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The Current Economic Situation and
the Role of the Central Bank of BH
Conference on the Current Situation in the Economic Sector of Una-Sana
Canton
Kemal Kozarić. Ph.D. Governor of the Central Bank of BH
In Bihać, December 18, 2009
Main Economic Indicators in BH for 2008 and
2009
2008
July, 2009
GDP
KM 24.7 billion
GDP per capita
KM 6.435
Real growth rate
5.5%
-3.0 %p
Average annual inflation
7.4%
2.0%p
Inflation, end of period
3.8%
-1.4 % (October, 2009)
Unemployment rate in BH
23.4%
24.1%
Average salary at the BH level
KM 752
KM 785 (September, 2009)
Real average salary growth
11.1%
7.9%
External debt
KM 4.19 billion (16.7% BDP )
KM 6.65 billion (after SBA signing)
Current account deficit
KM 3.67 billion (14.6% BDP )
KM 0.31 bilion. Q1
Import coverage by export
41.2%
44.4 %
Direct foreign investments
(estimate)
KM1.3 billion
Foreign exchange reserves
KM 6.29 billion
KM 6.1 billion (December, 2009)
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Key Issues for Bosnia and Herzegovina
 How small and open economies can defend themselves from external
shocks?
 The response of fiscal authorities on the economic crisis caused by the
external shocks (Stand-by Arrangement worth EUR 1.2 billion);
 The response of monetary authorities (maintenance of liquidity, financial
stability);
 Commercial banks behaviour during the crisis;
 Vienna initiative (nine banks);
 The crisis influence on the citizens, clients and companies;
 Lessons: Do we learn a lesson for the future?
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The worsening of economic indicators for BH
 Domestic risks for financial stability have their sources in
potential vulnerability of fiscal position of BH and in structure of
current account deficit funding (GDP growth in previous years
was 6% in average, while projection for 2009 is -3%).
 The worsening of fiscal position in BH in 2008 is recorded as on
income, so as in expenditure side (16%).
 Previous decisions about social benefits. public administration
salary increase and increase of current government spending in
2008 contributed to the fiscal position worsening on expenditure
side.
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The worsening of economic indicators for BH
 In 2008, the deficit of current account amounted to KM 3.68
billion (14.6% of the GDP) and compared to 2007 it is increased
primarily because of trade deficit deepening in amount of KM
1.33 billion.
 During the first nine months of 2009, the export is reduced by
21.4% and import by 26.1%; foreign trade deficit decreased by
KM 2.12 billion or 29.5% compared to the same period of 2008.
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Potential risks for the financial stability:
Trade deficit
With the analysis of products groups, manufactured in
the domestic market we have found out the following data
on import and export disproportion:
Products groups
Food. of which:
products of meat, fish and
crustaceans
sugar and sugar products
cocoa and cocoa products
cereal based products
vegetable based products
Water
Beer
Vine
Tobacco and products
Drugs
Export
Import
Trade
deficit
121,426,885.5 511,413,763.5 -389,986,878.0
Group Export in Import in
share in overall
overall
deficit
deficit
deficit
5%
-1.6%
-6.8%
-67,272,208.3
1%
-0.3%
-1.2%
33,720,505.2 134,428,440.7 -100,707,935.5
1%
-0.5%
-1.8%
11,319,848.0 110,598,088.2
-99,278,240.2
1%
-0.2%
-1.5%
30,509,336.9 131,001,258.6 -100,491,921.7
1%
-0.4%
-1.8%
23,926,280.3
-22,236,572.3
0%
-0.3%
-0.6%
8,937,738.9 123,834,400.7 -114,896,661.8
2%
-0.1%
-1.7%
2,883,881.9 122,795,308.2 -119,961,426.3
1.6%
0.0%
-1.6%
21,950,915.1
4,973,629.7
89,223,123.4
46,162,852.6
-27,725,228.7
0%
-0.1%
-0.4%
9,731,087.8 138,209,027.0 -128,477,939.2
32,698,858.4
2%
-0.1%
-1.8%
33,292,049.1 202,690,193.9 -169,398,144.8
2%
-0.4%
-2.7%
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Financial sector in BH
 Financial sector in BH comprises:





Banking sector;
Microcredit sector;
Leasing companies;
Insurance companies;
Investment funds.
 Financial mediators assets in 2008 recorded a significantly slower
annual growth (only 5%) compared to the previous year
(33.4%).
