining the interest rate by means of measurable and public parameters of its change, and discontinuing activities referring to guarantorship forging. There were more significant improvements in procedures and objectivity when assessing client’s/guarantor’s creditworthiness by banks/MFIs, as well as an improvement in implementation of the credit and other risks protection standards. Today, the approach of banks/MFIs to their obligation of assessing the client’s/guarantor’s creditworthiness is more partial and wholesome compared to the period before the credit boom. They also invest more time and assess the documentation submitted by the client with a greater level of expertise. In addition to this, they review clients’ documentation in a more professional and serious manner, controlling the accu-racy of the information, credibility of documentation etc. Nowadays, the banks/MFIs also use the information from the Credit Registry of CBCG.

Pursuant to the Banking Law a client deems that his financial rights have been violated, he may submit an objection to the bank/MFI. The same Law set out that bank/MFI is obliged to conduct an internal proceeding on the client’s/guarantor’s objection, which the bank has to conduct within 30 days as of the day of submission of objection. After finalizing the proceeding, the bank/MFI is obliged to respond to the complainant in a reasonable timeframe. If the bank/MFI does not run internal proceeding on client’s/guarantor/s objection, or if it fails to respond to the complain-ant within the 30 days deadline, it breaches the provision of Article 91 of the Law.


In 2014, there were 444 cases where clients/guarantors were instructed by the Banking Ombudsman to initiate inter-nal proceedings before the bank/ MFI, by submitting an objection to the bank/MFI, due to violation of financial rights as a precondition for conducting out-of-court proceedings by the Banking Ombudsman.

The situation greatly improved during 2013 and 2014 since the clients/guarantors used the possibility to protect their financial rights by means of internal proceedings. It was explained that it is not possible to conduct proceedings before the Banking Ombudsman without previously conducting an internal proceedings before the bank/MFI.

It is obvious that clients/guarantors were more cautious when it comes to borrowing and guaranteeing, compared to the credit boom period.

Due to deteriorated relations with the banks/MFIs, a number of clients/guarantors decided to initiate court proceed-ings after failing to exercise their rights in internal proceedings before bank/MFI. The most common reasons include non-acceptance by banks/MFIs to accept their objection, deterioration of business relations, lack of professionalism by bank’s/MFI’s employees, or if there was a doubt that the bank intentionally wanted to deny their rights.

9.5.2. Banks’ and MFIs’ actions upon the clients’ and guarantors’ objections

9.5.2.1. Internal proceeding

If the bank/MFI does not run internal proceeding on client’s/guarantor’s objection, or if it fails to respond to the com-plainant within the 30 days deadline, it breaches the provision of Article 91 of the Law.

The Banking Ombudsman noted that most of banks were more accurate in conducting internal proceeding by clients’/guarantors’ objections in 2014 compared to 2011 and 2012.

The Recommendation of the Banking Ombudsman included a reminder to the banks and MFIs of their legal obliga-tion to conduct the internal proceedings.

Out of total number of processed proceedings (59) during the reporting period, the internal proceedings were not conducted in 13 proceedings. The following banks and MFIs failed to conduct internal proceeding, violating Article 91 of the Banking Law: Crnogorska Komercijalna Banka (8 proceedings), and Hypo Alpe-Adria Bank, Erste Bank and MFI Monte Credit (1 each).

9.6. Banking Ombudsman urgent requests to banks and MFIs

During the reporting period, there were delays in submitting the information and documentation by the banks to the Banking Ombudsman. Even thou they are not obliged to do so pursuant to the Banking Law and the Decision on the Banking Ombudsman, the Banking Ombudsman sent urgent requests to Crnogorska Komercijalna Banka in ten cases and Prva Banka in two cases requiring them to submit requested information and evidence. Untimely submission of statements resulted in prolongation of these proceedings.


X BANKING OMBUDSMAN’S RECOMMENDATIONS TO BANKS AND MFIs AND THEIR IMPLEMENTATION

In accordance with the statutory powers, the Banking Ombudsman sent recommendations to banks and MFIs for the purpose of improving management of relations with clients and guarantors. These recommendations are based on the clients’/guarantors’ objections to banks and MFIs. They referred to all the banks and MFIs. In 2014, the recommenda-tion referred to the following:

Information

The Consumer Credit Law, adopted in July 2013 and in force as of 01 February 2014, defined a new quality in the area of client/guarantor information. This legal act defined the obligation of banks and MFIs to provide information to their clients and their guarantors in line with the EU standards. Full information represents a precondition for solid rela-tions between the bank and its clients/guarantors. This Law defined the level of obligatory information of the client/guarantor in the pre-contract relation, contract relation, as well as in the contract realisation period.

