By Alexander Jones – firstname.lastname@example.org
In the aftermath of 2008’s financial crisis, the banking sector in Montenegro, in addition to those in the Balkans and wider Europe, experienced serious fundamental problems over a sustained period of time. Bad loans reached an unprecedented level, while economic growth in Montenegro was severely impacted—by the end of 2010, quarterly gross domestic product (GDP) growth was falling by 5 percent on an annual basis. This led to a severe reduction in the lending appetite of Montenegrin banks, and as a consequence, widespread deleveraging followed. In order to revive the banking sector, it was decided that new, modern institutions had to be established, ones with local experience but that could draw on strength and assistance internationally, and could promote competition by expanding the range of banking products available to customers. Today, Lovćen Banka is the most successful new bank in the country.
Lovćen Banka initially started out life as a microfinance provider under the name of MFI Kontakt. It was the only institution of its kind in Montenegro to be directed by experienced banking professionals and was almost entirely financed locally and privately. However, a need for more diverse banking services in Montenegro, as well as a desire by Kontakt itself to engage in more complex banking operations, led to its evolution into an official bank. In July last year, Kontakt changed its name to Lovćen Banka, with headquarters based in capital city Podgorica, following Montenegro’s central bank council’s unanimous decision to grant the institution a banking license. It now has specific aims to support the development of Montenegro’s financial sector, in particular through providing support to small and medium enterprises (SMEs).
Much of Lovćen’s best practices have been carried over from its MFI Kontakt days, which in turn has led to it achieving outstanding recognition from its clients. As a result, the institution has experienced accelerated organic growth, which has allowed it to create several additional services to offer its existing clients, as well as providing new clients—mainly small and family-business oriented—with opportunities to conduct banking in a fresh and innovative manner, one which avoids much of the bureaucracy often associated with banking in the region. Its motto is “bank of this people and this time”, underlining its commitment to serving the Montenegrin population. In return, this dedication, through both Kontakt and Lovćen, has received glowing customer feedback.
Indeed, only a year on from the bank’s inception, Lovćen has cemented its place as the fastest-growing major financial institution in the country. Between December 2014 and August 2015, the bank’s loan portfolio swelled by a staggering 155 percent, while its deposit base and total assets both skyrocketed, by 132 percent and 102 percent respectively. In the 12 months to August 2015, through its seven operating branches, Lovćen managed to disburse more than €40 million while being entrusted with nearly €25 million in deposits, indicating its remarkable start. Perhaps the most striking statistic thus far in the bank’s nascent-stage development, however, is that its NPL (non-performing loan) ratio is negligible, despite having emerged from the microfinance sector, an industry notorious for recording NPL rates that are often north of 25 percent. This statistic only confirms the seamlessness with which Lovćen has made the transition from microfinance to full-scale banking.
In the last year alone, Lovćen Banka has introduced a wide range of new products to the market, especially for its retail clients, which have been pivotal in driving the bank’s development forward. Examples of its lending products include loans for seafarers, credit for retirees with life insurance, housing loans, credit for the tourism industry and credit to non-residents for the purchase of real estate. In addition to competitive loan products for businesses and citizens, an e-Banking service was established for customers, while MasterCard cards with PayPass contactless payment technology were also introduced. MasterCard debit cards from Lovćen have also carried the advantage of free cash withdrawals from the bank’s ATMs.
Lovćen has a vision to be the lender of choice for Montenegro’s citizens. In fact, the bank’s maxim when it comes to retail banking is that the key to success lies in forging strong partnerships with its clients. Orienting its goals completely towards the customer’s welfare means that almost every activity undertaken by the bank is centred on its clients and their requirements. These goals are executed via Lovćen’s extensive branch network, through a meticulous set of internal procedures and processes, and a rigorous staff development and training programme, which ultimately allows clients to be serviced to the highest possible standards. Customer service, moreover, is built upon some choice cornerstones; chief among them is the desire to fully comprehend the customer’s needs before exacting the appropriate tailored solution. Through its shareholder structure, Lovćen also manages to add an international dimension to its expertise, allowing experienced institutions and executives to provide high-level technical support in “institution-building”. Furthermore, the bank explicitly states that it aims to move its partnerships with its retail clients forward under the auspices of some key guiding principles: mutual respect, integrity, trust, transparency, responsibility and excellence. All of these principles and goals ultimately mean that Lovćen works with its customers in a collaborative manner, allowing even complex banking solutions to be addressed honestly and directly.