 The assets increase in 2008 is recorded with all financial
mediators except with investments funds (assets decrease by
28% in comparison to 2007).
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The structure of financial sector in BH
 Banking sector dominates in BH financial system. The share of
this sector’s assets in financial system’s assets in the end of 2008
amounted to 80.9%. An the end of 2008, 95% of overall assets
and 88.4% of average share capital were concentrated in banks
with majority foreign ownership. The big percent of foreign
ownership is a potential risk, because the strategic decisions are
made out of reach of BH monetary authorities.
 Table 1: The value of financial mediators’ asset
2005
2006
Share,%
Value,
millions of
KM
11.440
76.9
1.793
Leasing companies 3)
2007
Share, %
Value,
millions of
KM
14.622
79.5
12.0
1.553
660
4.4
Insurance and reinsurance companies 4)
676
Microcredit organisations 5)
314
Banks 1)
Investment funds
Overall
2)
Value,
millions of
KM
14.883
2008
Share,%
Value,
millions of
KM
Share, %
19.570
79.8
20.815
80.9
8.4
1.762
7.2
1.225
4.8
1.025
5.6
1.378
5.6
1.600
6.2
4.5
708
3.8
853
3.5
890
3.5
2.1
486
2.6
946
3.9
1.213
4.7
18.394
24.510
25.743
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Financial stability report
 The financial stability represents the state of financial system
that can apsorb shocks without significant disorders and whose
function has no negative impacts on the economy.
 Financial stability report (IFS) 2007 i IFS 2008 are available on
www.cbbh.ba
 IFS should influence on:
 The improvment of understanding (and encouragement of dialogue) of
the risks for the financial mediators in macroeconomic environment
(awareness);
 Warning of financial institutions and other acters on the market on a
possible collective impact of individual actions (procycling);
 Creation of consensus on financial stability and improving of financial
infrastructure (creation of sinergy between all parts of the financial9
sector).
Financial stability report
 CBBH quarterly compiles the selected indicators of financial
soundness (FSI) on state level for deposit institutions, based on
the data which are provided by the entity banking agency for
banks under their jurisdiction.
 FSI are grouped in five categories:capital, the quality of assets,
profitability, liquidity and foreign exchange risk.
 An the end of 2009, FS indicators reported the reduction of their
values, especially in categories as the quality of assets and
profitability.
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Stress tests
 They represent the type of analysis that is used for the
identification of potential risks in system and the measurement
of system capacity of shocks absorbing, which are less probable
,but have powerfull effects.
 This type of analyses usually involves two types of scenarios:
mild and extreme.
 The mild scenario covers both the credit risk and interest rates risk.
The stress test results do not indicate the risk that is present in case of
shocks from mild scenario.
 The extreme scenario includes, along with the credit risk and interest
rates risk, also the foreign exchange risk and liquidity risk. The results
obtained according to this scenario indicate that the probability of
extreme scenario is very small.
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FSI for deposit institutions
 Worsening of the bussines conditions, then the general decline in
population standard as a result of the economy crisis, led to
significant increase of non-performing loans, which caused the
worsening of assets quality (NPL 2.8% in total assets).
 The increasing of non-interest expenditures by 6.5% at the end
of the second quarter, 2009 compared to the same period of
2008 resulted in revenues decrease by 42% and thus in overall
profitability of banking system.
 Table 2: FSI for second quarter of 2008 and 2009
Q2 2008
Net capital per risk weighted assets (CAR)
Non performing per total asset
ROAA
ROAE
Non-interest expenditures per total income
Liquid funds per total funds
Net open position
Q2 2009
Foreign owned
banks
Banking system
Foreign owned
banks
Banking system
14.7
1.9
0.2
2.8
90.5
31.8
-3.8
16.1
2.0
0.3
2.5
90.4
32.2
-1.3
15.6
2.8
0.1
1.4
94.3
28.2
1.0
16.3
2.8
0.1
1.3
94.4
28.5
2.0
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Total claims
Loans (in KM millions)
Year
Month
Short-term loans
Long-term loans
Total loans
1
February
6
7
8(6+7)
2005
1,837.00
5,707.10
7,544.10
2006
2,218.10
7,089.80
9,307.90
2007
2,752.10
9,196.90
11,949.10
2008
3,724.20
10,825.70
14,549.90
3,695.70
10,464.20
14,159.90
2009
September
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Credit ability and interest rates
 Banks restrictive approach in crediting in 2009, the extensive risk
assessment
 Change of the focus from savings to consumption – deposits
claim led to significant increase of deposit and lending interest
rates
Years
Month
1
2004
2005
2006
2007
2008
2009
February
September
Interest rates for KM loans
Short-term loans
Long-term loans
Private
Private companies and
Population
companies and
Population
associations
associations
3
4
5
6
9.92
9.78
8.23
10.78
9.03
9.32
7.69
9.91
7.66
9.55
7.39
9.34
7.03
10.54
7.13
9.95
7.42
9.14
7.36
10.93
8.28
9.82
7.87
8.99
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Claims
 In the end of June 2009 total claims from non-government
sector noted 2.3% decrease compared to the end of the
previous year and the annual growth rate of 1.5%.