General operating conditions

Majority of banks’ and MFIs’ clients and guarantors is not familiar with the general operating conditions of the enti-ties they are doing business with, and these terms are not available them. In line with Article 88 of the Banking Law, a bank/MFI is obliged to post general operating conditions in its business premises on a visible location. Recommen-dation of the Banking Ombudsman given on this matter yielded some results; however there is still room for further implementation of this recommendation.

Conducting the internal proceedings

Recommendation of the Banking Ombudsman on conducting of the internal proceedings in banks and MFIs refers to regular and adequate conduct of internal proceedings upon the clients’/guarantors objections. In the decisions of in-ternal proceedings in banks and MFIs conducted before the establishment of the Banking Ombudsman the banks and MFIs failed to give statements regarding all the issues of the dispute, failing also to provide information on whether their decision was made in line with the law and internal acts of the bank/MFI.

59X • Banking Ombudsman’s recommendations to Banks and MFIs and their implementation

A number of banks and MFIs failed to observe the obligation to end the proceeding and submit the decision in the written form to the client/guarantor within the 30 days from the clients’/guarantors objection. These banks were stated in the previous chapter. The recommendation referring to the internal proceedings resulted in the improvement of precision and accuracy of conducting the proceedings in most of the banks and MFIs.

Client protection programmes

A significant number of clients/guarantors pointed out that they were unable to repay the loans in due time because of the global crisis effects. The banks and MFIs failed to develop comprehensive programmes for client/guarantor protection, in order for them to continue servicing their loan obligations. In 2013, the CBCG and Ministry of Finance in cooperation with the World Bank ordered the banks to develop client protection programmes in support of their initiative for the resolution of NPLs individually by the client.

Some banks participated in the pilot-project for non-performing loans workout in 2013 following the “Podgorica Approach”. The proposal of the Law on Voluntarily Financial Restructuring giving the possibility of resolving non-performing loans with entrepreneurs, companies and natural persons was sent to public hearing and its adoption is expected in 2014.

Workout of non-performing loans of natural persons through voluntary financial restructuring will enable many citi-zens, unable to repay their loans, to repay them and to exit indebtedness.

Interest rates

Clients and guarantors complained about the amount of interest rates on loans granted during the credit boom, and the interest rates on loans that banks granted in 2014.

The Banking Ombudsman’s recommendation referred to lowering of interest rates and to proper argumentation for any possible increase.

In the recommendation given in March 2014, the Banking Ombudsman asked the banks/MFIs to lower lending inter-est rates. The CBCG issued the Recommendation to Banks on reducing the interest rates in July 2014. A mild interest rate decline of one percentage point followed in October in relation to September. Interest rates remain extremely high and their further decline is expected.

Detailed control of documentation and the presence of guarantors when signing the loan

The Banking Ombudsman recommended banks/MFIs to control the documents along with the loan application letter. The guarantors continued to object to banks and MFIs on insufficiently detailed control of documentation enclosed by the clients along with the loan application during the credit boom, as well as that the banks’/MFIs’ employees failed to identify guarantors when making loan arrangements, which resulted in criminal acts - counterfeits, abuse and fraud, when regulating guarantorships. The number of objections regarding the guarantorship forging is declining, however it remains present when it comes to loans granted during the credit boom.

During the credit boom, some of the banks/MFIs granted loans on the basis of irregular documentation. This mainly referred to the guarantor’s documentation.

The Banking Ombudsman requested from banks/MFIs to relieve the guarantors from all obligations arising from ir-regular documentation, and to compensate them in case they charged them anything, and by doing so to accept their objections and avoid court proceedings.


A good banking practice in developed financial systems, and pursuing business in line with the basic legal norms, with regard to approving loans and/or indebting a guarantor in cases where clients submitted irregular documentation (counterfeits and similar), is to correct any error of this kind immediately after its discovery.

After accepting the client’s or guarantor’s objection, the bank’ duty is to charge in the court of law all entities that sub-mitted irregular documentation as well as its employees that proposed adoption of the decision on loan or any other borrowing.

By acting in this manner, the banks and MFIs would preserve their business reputation and maintain the confidence of the public and their clients/guarantors, avoiding any doubts regarding their business operations. Also, the banks and MFIs would avoid court indemnification by their clients and guarantors.

In 2014, significant improvements were made in checking documents for determining the clients/guarantors’ credit-worthiness, and the documents for regulating the guaranteeing compared to the credit boom. Guarantors are present and identified on the signing of the loan agreement. Indebting of clients in multiple banks was discontinued, as was the misuse of data and documentation referring to guarantors, thus, upon the conclusion of loan agreements in 2014, there were no objections on those accounts.

