MONETARY POLICY AND BANKING SECTOR IN BOSNIA AND HERZEGOVINA Presentation by: Vice Governor of the...

MONETARY POLICY AND BANKING SECTOR IN

BOSNIA AND HERZEGOVINA

Presentation by: Vice Governor of the CBBiH Ljubiša Vladušić

Vienna, 24 April 2003

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Monetary policy in Bosnia and Herzegovina: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

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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.

Positive shocks and their contribution to the Positive shocks and their contribution to the rapid growth of reserve money:rapid growth of reserve money:

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• Currency board has had a positive impact on:

• Stabilization of prices

• Elimination of high inflation

• Stabilization of public finance

Currency Board arrangement and inflation:Currency Board arrangement and inflation:

5

-10

0

10

20

30

40

50

60

70

80

1997 1998 1999 2000 2001 2002

In%

BiH FBiH RS

InflaInflation intion in BiH BiH

6

• RR is the only instrument of monetary policy available to the Central Bank of BiH, under the currency board arrangement

Required Reserves (RR):Required Reserves (RR):

• Efficiency and flexibility• Harmonization• Financial stability

GoalsGoals

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DepositsDeposits

•The total deposits in the end ofThe total deposits in the end of 2002 2002 amounted to KM amounted to KM 4.158 4.158 mimilllionlion and were higher by and were higher by 25 % 25 % compared to the deposit balance at compared to the deposit balance at 2001 2001 year end year end..•Given the structure of deposits by sectors, the share of citizens’ Given the structure of deposits by sectors, the share of citizens’ deposits is the largestdeposits is the largest --39 %,39 %, followed by that of private companies followed by that of private companies and associationsand associations 20 %, 20 %, that of government institutionsthat of government institutions 13 %, 13 %, public public enterprisesenterprises 10 10 %, %, and other depositsand other deposits 18 %. 18 %. •Given the structure of deposits by currencies, the share of KM Given the structure of deposits by currencies, the share of KM deposits is growing, deposits in foreign currency still being deposits is growing, deposits in foreign currency still being significantly higher, taking 58% of the total deposits.significantly higher, taking 58% of the total deposits.

Citizens’ savingsCitizens’ savings

At the end of 2002,At the end of 2002, citizens’ savings citizens’ savings amounted to KM 1.556 amounted to KM 1.556 million, an increase of 10 % compared to the previous year. 86% of million, an increase of 10 % compared to the previous year. 86% of savings is concentrated in 8 banks.savings is concentrated in 8 banks. In In 20022002, Deposit Insurance Agency admitted ten banks in its , Deposit Insurance Agency admitted ten banks in its membershipmembership..

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Structure of deposits by currencies is shown in the following survey::

31.12.200

031.12.200

0 31.12.2001. 31.12.2001. 31.12.2002. 31.12.2002.

Amount Share Amount Share Amount Share

TOTAL DEPOSITS 2094 100% 3324 100% 4158 100%

Out of it:

Deposits in KM 895 43% 1214 36% 1749 42%

Deposits in foreign currency 1199 57% 2110 63% 2409 58%

In millions of KMIn millions of KM

•Structure of deposits by maturities is the following: Structure of deposits by maturities is the following: •76 % 76 % short-term depositsshort-term deposits, , •24 % 24 % long-term depositslong-term deposits..

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Deposits by currencies

0

500

1000

1500

2000

2500

3000

3500

4000

4500

12/31/2000 31.12.2001. 31.12.2002.

TOTAL DEPOSITS

Deposits in KM

Deposits in foreign currencies

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Basic features of banking sector operations in Basic features of banking sector operations in Bosnia and Herzegovina in 2002 are the Bosnia and Herzegovina in 2002 are the following:following:

1.1. Rapid process of banks privatizationRapid process of banks privatization;2. Meeting the set minimal banks’capital requirement (KM

15 million);3. Merger of banks;4. Considerable increase of assets and capital5. Increase of credit potential6. Stabilization and consolidation of banking sector;7. Supply of new products and services;8. Amendments and supplements of regulations;9. Deposit insurance;10.Increased volume of payment transactions.

