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MONETARY POLICY AND BANK ING SE C TOR IN BOSNI A AND HER Z EGOVIN A

MONETARY POLICY AND BANK ING SE C TOR IN BOSNI A AND HER Z EGOVIN A Presentation by: Vice Governor of the CBBiH Ljubiša Vladušić Vienna, 24 April 2003. Monetary policy in Bosnia and Herzegovina:. Currency Board arrangement :

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MONETARY POLICY AND BANK ING SE C TOR IN BOSNI A AND HER Z EGOVIN A

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  1. MONETARY POLICY AND BANKING SECTOR IN BOSNIAAND HERZEGOVINA Presentation by: Vice Governor of the CBBiH Ljubiša Vladušić Vienna, 24 April 2003

  2. Monetary policy in Bosnia and Herzegovina: • Currency Board arrangement: • Irreversible fixed exchange rate against EURO: 1 KM = 0,51129 euro • Full coverage of monetary liabilities by foreign exchange reserves • Unlimited convertibility of BAM towards EURO and vice versa

  3. Positive shocks and their contribution to the rapid growth of reserve money: • 1.Very high currency substitution in the country • 2. Variety of official currencies in the country (depending on the region in the country) • 3. Extensive foreign aid (transfers) • 4. Recent changeover to Euro • The result is that the CBBH balance sheet almost doubled in a year.

  4. Currency Board arrangement and inflation: • Currency board has had a positive impact on: • Stabilization of prices • Elimination of high inflation • Stabilization of public finance

  5. 80 70 60 50 40 In% 30 20 10 0 -10 1997 1998 1999 2000 2001 2002 BiH FBiH RS Inflation in BiH

  6. Required Reserves (RR): • RR is the only instrument of monetary policy available to the Central Bank of BiH, under the currency board arrangement Goals • Efficiency and flexibility • Harmonization • Financial stability

  7. Deposits • The total deposits in the end of 2002 amounted to KM 4.158 million and were higher by 25 % compared to the deposit balance at 2001 year end. • Given the structure of deposits by sectors, the share of citizens’ deposits is the largest-39 %, followed by that of private companies and associations 20 %, that of government institutions 13 %, public enterprises 10%, and other deposits 18 %. • Given the structure of deposits by currencies, the share of KM deposits is growing, deposits in foreign currency still being significantly higher, taking 58% of the total deposits. Citizens’ savings At the end of 2002, citizens’ savings amounted to KM 1.556 million, an increase of 10 % compared to the previous year. 86% of savings is concentrated in 8 banks. In 2002, Deposit Insurance Agency admitted ten banks in its membership.

  8. Structure of deposits by currencies is shown in the following survey: In millions of KM • Structure of deposits by maturities is the following: • 76 % short-term deposits, • 24 % long-term deposits.

  9. Basic features of banking sector operations in Bosnia and Herzegovina in 2002 are the following: • Rapid process of banks privatization; • Meeting the set minimal banks’capital requirement (KM 15 million); • Merger of banks; • Considerable increase of assets and capital • Increase of credit potential • Stabilization and consolidation of banking sector; • Supply of new products and services; • Amendments and supplements of regulations; • Deposit insurance; • Increased volume of payment transactions.

  10. At the end of 2002, stock capital amounted to KM 745 million and was higher by 19 % compared to 2001 • Given the capital structure, the upward trend of private capital is evident. • The share of private capital in the total capital was 81% at 2001 year end, whereas this share amounted to 90% at 2002 year end. • The share of foreign capital in the total stock capital is 66 %, whereas the share of foreign capital in the total private capital is 74 %.