Professional conduct of employees

A number of clients and guarantors objected to a non-professional conduct by the banks’ and MFIs’ employees, as well as to unkindly communication while doing business.

The banking ombudsman recommended banks and MFIs to work invest more effort in improving the level of profes-sional skills of their employees who deal with clients and guarantors. The Banking Ombudsman insisted on the ap-plication of good banking practice in banks.

Employers

After the Banking Ombudsman’s recommendation there was a discontinuation of the practice common during the credit boom, when employers would issue, verify and register the employee’s documentation many times, so the employee could be a client or guarantor with an unrealistic creditworthiness i.e. unrealistic guaranteeing capabili-ties, thus enabling them to take multiple loans and to be guarantor to multiple loans with banks and MFIs. In 2014, employers have shown more responsibility upon the verification of their employees’ documentation regarding their creditworthiness.

61XI • Legislation in parliamentary procedure

XI LEGISLATION IN PARLIAMENTARY PROCEDURE

11.1. Bill on Voluntary Financial Restructuring of Debts towards Financial Institutions

In July 2014, the government drafted the Bill on Voluntary Financial Restructuring of Debts towards Financial Institu-tions and referred it to parliamentary procedure.

The NPLs are present in the corporate and retail sectors and their non-resolution affects the corporate sector liquidity as well as the living standard in Montenegro.

The global economic and financial crisis led to the economic activity decline in all sectors of the economy. The effects of the economic and financial crisis are reflected also in the level of NPLs.

At end-2014, NPLs amounted to 375 million euros. In that amount, 76% refers to loans granted to legal persons. The share of NPLs and other receivables in total loans and receivables was 15.9% at end-2014, recording a 1.6% decline in relation to December 2013.

Bill on Voluntary Financial Restructuring of Debts towards Financial Institutions which will tackle the issue of NPLs gained the support of the Committee on Economy, Finance and Budget at the end of the previous year. Pursuant to this Law, only companies and natural persons who are from 90 up to 180 days in default will have the right to restructure their debts.

Adoption of the Law on Voluntary Financial Restructuring of Debts towards Financial Institutions is aimed at creating a fostering framework, which would support real restructuring in the out-of-court proceedings, economically sus-tainable economic entities and thus eliminate the reasons leading them to bankruptcy, which, as a rule, means more difficulties for creditors and debtors.

The Bill is based on the concept of voluntary participation in restructuring. Debtors and their creditors engage in debt negotiations voluntarily, with a view to reaching a solution favourable for both parties. From the debtors’ view, in com-parison to the consequences of bankruptcy proceedings initiation, the negative perception of their financial position is mitigated and control maintained over the management of the economic entity. From the creditors’ view, this can help achieve better asset recovery by investing joint effort in supporting the improvement of the position of debtor, who is in financial problems and a significant reduction of costs and shortening of deadlines tied to regular court proceedings in


comparison to bankruptcy proceedings initiation. In addition, out-of-court debt restructuring secures the flexibility of the restructuring mechanisms which can be resorted to when planning the resolution of the incurred situation.

The Bill is also based on the concept of coordinating activities for financial restructuring. To provide necessary coor-dination, it was assessed that it is needed to create legal assumptions to perform financial restructuring through the institution that provides pursuing of the mediation proceeding with the participation of licenced mediators. To that end, the Law proposes that the institutional intermediation is carried out by the Centre for Mediation, which has li-cenced mediators trained for effective and efficient pursuing the mediation procedure and who have shown significant results in resolving corporate disputes in their operations.

Moreover, the crisis also affected the employment and the creditworthiness of citizens, causing difficulties in repaying of their loans (accounting for a third of total NPL portfolio), including mortgage loans which individual amounts are the largest in the retail loans portfolio. Therefore, the Law proposed adequate new mechanisms for restructuring of these loans.

63XII • Conclusions, assessments and suggestions

XII CONCLUSIONS, ASSESSMENTS AND SUGGESTIONS

12.1. Conclusions and assessments

The Banking Ombudsman observes that the number of clients/guarantors who approached him and the number of filed objections regarding violation of their rights make a significant sample that can be analysed to reach relevant conclusions and make suggestions regarding the violation of clients’/guarantors’ rights with banks/MFIs.

1. The Banking Ombudsman mostly received and resolved disputes arising from deals concluded between the clients and guarantors with banks and MFIs, from the period 2005 to 2009.

During the credit boom in Montenegro, banks and MFIs liberalised their credit and other risks protection cri-teria and standards for the purpose of better positioning in the market and bigger profits. During this period, many citizens became loan beneficiaries, and they included a large number of citizens as guarantors.

