Bank Controlling in Montenegro: Effects of the Pandemic Crisis on the Montenegrin Economy, Banking Sector and the Profitability of Banks

Abstract

Factors such as the expanding rate of globalization and growing bank competition have necessitated cutting net interest margins. Although the importance of controlling in banking business is becoming more recognized, there are still some common misconceptions regarding its exact purpose and implementation. Controlling function in the biggest banks in Montenegro is placed under the department of Finance (third level in the organizational hierarchy). The controllers within the banks are not fully involved in making major decisions. An effective controlling function is becoming even more critical now when the financial performance of the Montenegrin banks has been affected by the COVID 19 pandemic. The effect of the pandemic on the banks in Montenegro has been two-fold. On the one hand, it has led to an increased uncertainty and volatility in the banking market, and on the other to the increased demand for controlling and frequent use of forecast models. Since the effects of the global pandemic could not be anticipated, previously prepared budgets are no longer operational. The goal of this study is to determine the effects of the changes in the economic activity at the sector and macroeconomic level on the profitability of banks, measured by banks’ return on equity (ROE) and return of assets (ROA). The study includes several bank-specific indicators such as: total assets (TA) and credit risk (CR). Also included are macro-economic indicators such as: gross domestic product (GDP) and interest rates (INT). The study used a regression model and included 15 banks in Montenegro.