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At the end of 2002, stock capital amounted to At the end of 2002, stock capital amounted to KM 745 million and was higher by 19 % KM 745 million and was higher by 19 % compared to 2001compared 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 %.

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The structure of stock capital is presented in the following The structure of stock capital is presented in the following table:table:

31.12.2000 31.12.2000 31.12.2001. 31.12.2001. 31.12.2002. 31.12.2002.


TOTAL STOCK CAPITAL

658 100% 627 100% 745 100%

STATE CAPITAL 307 47% 119 19% 72 10%

PRIVATE CAPITAL 351 53% 505 81% 671 90%

Out of it:

Foreign capital 135 346 494

Local capital 216 159 177


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Total stock capital

0%

20%

40%

60%

80%

100%

120%

12/31/2000 31.12.2001. 31.12.2002.

in p

erc

en

tag

es

TOTAL STOCK CAPITAL

STATE CAPITAL

PRIVATE CAPITAL

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1.1. Rapid process of banks privatizationRapid process of banks privatization;2. Meeting the set minimal banks’capital requirement

( KM 15 million);1. Merger of banks;2. Considerable increase of assets and capital3. Increase of credit potential4. Stabilization and consolidation of banking sector ;5. Supply of new products and services;6. Amendments and supplements of regulations;7. Deposit insurance ;8. Increased volume of payment transactions

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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

31.12.2000 31.12.2001. 31.12.2002.


Total 824 100% 855 100% 993 100%

Basic capital 748 91% 762 89% 871 88%

Additional capital 77 9% 93 11% 122 12%

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Amount of stock capital

0

200

400

600

800

1000

1200

12/31/2000 31.12.2001. 31.12.2002.

in m

illio

ns

of

KM

TOTAL Basic capital Additional capital

Share of stock capital - in percentages

0%

20%

40%

60%

80%

100%

120%

12/31/2000 31.12.2001. 31.12.2002.

in p

erc

en

tag

es

TOTAL Basic capital Additional capital

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15 million);3. Merger of banks;4. Considerable increase of assets and capital5. Increase of credit potential6. Stabilization and consolidation of banking sector ;7. Supply of new products and services;8. Amendments and supplements of regulations;9. Deposit insurance ;10.Increased volume of payment transactions.

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In the end of 2002, 40 banks operated in BiH, 8 banks less than In the end of 2002, 40 banks operated in BiH, 8 banks less than in 2001.in 2001.Number of banks, given the ownership structure, is tabled Number of banks, given the ownership structure, is tabled below.below.

31.12.2000 31. 12. 2001. 31.12.2002

Total number of banks 55 48 40

Out of it:

Private banks 36 36 34

State-owned banks 19 12 6

In 1999, there were 61 banks operating in BiH.In 1999, there were 61 banks operating in BiH.

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Number of banks given the ownership structure

0

10

20

30

40

50

60

12/31/2000 31. 12. 2001. 12/31/2002

nu

mb

er

of

ba

nk

s

Total number of banks

Private banks

State-owned banks

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Basic features of banking sector operations in Basic features of banking sector operations in Bosnia and Herzegovina in 2002 are the Bosnia and Herzegovina in 2002 are the following: following:



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Banks’ assets:Banks’ assets:

Balance sheet assets in the end of 2002 amounted to KM 5.535 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 :

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Banks’ assets:Banks’ assets:

31.12.2000 31.12.2000 31.12.2001. 31.12.2001. 31.12.2002. 31.12.2002.


TOTAL ASSETS 3190 100% 4540 100% 5535 100%

Out of it:

Funds 1153 36% 1994 44% 1823 33%

Funds extended to other banks 24 1% 30 1% 44 1%

Loans 1487 47% 1949 43% 3027 55%

Fixed assets and office premises 402 13% 396 9% 411 7%

Securities 4 52 75 1%

Other 120 3% 118 3% 152 3%


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Banks assets

0

1000

2000

3000

4000

5000

6000

12/ 31/ 2000 31.12.2001. 31.12.2002.