2. The global economic crisis had a very adverse effect on a large number of borrows and their guarantors. As a result, their financial situation deteriorated.

3. The banks and MFIs found difficulties in collecting loans. As a result of the economic and financial crisis, clients faced many financial problems in repaying loans. This resulted in delays in repayment or inability to repay loans. Banks and MFIs tried to alleviate the problem by activating collection from guarantors as a means of loan security.

4. A large number of guarantors were now forced to repay clients’ loans.5. All of the deficiencies regarding the process of issuing loans as well as the need for stronger protection of

banks’/MFIs’ clients and guarantors became visible.6. It was necessary to pass new legislation in the area of protecting clients/guarantors and to harmonise the

legislation with the EU standards as well as to strengthen the mechanisms of protection of clients/guarantors – users of the banking products/services.

7. By establishing the Banking Ombudsman, the number of entities for protection of banks’/MFIs’ clients in-creased and new possibilities for protection opened. The out-of-court procedure, as a way of client and guaran-tor protection conducted by the Banking Ombudsman, is common in market economies.

8. In his recommendations to banks/MFIs, the Banking Ombudsman requested an increase in the level of cli-ents’/guarantors’ protection. The Banking Ombudsman’s recommendations to banks/MFIs included improv-ing the customer relations management, and relevant business policies, as well as application of the procedure and standards from developed economies.


9. A significant number of clients and guarantors filed unfounded requests for protection of their rights to the Banking Ombudsman. This is indicative of the need for a greater level of financial education of citizens.

10. In general, the protection of banks’/MFIs’ clients/guarantors in 2014 improved in comparison to 2013 and es-pecially to the period before the credit boom. There are positive trends with the banks/MFIs when it comes to clients’/guarantors’ protection. This is confirmed by the fact that the Banking Ombudsman received only few objections by clients/guarantors regarding the violation of the financial rights arising from loan agreements concluded in 2014.

11. Banks and MFIs will have to invest further efforts in the area of EU standards implementation in order to reach the level of the developed banking systems.

12. The implementation of new legislation regarding consumer protection, specifically Consumer Protection Law and the Consumer Credit Law started in 2014.

13. The new legislation to be applied as of 2014 and best (European) practice will raise the level of client and guar-antors protection to a much higher level than today, i.e. to the EU level.

12.2. Suggestions

1. Procedure for the adoption of the Bill on Voluntary Financial Restructuring of Debts towards Financial Insti-tutions in the Parliament of Montenegro need to be accelerated.

2. Legally regulate the highest interest rate levels. 3. Accept the proposal for the resolution of housing loans in Swiss francs given by the Banking Ombudsman or

find another acceptable resolution. 4. Banks and MFIs should adopt new Codes and update General operating conditions in line with the new legis-

lation. 5. In line with the conclusions of the Parliament’s Committee for Economy, Finance and Budget, adopted follow-

ing the Control Hearing, the competences of the Banking Ombudsman in the area of protection of rights of banks’/MFIs’ clients need to be increased.

6. The same Committee concluded that, if necessary for the purpose of improving protection of banks’/MFIs’ clients and guarantors, the Banking Ombudsman should be entitled to give opinion on draft laws, other regu-lations, or acts that are used to regulate this matter.

7. The Banking Ombudsman should be enabled to propose initiatives for amending relevant legislation, with a view to their harmonisation with international standards, in the field of law and protection of rights of the users of banking products and services.

8. Give possibility to the Banking Ombudsman to give opinion on the protection of clients’ rights upon the re-quest of the body determining on these rights before the body, disregarding the type or the degree of the ongo-ing procedure.

65XIII • Annexes

XIII ANNEXES

13.1. Banking ombudsman work programme for 2015

MISSION

The Banking Ombudsman’s mission is to protect clients of banks, micro-credit financial institutions and credit unions.

Client protection is a key system for maintaining sound economy and the living standard of households.

Client protection is the condition for building financial markets and their high quality development.

The need of protecting the client of a bank or other financial institution was emphasized due to the global economic crisis effects and to aggressive advertising campaign of banks and other financial institution.

The Banking Ombudsman is an independent party that participates in the out-of-court settlement in resolution of disputed issues between the client and banks/MFIs and credit unions.

OBJECTIVES

• Protectionofrightsofclientsofbanksand/orfinancialinstitutions• HarmonisationoflegislationwiththeEUregulations• ApplicationofEUstandardsintheareaofclientprotection• Improvingclientprotectionsystem• Educationofclientsandguarantors–increasingtheleveloffinancialliteracy

PRINCIPLES OF WORK

In his operations, the Banking Ombudsman adheres to the principles of

• fairness• independence• justice• equity,• availability


• consistency,and• informality

For the purpose of adequate protection of clients’ financial rights, it would be necessary to establish good communica-tion between the Banking Ombudsman and banks/financial institutions, clients, guarantors, media and other entities.

