Decision on Criteria for Assessing Negative Effects of Resolution Plans on Financial Markets and Funding Conditions

[Unofficial translation]
Pursuant to Article 44 paragraph 2 item 3 of the Central Bank of Montenegro Law (OGM 40/10, 6/13, 70/17, 125/23) and Article 19 paragraph (6) of the Law on Resolution of Credit Institutions (OGM 72/19, 8/21, 113/24), the Council of the Central Bank of Montenegro, at its meeting held on 17 March 2025, passed the following DECISION ON THE CRITERIA FOR ASSESSING THE IMPACT OF NEGATIVE EFFECTS OF RESOLUTION PLANS ON FINANCIAL MARKETS, ON OTHER CREDIT INSTITUTIONS OR ON FUNDING CONDITIONS Subject matter
Article 1
This Decision shall govern more closely the criteria for assessing the impact of negative effects of resolution plans on financial markets, on other credit institutions or on funding conditions. Quantitative assessment for credit institutions
Article 2
(1) The Central Bank of Montenegro (hereinafter: the Central Bank) shall assess the impact of negative effects of a resolution plan on financial markets, on other institutions or on funding conditions. (2) The Central Bank shall assess the impact of negative effects of a resolution plan referred to in paragraph (1) of this Article by assessing the negative effects in the case of a failure of a credit institution on financial markets, on other institutions or on funding conditions, in accordance with Annex I, which is attached to this Decision and forms an integral part thereof. (3) The Central Bank shall assess the effects referred to in paragraph (1) of this Article on a regular basis, and at least once every two years. (4) A credit institution with a total quantitative score equal to or higher than 25 basis points shall be considered a credit institution the failure of which would be likely to have a significant negative effect on financial markets, on other institutions, on funding conditions. (5) Where the indicator values referred to in Annex I to this Decision are not available, the assessment referred to in paragraph (1) of this Article shall be made on the basis of proxies correlated to the greatest extent possible with the indicators as specified in Annex II, which is attached to this Decision and forms an integral part thereof. (6) Where the total assets of a credit institution do not exceed 0.02% of the total assets of all credit institutions authorised in Montenegro, including, where relevant data are available, the European Union branches, the Central Bank may establish that the failure of that credit institution would not be likely to have a significant negative effect on financial markets, other institutions or funding conditions, unless this would not be justified on the basis of the assessment of Article 3 of this Decision.

________________________________________________________________________________________________________ Decision on the criteria for assessing the impact of negative effects of resolution plans on financial markets, on other credit institutions or on funding conditions (OGM, 29/25) 2 (7) Where a credit institution has been identified as a G-SICI or an O-SICI or classified as Category 1 on the basis of a comprehensive supervisory assessment of the credit institution’s operations (the SREP assessment), in accordance with the law governing the operation of credit institutions, the Central Bank may establish that the failure of that credit institution would be likely to have a significant negative effect on financial markets, other institutions or funding conditions. (8) For the purpose of application of paragraphs (5) and (6) of this Article, the Central Bank shall take into account the appropriate indicators when determining the total amount referred to in item 2) of Annex I for those credit institutions. Qualitative assessment for credit institutions
Article 3
(1) Where a credit institution is not regarded as a credit institution the failure of which would have a significant negative effect on financial markets, other institutions or funding conditions pursuant to Article 2 of this Decision, the Central Bank shall, on a regular basis and at least every two years assess the impact of its failure on financial markets, other institutions or funding conditions, taking into account the following:
1) the extent to which the credit institution provides critical functions;
2) whether the credit institution’s covered deposits would exceed the available financial
means of the Deposit Protection Fund;
3) whether the credit institution’s shareholding structure is highly concentrated or highly
dispersed, or not sufficiently transparent insofar as it could negatively impact the availability or timely implementation of the institution’s recovery or resolution actions;
4) whether a credit institution that is a member of an institutional protection scheme (IPS)
provides critical functions to other IPS members, including clearing, treasury or other services;
5) whether the credit institution is affiliated to a central body, in accordance with a regulation
governing capital adequacy of credit institutions, and whether the mutualisation of losses among affiliated institutions would constitute a substantive impediment to the implementation of the bankruptcy proceedings. (2) When performing the assessment referred to in paragraph (1) of this Article, the Central Bank shall take into account the objectives pursued by recovery and resolution planning. (3) Where two or more credit institutions have similar characteristics in terms of all criteria assessed in accordance with paragraph (1) of this Article, the Central Bank may perform the assessment referred to in paragraph (1) of this Article for that category of credit institutions. Assessment of a credit institution belonging to a group
Article 4
(1) The Central Bank shall perform the assessment referred to in Articles 2 and 3 of this Decision at the level of the parent undertaking where such parent undertaking has its head office in Montenegro. (2) By way of derogation from paragraph (1) of this Article, for a credit institution subject to consolidated supervision, or a credit institution with head office in the European Union subject

