Relevant legal framework in the Republic of Montenegro, which includes comprehensive bank supervision legislation, represents the basis for establishment and maintenance of a sound banking system by controlling entrance in the current banking system and identifying institutions that need to be supervised.   

The support to the sound banking system and overall financial system as well, and identification of accurate number of institutions requiring supervision is achieved, in positive regulations, by defining licensing conditions and scope of licensed activities, where the word “bank” is clearly defined and the use of this word is strictly controlled.  

Law on Banks (Official Gazette of the Republic of Montenegro No. 52/00 and 32/02) regulates the founding, licensing, organization, status changes, changes of ownership, operations, management, governance, control, as well as resolving the status of any party providing banking and/or financial services and/or products in the Republic of Montenegro. 

Pursuant to the Law on Banks, no party may be engaged in banking operations, including accepting deposits and similar repayable funds and granting loans, nor in any other way establish or manage representative office in the Republic of Montenegro, directly or indirectly, unless licensed by the Central Bank of Montenegro (hereinafter: Central Bank), nor use the word “bank” or any derivative of the word “bank” in its title. This means, as a minimum, that only institutions licensed by the Central Bank and subject to on-going supervision may be involved in taking deposits and other funds and granting loans from these funds, and the use of the word “bank” or its derivative is clearly defined.

The bank is founded as a joint-stock company and acquires the status of legal entity by registering in the court register. An application for registration in the court register is submitted within 60 days as of the date of the bank licensing.   

The bank may be founded by at least two founders, local and foreign natural and legal persons. Founders of the bank are obliged to provide initial capital which has to be fully paid before registration in the court register. 

Bank founders submit to the Central Bank of Montenegro an application for licensing, supported by: 

1. contract on foundation, signed by all founders;
2. proposed by-law;
3. data on qualifications and working experience for proposed members of the Managing Board for the past five years;
4. data on shareholders with 5% of shares with voting rights and data on their property, managing and other related interests;
5. business plan of the bank for the next three years containing analysis of future markets and investments, as well as results to be achieved;
6. data on personnel and technical capacities of the bank to perform its operations.

 Provisions of this Law that refer to the procedure of founding, initial capital, operations, management and organization of a bank also refer to an affiliation, i.e. a portion of the bank domiciled outside the Republic of Montenegro that has the status of a legal entity. 

Bearing in mind that the Law on Banks prescribes the conditions for founding a bank, as well as minimum documentation that founders must submit to the Central Bank in order to be issued a license, the Central Bank prescribed the procedure and manner of bank licensing in more detail in its Decision on the Procedure and Manner of Granting Bank Licenses, Permits and Approvals and on Amounts of Fees (Official Gazette of RM, No. 68/02). 

Generally accepted international standards are implemented through positive legal regulations. In the procedure of bank licensing, the subject of the review and evaluation are, inter alia, proposed ownership structure, members of the managing board and senior management, business plan, which reflects the capacity for making profit and effective management of all risks related to the operations, foreseen internal control systems, financial conditions for founding and projected growth of the bank. A bank may be denied the license if the established standards are not met in a satisfactory manner.

The Central Bank will, within not later than 90 days after the orderly submitted application for licensing, either grant or deny license to the bank, and its decision will be final. Also, the Central Bank will grant license to an affiliation, under the conditions for founding a bank prescribed by this law, if its parent bank submits evidence from a relevant authority in its country that there are no impediments for founding such affiliation.