The Banking Ombudsman’s Work Programme is based on the following acts:

• BankingLaw(OGM17/08,44/10and40/11))• LawonContractsandTorts(OGM47/08,4/11)• LawonConsumerProtection(OGM2/14,6/14)• ConsumerCreditLaw(OGM35/13)• CentralBankofMontenegroLaw(OGM,40/10,46/10,6/13)• LawonDefaultInterestRate(OGM83/09)• LawonNationalPaymentOperations(OGM61/08,31/12)• LawonForeignCurrentandCapitalOperations(OGM45/05,62/08)• LawonOwnershipandProprietaryRelations(OGM19/09)• LawonEnforcementandSecurity(OGM36/11)• NationalConsumerProtectionProgramme2012–2015• DecisionontheBankingOmbudsman(OGM15/09,2/12)• DecisionoftheParliamentofMontenegroontheappointmentoftheBankingOmbudsman(OGM66/10)• Ownexperiencegainedsincetheestablishment

I IMPLEMENTATION OF THE BANKING OMBUDSMAN’S PLANNED ACTIVITIES IN 2014

Conditions under which the Banking Ombudsman operated in 2014

1. Material and Technical Conditions The CBCG provided all material and technical conditions needed for the Banking Ombudsman’s operations.2. Administrative and Technical activities Two employees of the CBCG, a law graduate and a business secretary – high school graduate, performed ad-

ministrative and technical operations for the Banking Ombudsman.

In line with the 2014 Work Programme, the Banking Ombudsman performed the following tasks:

1. Received the clients/guarantors, received telephone calls regarding violations of clients’/guarantors’ rights, reviewed clients’ objections, initiated and conducted the procedure of dispute settlement, proposed different ways of resolution of disputes;

2. Advised clients with respect to the protection of their rights;3. Gave recommendations to banks/MFIs for the purpose of resolving individual cases regarding the violation of

clients’/guarantors’ rights and to improving their relations with clients and guarantors;4. Performed other activities contributing to improving the protection of clients’/guarantors’ financial rights.5. Pursuant to the Decision on the Banking Ombudsman, the Banking Ombudsman submitted regular quarterly

reports to the CBCG, and submitted the Banking Ombudsman Annual Report for the previous year to the Parliament of Montenegro, CBCG, and other institutions.

6. The Banking Ombudsman contacted the Banking Ombudsmen in Croatia and Serbia, learned about their experience and legislation, and the protection system in these countries.

67XIII • Annexes

II NATIONAL CONSUMER PROTECTION PROGRAMME

National Consumer Protection Programme 2012 – 2015, for 2015

The National Consumer Protection Programme was adopted by the Government of Montenegro – Ministry of Econo-my. The Programme identifies the holders of activities and the deadlines for realisation of their activities. The Annual Action Plan for 2015 is an integral part of the Programme containing activities of the sectors relevant for the protec-tion of consumers’ rights, along with the holders of activities and deadlines for their realisation.

The Montenegrin economic policy set the strengthening of consumer protection as an objective, ensuring that they have the same rights as the consumers in EU. Providing information and education of consumers represents one of the main priorities when it comes to further improving of consumer protection in the areas of finance, and particularly the protection of banking products and services’ users.

Activity: Implementation of the National Consumer Protection Programme 2012 -2015.

Timeline: Ongoing

III ACTIVITY PLAN REGARDING CLIENTS’ AND GUARANTORS’ PROTECTION IN 2014

Implementation of the National Consumer Protection Programme 2012 -2015

Protection of banks’ and MFIs’ clients and their guarantors is one of main systems for preserving a sound economy and a living standard of citizens. Thus, it is necessary to constantly improve the protection of clients of banks and other financial institutions, by:

• Implementing legislation and strengthening protection through institutions in charge of protection of the cli-ents’/guarantors’ rights;

• Strengthening mechanisms of resolution of disputes between clients and banks/MFIs;• Insisting that banks/MFIs apply good (EU) banking practice in their operations with clients and their guaran-

tors;• Improving clients’/guarantors’ education and awareness.

Admission and resolution of clients’/guarantors’ objections

Clients may visit the Banking Ombudsman during the working hours (8 AM to 4 PM), upon their request, in his office (Miljana Vukova bb). The Banking Ombudsman can also be contacted by phone at + 382 20 230 695, and objections and requests can be sent by mail or e-mail.