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Claims and credit risk
 Interest rates growth for newly approved loans and old loans
with variable interest rate increases the risk of loans repayment.
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Capital market in BH
 The fall of domestic capital market is caused by economic and
political situation in country, as well as, by the world economic
crisis.
 Turnover on both stock exchanges in 2008 decreased by 63%
compared to 2007.
 Reported decline in value of the shares in the end of 2008 in
range from 60% to 70%.
 Table 3: Market capitalization
2006
2007
2008
In KM millions
in % GDP
In KM millions
in % GDP
In KM.millions
in % GDP
SASE
11.405
59.65
15.518
71.71
7.809
31.11
BLSE
7.460
39.01
7.748
35.80
3.686
14.68
Total
18.864
98.66
23.266
107.51
11.494
45.79
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Capital market
 Net assets value of funds at the end of 2008 decreased by 30%
compared to the end of 2007.
 Future development of capital market will depend as on world
markets events, so as on political and economical events in the
country, on the efficiency of the privatisation process and the
reform of the pension system.
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Insurance market
 Insurance market in BH is still not enough developed.
 Lack of citizens habits to take the additional insurance, along with the
the obligatory one.
 Adverse economic conditions in the country.
 Opposit to the assets, which have increased by 4.3%, the profit
of the insurance companies decreased by 37.6% in 2008
compared to 2007.
 Insurance premium in 2008 was 1.8% of the GDP.
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Insurance market
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Leasing market
 Significantly increased funding through leasing in previous years.
 Law regulations is hindrance for the leasing companies bussines
throughout the country.
 According to the laws on leasing in RS (November, 2007) and
FBH (December, 2008), monitoring over the leasing companies
bussines is done by the entity banking agencies.
 At the end of 2008, leasing companies have tightened their
criteria for assesing the creditworthiness of clients and shifted
the focus of financing from the real estates to the movable
properties, primarly vehicles and equipment.
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Leasing market
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Microcredit organizations
 Microcredit organizations bussines in BH is legaly regulated since
2007 and the supervisors role of the microcredit sector is
assigned to the entities’ banking agencies.
 Microcredit sector assets in 2008 amounted to KM 1.21 billion,
which is by 28% bigger than in 2007.
 The largest part of MCOs assets is related to the loans (92.1%).
and in the loans structure even 97.3% are loans to the
households.
 Profitability indicators in 2008 are on significantly higher level
than in the banking and other financial sectors : ROA is 3.8%
and ROE is 18.1%.
 Significant risk for increase of the NPL.
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Recommendations for the financial sector
 Further development of awareness that the financial stability is
not only the responsibility of the Central Bank of BH, but all
actors of the financial market and government policies.
 To Develop the control in all segments of the financial sector.
 To Keep working on further development of cross-border
supervision.
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Recommendations for the real sector
 To encourage development of the infrastructure in the field of
standards, certification and quality in accordance with the EU
regulations,
To direct ourself on the development and strengthening of
domestic capacitities, especially subsidies for food production,
To develop the power supply capacities,
Special attention should be paid to country´s export capacities
and to the raw material component of export, this branch should
not be exploited, instead, we need to focus on development and
export of final products groups,
 To discipline the fiscal policy and maintain the budget balance,
To perform the analysis of deficit and subsidize sectors, whose
production can substitute the import.
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Recommendations for governments
To stop the policy of raising the salaries in the public sector,
which is present from the beginning of the current year,
The introduce the adequate exemptions and subsidies for the
farmers,
To continue the privatization process,
To establish the strategy for development and preservation of
domestic agriculture,
To strengthen the activities to attract direct foreign investments,
To create the appropriate social policy to protect the poorest,
To keep working on long-term creation of the political stability.
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Thank you for your attention
http://www.cbbh.ba
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