Banking remains weak as many businesses owe large sums and show little inclination to pay them back to the banks, which are now largely insolvent. Over the first half of 2000, the 28 largest banks made a loss of US$190 million at the black market exchange rate , and most are unable to observe their own national banking regulations. Small banks were more cost-efficient and less vulnerable to political and business pressure. Some small steps
|Exchange rates: Yugoslavia|
|Yugoslav New Dinars (YD) per US$1|
|Note: Rates in table are official; black market rate: 14.5 (Dec 1998), 8.9(Dec 1997), 2 to 3 (early 1995).|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
towards reform and consolidation of the fragmented sector were taken in 1997, when 16 small banks and 4 large ones—Beogradska Banka, Investbanka, Agrobanka and Beobanka—were consolidated. The 20 banks together controlled about 75 percent of the market, and in 2000, the Montenegrin government passed a bill seeking stringent safeguards in the banking system. Radical restructuring of the banking sector is more likely now as Yugoslavia is restoring its membership in international financial institutions.
Capital markets are underdeveloped. The Belgrade Stock Exchange was established in 1989 and the Podgorica Stock Exchange in 1996. Given the current state of privatization, trading in securities is very limited and both exchanges operate primarily in short-term (30 days or less) commercial paper (notes) issued by large Yugoslav corporations.
In November 2000, Montenegro made the German mark legal tender. All payments between the 2 republics will be conducted in marks. The dinar was tied to the German mark in 1995 (at a fixed rate of 3.3 dinars per mark). The street exchange rate in mid-2000 was at about 3.5 dinars per mark (5.7 dinars per US$1), but analysts believe the dinar was overvalued by 30-50 percent. The black market in foreign currencies was robust, and inflation lowered the real income of salaried workers.