Clients and guarantors can submit objections to a bank/MFI, only if they previously used all available legal means to protect their rights in an internal proceeding before the bank/MFI.

A client/guarantor can initiate a proceeding before the Banking Ombudsman by submitting a written objection (re-quest) for protection of rights, or by reporting a violation of financial rights in immediate communication with the Banking Ombudsman. In that case, the Banking Ombudsman will write a statement on initiation of the proceedings. The written request may come as a filed form that can be found on the web page www.bankarskiombudsman.org .

In addition to written objection (request), the client/guarantor submits documentation and evidence, which represent a precondition for conducting a procedure and determining facts.


After receiving the written request and all needed documentation, the Banking Ombudsman informs the client about his rights.

Once it has been determined that the client exploited all legal possibilities for protection in the procedure before the bank (internal proceedings), i.e. financial institution, the Banking Ombudsman conducts a proceeding for settling of dispute between the client and the bank/financial institution.

The Banking Ombudsman may refuse to consider the request of a client/guarantor in case that the client/guarantor fails to submit the required documentation or evidence.

Settlement of disputes

After conducting the proceedings for settlement of disputes between the client and bank or MFI, the Banking Om-budsman makes a decision based on the established facts and gives a proposal for settlement of dispute.

For the purpose of dispute resolution between a client and a bank/financial institution, the Banking Ombudsman may:

• Suggest settlement between the client and the bank/financial institution;• Recommendation the bank/financial institution, for the purpose of dispute resolution, to amend the act, take

necessary actions or remove all deficiencies that influenced the dispute between the client and the bank/fi-nancial institution;

• Advise client in relation to finalisation of the dispute.

During 2015, in addition to the abovementioned activities, the Banking Ombudsman will perform the following ac-tivities:

1. Advising clients and guarantors, in proceedings before other relevant authorities In the proceedings of dispute resolution between the client and the bank/MFI, the Banking Ombudsman

may advise the client on his rights before the relevant authority, without formal written suggestion for dispute resolution.

2. Engaging other parties in the proceedings In the process of dispute resolution between the client and the bank/MFI, the Banking Ombudsman may ask

for an expert opinion from the acknowledged banking and judicial experts.3. Suspending of proceedings before the Banking Ombudsman The Banking Ombudsman may suspend the proceedings when:

• theBankingOmbudsmandeterminethatthebank/financialinstitutionhasremovedtheviolationoftheclient’s rights;

• theclienthasrefrainedfromtherequestorhaswithdrawntherequest;• theBankingOmbudsmandetermines that theclienthas initiated theproceedings for theprotectionof

rights before the competent court.

Recommendations to banks and MFIs

Based on the information and findings gathered during the conducted proceedings, the Banking Ombudsman shall continue to give recommendations to banks/MFIs, for improvement of relations with clients.

In case it has been determined that violation of clients’ rights are influenced by negligent and illegal acts of employees in the bank/financial institution, the Banking Ombudsman may recommend the bank/financial institution to impose corresponding measures.

69XIII • Annexes

Activity “Visits of the Banking Ombudsman”

a) Visiting municipalities and receiving clients’ and guarantors’ objections

The Banking Ombudsman will continue to conduct activities within the “Visits of the Banking Ombudsman” pro-gramme. As in the previous years, he will continue to visit municipalities for the purpose of receiving clients’ and guarantors’ objections to banks/MFIs. The Banking Ombudsman will give priority to those municipalities from which the clients/guarantors send invitations for visits.

b) Visits to banks and MFIs

In 2014, the Banking Ombudsman will continue to visit banks/MFIs. At the meetings with the banks’/MFIs’ man-agement, he will introduce them to the objections made by their clients/guarantors, and with internal proceedings conducted by banks/MFIs upon the objections of clients/guarantors, and the quality of relation management with clients/guarantors.

Activity: Realisation of the Work Programme for 2015

Timeline: Ongoing

IV RECORD KEEPING AND REPORTING

In 2015, the Banking Ombudsman shall continue to keep record on all submitted requests, the reasons for disputes, the proceedings conducted, the proposals and advices given, and on individual records of clients and guarantors whose financial rights have been violated disregarding whether they perform the protection proceeding before the Banking Ombudsman or some other competent authority.

By regular quarterly and annual reporting, the Banking Ombudsman shall regularly inform the CBCG on submitted requests, type and causes of disputes, acting of banks/MFIs upon objections in internal proceedings, activities taken upon clients’ requests and Banking Ombudsman’s given proposals and recommendations for resolving the disputes between clients and banks/MFIs.

The Banking Ombudsman shall submit the Annual Report for 2015 to the Parliament of Montenegro within the speci-fied time limits.