TOTAL ASSETS

Funds

Funds extended to other banks

Loans

Fixed assets and offi ce premises

Securities

Other

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Banks’ liabilitiesBanks’ liabilities

In the total banks’ liabilities, commitments take 86 %, and In the total banks’ liabilities, commitments take 86 %, and capital takes 14 %. capital takes 14 %. In the total liabilities, deposits take 75 %, and capital takes In the total liabilities, deposits take 75 %, and capital takes 14 %. 14 %. Given the nominal amounts, deposits increased by 25 %, Given the nominal amounts, deposits increased by 25 %, and capital increased by 17 %.and capital increased by 17 %.

The structure of liabilities is presented in the following The structure of liabilities is presented in the following surveysurvey::

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Banks’ liabilitiesBanks’ liabilities

31.12.2000 31.12.2000 31.12.2001. 31.12.2001. 31.12.2002. 31.12.2002.


TOTAL LIABILITIES 3190 100% 4540 100% 5535 100%

Out of it:

Deposits 2094 66% 3324 73% 4158 75%

Liabilities under the taken loans 235 7% 277 1% 348 1%

Funds borrowed from other banks 7 2% 5 3

Capital 681 21% 703 15% 820 14%

Other liabilities 173 5% 231 51% 206 4%


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Amount of liabilities

0

1000

2000

3000

4000

5000

6000

12/31/2000 31.12.2001. 31.12.2002.

TOTAL LIABILITIES

Deposits

Liabilities under the taken loans

Funds borrowed from other banks

Capital

Other liabilities

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LoansLoans

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

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The structure of loans is tabled belowThe structure of loans is tabled below::

31.12.2000 31.12.2000 31.12.2001. 31.12.2001. 31.12.2002. 31.12.2002.


TOTAL LOANS 1652 100% 2101 100% 3213 100%

Private companies 833 50% 988 47% 1304 41%

Public enterprises 322 20% 350 16% 361 11%

Citizens 375 23% 647 31% 1415 44%

Other sectors 122 7% 116 6% 133 4%

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Structure of loans by sectors

0

500

1000

1500

2000

2500

3000

3500

12/31/2000 31.12.2001. 31.12.2002.

TOTAL LOANS

Private companies

Public enterprises

Citizens

Other sectors

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ESTIMATIONESTIMATION

•Banking sector in BiH is much healthierBanking sector in BiH is much healthier

•Banking Agencies (one in each entity) observe the practice set Banking Agencies (one in each entity) observe the practice set up by the Basle Committee and EU standardsup by the Basle Committee and EU standards

•Deposit Insurance Agency (one for BiH) strengthens the stability Deposit Insurance Agency (one for BiH) strengthens the stability of the banking systemof the banking system

•Up-to-dated payment systemsUp-to-dated payment systems

•As a final result of banking system reform, it is expected that As a final result of banking system reform, it is expected that receivable interest rates will continue to decreasereceivable interest rates will continue to decrease

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CONCLUSIONCONCLUSION

•The goal of BiH is full membership in EU and adoption of EuroThe goal of BiH is full membership in EU and adoption of Euro

•Currency board could be an acceptable solution. Estonia and Currency board could be an acceptable solution. Estonia and Lithuania – excellent examples of such convergenceLithuania – excellent examples of such convergence

•Direct foreign investments as help in direct structural Direct foreign investments as help in direct structural convergence of BiH to EU.convergence of BiH to EU.

•Exit policy from currency board is euro. Exit policy from currency board is euro.

•The basic problem in BiH is a negative image which has not The basic problem in BiH is a negative image which has not been overcome yet.been overcome yet.

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Thank youThank you

for your attention!for your attention!

MONETARY POLICY AND BANKING SECTOR IN BOSNIA AND HERZEGOVINA Presentation by: Vice Governor of the...

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