The bank was also co-founded by DEG, a development-finance institution that is a member of the KfW Group, one of Germany’s largest banks. DEG was keen to see the rejuvenation of the banking system in Montenegro, mainly because the financial sector is a major cornerstone of its investment activities, while it also considers Montenegro a solid partner country for doing business. With just over 26 percent ownership in Lovćen, DEG provided a proportion of initial funding to Lovćen to get the bank off and running last year, providing it with the capacity to offer customers financing for investment projects with a longer repayment horizon than otherwise would have been possible. DEG has also committed to supporting the bank in more technical areas such as credit technology, risk management, corporate, social and environmental management, as well as providing training within German banks for Lovćen Banka staff. Finally, DEG’s presence at Lovćen’s board of directors meetings brings more than 50 years of experience in investment activities in more than 90 countries.
Despite last year’s metamorphosis from microfinance entity into banking institution, Lovćen still considers micro and small projects to be among their priority target groups, under the conviction that this group in particular will be instrumental in driving the Montenegrin economy forward in the future. Based on the success story of the German Mittelstand—the mid-sized manufacturers often considered the engine of the German economy—and under the guidance of DEG, Lovćen is extending loan provisions for this sector. As is often the case, private enterprises and SMEs have difficulties in accessing bank financing—Lovćen is explicit in wanting to change this situation, through offering specialised products and providing industry-specific solutions. While bank lending in Montenegro remains conservative following the global credit crisis, and while Lovćen’s high standards of credit and risk management will keep the bank’s lending appetite in line with Montenegro’s banking sector in the immediate future, the bank’s unparalleled level of specialised technology means that one of the most comprehensive credit-provision services in Montenegro is being provided by Lovćen.
The bank also managed to significantly increase its visible presence within Montenegro, with branches having been established in Podgorica, Bar, Kotor, Cetinje, Niksic, Budva and Herceg Novi. Each branch is serviced by a set of fully trained, highly capable employees, of whom there are industry experts, recognized local practitioners and a growing group of young talent. Management is led by a core group of banking veterans who implement a set of shared values, derived from decades of involvement in a multitude of banking projects. The entire management of human resources, from the recruitment process through employee training and performance management, is one that adheres to international best practices, while still being intimately tailored to the exact needs of the bank, and is overseen by experienced practitioners who possess both international and local expertise. The staff is considered part of the “family” and potential employees are selected on the basis of being highly skilled, as well as being able to adopt Lovćen’s family vision and values.
Perhaps among the most impressive aspects of Lovćen Banka’s rapid development is how quickly it has established an active policy for corporate social responsibility (CSR). Lovćen’s principle CSR missions are to lower poverty and indebtedness; to enable increased female participation in the business world; to facilitate development in rural areas; and to enable the financial and social independence of Montenegrin citizens through the development of the SME culture. In terms of age groups, the bank has particularly focused on the younger generations during its first year in operation, and has helped to provide a home for a young five-member family in the city of Cetinje, has provided awards to young students of economics and has sponsored the development of 20 bright young stars of tomorrow within the economics field. A whole range of additional activities has also been supported by Lovćen, including promoting chess among Montenegro’s youth, providing voluntary blood donations of employees of Lovćen, and sponsoring NGOs (non-governmental organizations) currently engaged in the fight against breast cancer.
More recently, to mark its first anniversary, Lovćen granted savings books to parents of those babies born on the anniversary date August 25 within the city of Podgorica, along with €100 included. In the (translated) recent words of Lovćen itself, “Corporate social responsibility has an important place in the Code of Business Conduct of Lovćen Banka, which pays attention to shareholders, management and employees of the bank. We are consistently in respect of legislation, human and labour rights, professional and fair conduct in the market, respect for competition, high standards of environmental protection, and a responsible attitude towards the local community and society”.
Despite the stellar beginning to life as a bank for Lovćen Banka, it continues to face a myriad of challenges within Montenegro, as well as the wider region. Although economic growth within the country has been around 4.5 percent in 2015, while inflation has been laudably kept below 2 percent, economic progress in the wider Balkan region remains more subdued. Serbia, for example, came out of a deep recession only in the second quarter of the year. This implies that the economic stability of the region could remain a concern for international investors. Interest rates also remain high in Montenegro compared to European Union (EU) countries. The development of Lovćen Banka and the subsequent increase in banking services and products within the industry should theoretically increase the level of banking competition within Montenegro, and as a result, should purportedly put downward pressure on interest rates. DEG has previously stated, however, that competing on price will not be Lovćen’s prime focus, but rather it prefers to differentiate itself through the high quality of its services. Ultimately, this translates into offering individual solutions for the specific needs of its clients, local expertise, quick decision-making and fostering an internal culture of excellence. The combination of having the most advanced banking technology and the most detailed local knowledge will be the key recipe for Lovćen’s long-term success.