Activity: Improvement of reporting and providing information

Timeline: Ongoing

V EDUCATION PROGRAMME

The client is an important entity of the market and/or market economy, and protection of his rights represents a pre-condition for further development of financial market.

The Banking Ombudsman will be involved in the implementation of the Action Plan for implementation of the Na-tional Consumer Protection Programme 2012-2015, aimed at realisation of the planned obligations of the Govern-ment, during the EU accession process.


Education - Improving financial literacy

Financial crisis highlighted the necessity to improve financial literacy. Financial crisis is a storm that caught many people (businessmen, consumers, borrowers) unprepared, mainly due to the lack of understanding of the basic princi-ples of good financial decisions-making and responsibilities. Each such decision requires high level of financial literacy.

Today, financial literacy of all people (citizens, borrowers, consumers) is becoming more important than ever. Iden-tifying each citizen’s knowledge on its finance and decision is the first crucial step towards the possible treatment of this problem.

Financial markets have been significantly transformed and changed during the last ten years.

The development of communication and IT technologies changed the entire system and direction of the financial ser-vices industry, including banks/MFIs. The development of e-banking, internet banking and other types of financial services requires a higher level of financial literacy of clients and guarantors.

In addition to the fact that information is becoming increasingly available, many studies show that the users of bank-ing services must continuously improve their financial literacy, which is the practice of developed countries.

Since the living standard represents a multiplicative function of financial resources (income and wealth), and the ability to effectively use those resources (financial literacy), it is highly indicative that those with less income and edu-cation carry additional burden since they do not have the needed capacity and skills to decide in the suitable manner when it comes to using banking products/services.

Our education activities should primarily focus on young people, pupils and university students. In case of high inter-est, the focus may be extended to general population and other participants in the financial sphere of life. Financial preparedness of youth is key for their welfare and vital for our economic future.

Young people need to improve their financial knowledge to be in a better position when making sound financial de-cision throughout their life. We are sure that all of us wish that pupils, students, other consumers and borrowers acquired abilities and skills necessary for financial competence to become capable of understanding and taking re-sponsibilities for their decisions.

Educational forums

In 2015, the Banking Ombudsman will continue to organise educational fora in cooperation with the NGOs and other entities. These forums are intended for clients, guarantors and citizens who want to obtain basic knowledge on new legislation, banking products, their characteristics, possibilities, and the risks they carry. In cooperation with faculties and universities, the Banking Ombudsman will continue to give lectures to students about the protection of clients’ and guarantors’ rights.

Activity: Improving financial literacy

Timeline: Upon agreement, ongoing

VI COOPERATION WITH STATE AUTHORITIES AND OTHER INSTITUTIONS

In 2015, the Banking Ombudsman plans to cooperate with:

• the Parliament of Montenegro – Committee for Economy, Budget and Finance. • the CBCG, Association of Montenegrin Banks, banks, MFIs, to exercise the clients and guarantors’ rights;

71XIII • Annexes

• the Government of Montenegro – the Ministry of Finance, the Ministry of Economy and other ministries;• the Ministry of Finance – the cooperation will include the public debate on the proposal of the Law on Volun-

tary Financial Restructuring of Debts Towards Financial Institutions;• the Ministry of Economy – the cooperation will include issues related to implementation of the National Con-

sumer Protection Programme in Montenegro;• the Police Administration, the Supreme Court, the Supreme State Prosecutor’s Office, Authorities for protec-

tion of clients and guarantors, in cases of criminal actions;• the Chamber of Commerce of Montenegro, by cooperating with the Committee on commercial banks, insur-

ance companies and other financial organisations;• the World Bank Office in Montenegro;• the NGOs “Ekom”, “Tvoj euro”, “Montenegrin Consumers Protection Centre” and other NGOs from the field of

protection of clients, guarantors, consumers;• the media;• other Banking Ombudsmen in the neighbouring countries and the EU.

13.2. Recommendation No. 01- 14/1

Pursuant to Article 92 of the Banking Law (OGM 17/08, 44/10 and 44/11) and Article 12 of the Decision on the Bank-ing Ombudsman (OGM 15/09 and 2/12), the Banking Ombudsman gives the banks operating in Montenegro the following recommendation:

Recommendation

Lower interest rates (nominal and effective) on the citizens’ overdrafts and credit cards because they are high without justification.

Elaboration

Banking interest rates (nominal and effective) on overdrafts and credit cards are high without justification, and they heavily burden the household income and budget and induce the deterioration of the citizens living standard.

As at 31 December 2013, there were 70,069 natural persons’ sub-accounts. On this date, the allowed and realised over-draft amounted to 28.8 million. Weighted average nominal interest rate amounted to 17.61%, while weighted average effective interest rate amounted to 18.01% at the annual level. (Source: CR and Reports of banks/MFIs).

