Central Bank controls credit worthiness and legality of operations of banks and financial institutions and is authorized, as the only one responsible for establishing and maintaining of sound banking system, to undertake measures for banks' rehabilitations, that is, open and carry out bancruptcy or liquidation of banks.

The Central Bank controls credit worthiness and legality of banks’ operations by:

 ·        Following reports, information and data which banks submit to the Central bank (off-site control);

 ·        Directing review of business books, accounting and other documents in the bank (on-site control);

  ·        Analysing collected information, rating the indicators of operations and comparing  with prescribed limits, previous data and accepted international standards.

In performing on-site and off-site controls, the Central bank adopted and is applying internationally accepted CAMELS methodology and based on such methodological approach is permanently performing rating of banks. With this rating system it is possible to identify early potential and existing weaknesses which relate to financial position and banks’ operations.

By this rating system for banks, every bank assigned a composite rating which is based on evaluation and rating of six main components of financial position and banks’ operations and those are: C – capital adequacy, A – asset quality, M- quality of management, E- quality and level of earnings, L- liquidity adequacy and S – sensitivity to market risk.

Component and composite ratings are shown by adequate marks according to the numeric scale from 1, expressing the best rating, to 5, expressing the lowest rating.

After the examination, supervisors state in their reports the noticed deficiencies in banks’ operations after which the Central bank, by undertaking adequate measures, directs the banks towards business on sound basis.  Central bank of Montenegro, on the basis of authorization from the law on banks, passed enabling acts which regulate more closely the issues of founding and business operations of banks and financial institutions in Montenegro.   

• In accordance with its legal authorizations, the Central bank regulated the procedure and manner of issuing licenses for banks – Decision on procedure and manner of granting bank licenses, permits and approvals as well as on the amounts of fees (“Official Gazette of the republic of Montenegro” No. 24/01) 

• The Central bank, in accordance with internationally accepted standards, prescribed the procedure and criteria for management of bank’s capital, minimal standards for capital and solvency ratio which ensure coverage of losses to which a bank is exposed in its business– Decision on minimal standards for bank capital (“Official Gazette of the republic of Montenegro” No.44/02) 

• The Central bank regulated determination of criteria for classification of bank’s assets exposed to risk, settlement and suspension of uncollected interest, capitalization of interest and writing off of debt and determination of minimal amounts of funds for reserves for covering potential losses in bank’s operations, by the Decision on criteria and procedure for classifying assets and forming loan loss reserves (“Official Gazette of the republic of Montenegro” No. 44/02). 

• The Central bank prescribed the rules for management of credit risk, manner of determining bank’s exposure towards certain client and group of related beneficiaries and limits of exposures and operations with parties related to the bank by – Decision on minimal standards of loan concentration management and operations with bank related parties (“Official Gazette of the republic of Montenegro” No. 44/02); 

• Manner and procedure of performing examination of credit worthiness and legality of bank’s operations is regulated by the Central bank’s Decision on the manner and procedures of and fees for bank supervision (“Official Gazette of the republic of Montenegro” No.37/01) 

• In accordance with international standards, basis for establishment and functioning of the bank’s internal control system was prescribed; rules on external audit of bank’s financial statements were defined and principles of managing liquidity risk were regulated by -. Decision on basics of bank internal control system (“Official Gazette of the republic of Montenegro No. 37/01) ;Decision on bank internal audit (“Official Gazette of the republic of Montenegro No. 37/01) ;Decision on bank external audit of financial statements (“Official Gazette of the republic of Montenegro No. 37/01) and Decision on management of liquidity risk (“Official Gazette of the republic of Montenegro No. 37/01). 

• Central bank regulated the contents of the group of accounts and chart of accounts for banks by Decision on chart of accounts for banks  (“Official Gazette of the republic of Montenegro” No. 02/02) 

• Procedure and criteria for determination of status of non-solid banks, measures for rehabilitation of those banks and duties, authorizations and fees for interim administrator of a bank are regulated by Decision on measures for rehabilitation of non-solid banks (“Official Gazette of the republic of Montenegro ” No.16/01) 

• Central bank prescribed the type, contents, format and terms in which banks submit reports on their financial position and operations by the Decision on reports that banks submit to the central bank of Montenegro (“Official Gazette of the republic of Montenegro” No.44/02); 

• Central bank prescribed the procedure and criteria for evaluation of financial position and operations of banks by rating system based on CAMELS methodology – Directives for enforcement of bank rating system based on CAMELS methodology (“Official Gazette of the republic of Montenegro” No. 53/01); 

• Central bank prescribed the obligation for the banks and financial institutions to establish policies and procedures for recognizing suspicious transactions of their clients and way of informing Central bank about those transactions – Decision on procedure of banks and financial institutions in case of suspicious transactions of their clients( its publishing in the Official Gazette is expected)