Deposit protection is a system of insuring depositors against loss of their deposits or a part of thereof in case of failure of the bank in which they hold funds. This is provided by making the deposits available to depositors up to the legally guaranteed amount.
Deposit protection includes deposits of private individuals and legal entities, both resident and non-resident. All types of deposits made in the name of the owner are protected, including giro accounts, current accounts, and savings deposits.
In a case of bank bankruptcy, the Deposit Protection Fund guarantees the compensation of deposits up to 50,000 euros per depositor per bank, regardless of the number and type of deposits in that bank.
All banks licensed by the Central Bank of Montenegro are automatically included in the deposit protection system, which means that deposits in all banks in Montenegro are insured.
The Deposit Protection Fund is responsible for insuring deposits in banks and, in the event of a bank bankruptcy, it guarantees depositors the payment of deposits up to the guaranteed amount and within the stipulated period.
Deposit insurance is free for all depositors – natural and legal persons (both resident and non-resident). Banks are required to pay a deposit insurance premium to the Fund.
In the case of a bank bankruptcy, the Deposit Protection Fund guarantees the payment of up to 50,000 euros per depositor per bank, regardless of the number and type of deposits in that bank.
The amount to be paid is determined on the day of initiating bank bankruptcy proceedings against the by adding up the balances on all accounts held by a depositor in the bank and deducting their due liabilities to the bank.
Deposits of following categories of depositors are protected:
- natural persons – residents/non-residents
- legal persons – residents/non-residents
Exemptions from the deposit protection scheme are regulated in Article 6 paragraph 2 of the Deposit Protection Law, and these are:
- deposits by insurance and reinsurance undertakings, in line with the law governing insurance and reinsurance business;
- deposits by public authorities and local government authorities and/or other form of local self-government;
- deposits by occupational health care and pension and disability insurance schemes, in line with the law governing the mandatory health, pension and social insurance;
- deposits by personal pension funds and their management companies, in line with the law governing personal pension funds;
- deposits by investment funds, in line with the law governing the capital market;
- deposits by investment funds and their management companies, in line with the law governing the capital market;
- deposits by other credit institutions, regardless of their head office, made out to their name and held for their account;
- deposits by financial institutions within the meaning of the law governing the taking up and pursuit of business of credit institutions;
- deposits by persons holding, either directly or indirectly, 10% or more capital or voting shares in that credit institution;
- deposits by persons who are members of managing bodies and/or standing bodies of the credit institution that have exercised these tasks as at the protected event date or in the period of 12 months preceding the protected event date;
- deposits by a superordinate credit institution, affiliated and subsidiary undertakings with which the credit institution, in relation to which the protected event occurred, comprises a group;
- deposits by persons responsible for the auditing of the credit institution’s financial reports over the past 36 months prior to the protected event occurrence;
- deposits by collective investment undertakings in line with the law regulating the capital market;
- deposits arising out of transactions in connection with which there has been a criminal conviction for money laundering or terrorism financing;
- deposits by persons specified in the Central Bank report to have contributed to deterioration of financial position of the credit institution;
- anonymous deposits and/or deposits the holder of which has never been identified before the protected event occurrence (non-nominative deposits);
- obligations arising from securities and other financial instruments issued by a credit institution or which payout is guaranteed by the credit institution in relation to which the protected event occurred;
- claims of clients of investment undertaking, clients of a credit institution on whose behalf the credit institutions provides some investment services, and clients of asset management company when this company provides investment services, which are included in the investor protection scheme pursuant to the law regulating the capital market;
- instruments of depositors of a credit institutions in relation to which the protected event occurred and which are included in own funds in line with the law governing the taking up and pursuit of business of credit institutions.
When a protected event arises, that is, when the Council of the Central Bank of Montenegro passes a decision on initiating bankruptcy proceedings against the bank, the Fund pays out guaranteed deposits via one or more banks.
The trustee in bankruptcy of the bank is obliged to submit to the Fund all data and documentation related to the deposits of that bank within 10 working days following the protected event date. After determining the amount of guaranteed deposits and the number of depositors to be compensated, the Fund initiates the payout procedure.
The guaranteed deposit payout in case of failure of a credit institution must commence no later than 15 working days following a failure of a credit institution. The Fund must start with the reimbursement of the calculated guaranteed deposits within 15 working days until 31/12/2020. This deadline will be shortened to 10 working days in the period 1/1/2021 – 31/12/2023, and after that to 7 working days following the protected event date.
The Fund will inform the public (depositors of the failed bank) about the conditions and manner of payment of guaranteed deposits in at least two print media distributed in the territory of Montenegro and on its website.
If a depositor has funds in two banks, in the event of dissolution of both banks due to bankruptcy, the depositor is entitled to the guaranteed amount of up to 50,000 euros in each of these banks (up to the maximum of 100,000 euros).
In the case of bank merger or acquisition, a depositor has the right to reimbursement of the part of the insured deposit he/she would be entitled according to the law had there been no bank merger and/or acquisition, three months following the merger and/or acquisition date.
The bank holding protected deposits of depositors of merged or acquired banks informs its depositors about the expiration date of the right to separate coverage at least 30 days before the expiration date.
Deposits representing a temporary high balance are insured for additional EUR 30,000 for six months after the amount has been credited or from the moment when such deposits become legally transferable.
Deposits representing a temporary high balance are considered deposits resulting from:
- real estate transactions relating to private residential properties,
- transactions that are linked to: marriage, divorce, retirement severance pay, dismissal, invalidity or death;
- the payment of insurance benefits or compensation for criminal injuries or mistakes made by judicial authorities, government authorities, public administration bodies, and local government authorities.
A decision verifying the fulfilment of requirements for the payout of deposits representing the temporary high balance is passed by the Director General of the Fund.
Example: A depositor has sold a residential property and his/her claims total 80,000 euros.
In this case, the Fund will compensate the depositor the amount of 80,000 euros. So this would be 50,000 euros of the maximum coverage plus 30,000 euros of a temporary high balance.
Guaranteed deposits are paid out in euros, and deposits in currency other than euro are translated to euros at the medium exchange rate announced by the Central Bank as at the protected event date.
The right to guaranteed deposit payout is subject to the statute of limitations with the lapse of three years following the protected event date.
If the total claim of the depositor exceeds 50,000 euros, the difference is compensated in the bankruptcy proceedings.
Example: A depositor`s total claim is 60,000 euros. In this case, the Deposit Protection Fund compensates the depositor the amount of 50,000 euros, within the legally prescribed period. The depositor then claims the uncollected amount of the deposit (10,000 euros) from the bankruptcy estate of the bank, in accordance with the Bankruptcy and Liquidation Law.