As at 31 December 2013, there were 33,173 natural persons’ credit card sub-accounts with the contracted amount of debt amounting to 29.1 million euros. Weighted average nominal interest rate amounted to 15.43%, while weighted average effective interest rate amounted to 15.70% at the annual level. (Source: CR and Reports of banks/MFIs)

Such levels of interest rates are unjustified and need to be lowered considerably.

The said interest rates continued to grow in 2014, regardless of all the parameters indicating that they should decline.

In January 2014, annual inflation rate was -0.4%, while in February it was 0.6%. Deposit interest rates were below 3% at the annual level in the previous year with a declining trend recorded in the first months of 2014. Household deposits and total deposits are on an uptrend.

With the minimised inflationary risk, price of capital (deposits) below 3% at the annual level, and increasing deposits it is only logical to ask why the interest rates on overdrafts (around 24% in the first months of 2014) and credit cards (somewhat lower)?


Comparative data shows that the interest rate on the banking product – overdraft loan is 7.9% in the EU, 11.39% in Croatia and 11.2% in Macedonia.

Credit cards such as Visa or MasterCard are tied to the euro and limits and rates are denominated in this currency. Since the EURIBOR is below 1%, the question arises why are the interest rates on credit cards so high? Interest rates on credit cards in the neighbouring countries are around 14%, and 13.50% in the EU.

The Banking Ombudsman has requested the banks to provide information on the acceptance of the Recommendation and its implementation within 30 days.

The Recommendation of the Banking Ombudsman was delivered to the Chairmen of the Boards and CEOs of the banks in Montenegro.

Submitted also to : CBCG, UBCG 26 March 2014, Banking OmbudsmanPodgorica Doc. Dr Halil Kalač

73XIII • Annexes

13.3. Financial plan for 2015

CENTRAL BANK OF MONTENEGRO BANKING OMBUDSMAN

FINANCIAL PLAN FOR 2015

Acct. DESCRIPTION PLAN 2015

80 OPERATING EXPENSES 58,165

8200 EMPLOYEES EXPENSES 1,420

8210 Gross salaries 400

8219 Winter bonuses 400

8220 Other benefits 0

8223 Solidarity assistance

8224 Other benefits

8225 Other fees to employees

8230 Fee for increased expenses 1,020

8231 Official travel expenses 800

8232 Per diems 200

8235 Employees insurance 20

8300 ADMINISTRATIVE EXPENSES 40,280

8310 Stationery 400

8311 Stationery expenses 200

8312 Expenses from other materials 50

8314 Spare parts expenses 150

83141 spare parts 0

83142 computer equipment expenses 150

8315 Inventory, tires and personal protective safety equipment 0

8320 Energy expenses 570

8321 Electricity expenses 470

8322 Fuel oil expenses 100

8330 Utility services 200

8331 Water expenses 80

8333 Utility services 120

8340 Non-material services 4,110

8341 Audit expenses 810

8344 Expenses of printing books and reports 3,000

8345 Marketing & advertising expenses 300

8349 Expenses of other non-material services 0

83492 Contributions and membership fees to associations

83499 Other

8350 Fees to other private individuals 35,000

8357 Fee for salaries of the Banking Ombudsman 35,000

8400 OPERATING EXPENSES 15,765

8410 Fixed assets and equipment 1,265

8411 Property maintenance 1,180


84111 Property maintenance expenses 170

84113 Computer equipment maintenance expenses 950

841131 hardware 150

841132 expenses of maintenance of non-material equipment 800

84114 Telecommunication equipment maintenance expenses 10

84117 Anti-fire equipment maintenance expenses 50

8412 Property insurance 85

8420 Literature expenses 580

8423 Daily newspapers 580

8430 Telecommunication expenses 1,490

8431 Telecommunication expenses 1,300

84311 land-line phone expenses 800

84312 mobile phone expenses 500

8432 Communication services 190

84321 Expenses of automated transfer of data 160

84322 Internet 30

8440 Taxes, duties and other fees 270

8441 Property tax 270

8450 Fee expenses under service contracts 290

8451 Service contracts - private individuals

8452 Service contracts - legal persons 290

8460 Depreciation 11,870

8461 Depreciation of equipment 1,100

8462 Depreciation of buildings 10,770

8500 OTHER OPERATING EXPENSES 700

8520 Presentation expenses 700

8521 Internal presentation 350

8522 External presentation 350

85221 external presentation in the country 350

TOTAL EXPENSES 58,165

March 2015, Banking OmbudsmanPodgorica Doc. dr Halil Kalač

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