________________________________________________________________________________________________________ Decision on the criteria for assessing the impact of negative effects of resolution plans on financial markets, on other credit institutions or on funding conditions (OGM, 29/25) 3 to consolidated supervision pursuant to the Law governing the operation of credit institutions, the assessments referred to in Articles 2 and 3 of this Decision shall be made at the following levels:
1) the level of the European Union parent undertaking;
2) the level of each parent undertaking in Montenegro or, where there is no parent
undertaking in a Member State, the level of each subsidiary undertaking of that group in Montenegro. (3) A credit institution referred to in paragraph (2) of this Article shall be regarded as a credit institution the failure of which would be likely to have a significant negative effect on financial markets, other institutions or funding conditions, where any of the following situations apply at any of the levels referred to in paragraph (2) of this Article:
1) the credit institution has a total quantitative score that is equal to or exceeds the threshold
set by the Central Bank;
2) the criteria set out in Article 3 paragraph (1) of this Decision are satisfied.
(4) Provisions of paragraphs (2) and (3) of this Article shall not apply to credit institutions that are subject to a recovery plan as referred to in Article 130 paragraph (3) of the Law on Credit Institutions. Assessment of promotional credit institutions
Article 5
(1) The Central Bank may regard a promotional credit institution as a credit institution the failure of which would not be likely to have a significant negative effect on financial markets, other institutions or funding conditions, where it does not apply the provisions of Article 2 paragraphs (3), (6), and (7) and Article 5 paragraph (3) of this Decision, and where the elements of the qualitative assessment referred to in Article 3 paragraph (1) are not satisfied at any of the following levels:
1) the level of the European Union parent undertaking;
2) the level of each parent undertaking in a Member State or, where there is no parent
undertaking in a Member State, the level of each subsidiary undertaking of the group in a Member State. (2) A credit institution referred to in paragraph (1) of this Article shall be an entity set up by the State of Montenegro, which grants promotional loans on a non-competitive, not for profit basis in order to promote public policy objectives, provided that the founder has an obligation to protect the economic basis of the entity and maintain its viability throughout its lifetime, or to guarantee for at least 90% of its original funding or the promotional loan it grants is directly or indirectly. Deferred application
Article 6
Provisions of Article 2 paragraph (6), Article 4 paragraph (2) item 1), Article 3 paragraphs (2) and (3), and Article 5 of this Decision shall apply as of the day of Montenegro’s accession to the European Union.

________________________________________________________________________________________________________ Decision on the criteria for assessing the impact of negative effects of resolution plans on financial markets, on other credit institutions or on funding conditions (OGM, 29/25) 4 Entry into force
Article 7
This Decision shall enter into force on the eighth day following that of its publication in the Official Gazette of Montenegro. THE COUNCIL OF THE CENTRAL BANK OF MONTENEGRO

CHAIRPERSON
Decision number: 0101- 2161 - 5/2025 G O V E R N O R Podgorica, 17 March 2025 Irena Radović, m.p.

________________________________________________________________________________________________________ Decision on the criteria for assessing the impact of negative effects of resolution plans on financial markets, on other credit institutions or on funding conditions (OGM, 29/25) 5
Annex I
Table 1
Indicators and weights for calculating the total quantitative score for credit institutions Criteria Indicator for credit institutions Weight % Credit institution’s assets Total assets 25.00 % Significance for Montenegro’s economy Value of domestic payment transactions 8.33 % Private sector deposits 8.33 % Loans to private sector 8.33 % Complexity, and cross-jurisdictional activities Notional value of non-standardised derivative instruments
8.33 %
Cross-jurisdictional liabilities 8.33 %
Cross-jurisdictional claims 8.33 %
Financial system interconnectedness
Intra-financial system liabilities 8.33 %
Intra-financial system assets 8.33 %
Debt securities issued 8.33 %
1) For each indicator listed in Table 1 of this Annex, the corresponding value shall be determined using the specifications provided
in Annex II to this Decision.
2) The indicator value for each credit institution shall be divided by the aggregate amount of the corresponding indicator value for
all credit institutions authorised in Montenegro including branches, where the relevant data are available.
3) The resulting ratios shall be multiplied by 10 000 to express the indicator scores in terms of basis points.
4) Each of the indicator scores (expressed in basis points) shall be multiplied by the weight assigned to each indicator as set out
in Table 1 of this Annex.
5) The total quantitative score shall be the sum of all of the weighted indicator scores.

________________________________________________________________________________________________________ Decision on the criteria for assessing the impact of negative effects of resolution plans on financial markets, on other credit institutions or on funding conditions (OGM, 29/25) 6
Annex II
Table 2
Specifications of indicators
Indicator Definition
Total assets Total assets = total liabilities (the sum of liabilities and capital) Value of domestic payment transactions Value of sent i.e. outgoing payments in the RTGS system made in the reporting year (excluding intra-group payments) Private sector deposits Deposits of resident non-financial corporations and households Loans to private sector Loans to resident non-financial corporations and households Notional value of non-standardised derivative instruments The notional value of non-standardised financial derivatives (i.e. all traded over the counter), regardless of whether they relate to assets or liabilities and whether they are held for trading or serve as a hedging instrument Cross-jurisdictional liabilities Liabilities to non-resident entities (excluding shares i.e. capital) Cross-jurisdictional claims Claims to non-resident entities (excluding cash) Intra-financial system liabilities Liabilities to resident credit institutions and other financial corporations Intra-financial system assets Claims to resident credit institutions and other financial corporations Debt securities issued Debt securities issued (bonds and other financial instruments)