  11. The structure of stock capital is presented in the following table: In millions of KM

  12. Basic features of banking sector operations in Bosnia and Herzegovina in 2002 are the following: • Rapid process of banks privatization; • Meeting the set minimal banks’capital requirement • ( KM 15 million); • Merger of banks; • Considerable increase of assets and capital • Increase of credit potential • Stabilization and consolidation of banking sector ; • Supply of new products and services; • Amendments and supplements of regulations; • Deposit insurance ; • Increased volume of payment transactions

  13. Commercial Banks’ Capital On 31 December 2002, the total capital of commercial banks in BiH amounted to KM 993 million and was higher by KM 138 million or 16 % compared to the positions at 2001 year end. In the total capital structure, basic capital takes 88 %, and the additional capital takes 12 %. in millions of KM

  14. Basic features of banking sector operations in Bosnia and Herzegovina in 2002 are the following: • Rapid process of banks privatization; • Meeting the set minimal banks’capital requirement (KM 15 million); • Merger of banks; • Considerable increase of assets and capital • Increase of credit potential • Stabilization and consolidation of banking sector ; • Supply of new products and services; • Amendments and supplements of regulations; • Deposit insurance ; • Increased volume of payment transactions.

  15. In the end of 2002, 40 banks operated in BiH, 8 banks less than in 2001. Number of banks, given the ownership structure, is tabled below. In 1999, there were 61 banks operating in BiH.

  16. Basic features of banking sector operations in Bosnia and Herzegovina in 2002 are the following: • Rapid process of banks privatization; • Meeting the set minimal banks’capital requirement (KM 15 million); • Merger of banks; • Considerable increase of assets and capital • Increase of credit potential • Stabilization and consolidation of banking sector ; • Supply of new products and services; • Amendments and supplements of regulations; • Deposit insurance ; • Increased volume of payment transactions.

  17. Banks’ assets: Balance sheet assets in the end of 2002 amounted toKM5.535 millon, and were higher by 22 % or KM 995 million compared to 2001 year end. In the structure of assets, the share of loans amounting to 55% is the largest one. Funds take 33 %, fixed assets take 7% , other assets take 3 % and securities 1 %. Balance structure of assets is presented in the following table :

  18. Banks’ assets: In millions of KM

  19. Banks’ liabilities In the total banks’ liabilities, commitments take 86 %, and capital takes 14 %. In the total liabilities, deposits take 75 %, and capital takes 14 %. Given the nominal amounts, deposits increased by 25 %, and capital increased by 17 %. The structure of liabilities is presented in the following survey:

  20. Banks’ liabilities In millions of KM

  21. Basic features of banking sector operations in Bosnia and Herzegovina in 2002 are the following: • Rapid process of banks privatization; • Meeting the set minimal banks’capital requirement (KM 15 million); • Merger of banks; • Considerable increase of assets and capital • Increase of credit potential • Stabilization and consolidation of banking sector ; • Supply of new products and services; • Amendments and supplements of regulations; • Deposit insurance ; • Increased volume of payment transactions.

  22. Loans • The total loans extended in 2002 amounted to KM 3.213 million and were higher by 53 % compared to 2001 year end. • Given the structure of loans by sectors, 41 % is taken by loans to private companies, 44 % by loans to citizens, 11 % by loans to public enterprises and 4 % by loans to other sectors. • Loans to citizens recorded a significant increase of 118 %,those to private companies increased by 32 %, and those to public enterprises by 3 %.

  23. The structure of loans is tabled below:

  24. ESTIMATION • Banking sector in BiH is much healthier • Banking Agencies (one in each entity) observe the practice set up by the Basle Committee and EU standards • Deposit Insurance Agency (one for BiH) strengthens the stability of the banking system • Up-to-dated payment systems • As a final result of banking system reform, it is expected that receivable interest rates will continue to decrease

  25. CONCLUSION • The goal of BiH is full membership in EU and adoption of Euro • Currency board could be an acceptable solution. Estonia and Lithuania – excellent examples of such convergence • Direct foreign investments as help in direct structural convergence of BiH to EU. • Exit policy from currency board is euro. • The basic problem in BiH is a negative image which has not been overcome yet.

  26. Thank you for your attention!

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