Important facts about the banking sector in BH in light of financial developments

Better capitalization than in Western Europe.  Banks in BiH, due to more rigorous requirements, have more favorable capitalization indicators. Our indicators, which measure the ratio of the amount of equity and assets are significantly higher than in the countries of Western Europe, and in BiH they amount to around 16%, while it is common in the countries of Western Europe that they amount to around 11% or 12%. That is the consequence of more strict requirements in terms of the amount of equity, and they were introduced exactly for the reason to provide additional resistance of the banking system at "less mature" markets.

Banks to do not show signs in deterioration in business performance. We should remember that crisis commenced a year ago and that at that time we became suspicious in regard to the situation in our banking system. But in the past period, our banks have continued with healthy growth, followed by sound profitability, which was not the case in Western Europe in the course of 2007. The biggest profit was registered in 2007. It was like that in the course of 2008 as well. Banks operate without disruptions, they do not have problems with liquidity, they have solid profits and do not show signs of weakness. By increasing required reserves, CBBiH strengthened conditions for business performance, but so far, it did not make any disorder in their work. Hence, we can say that so far, crisis did not "spill over" to BiH, since the causes of crisis are not here.

Problems are possible with credits, but not with deposits. As a consequence of global crisis there might be disorders, which means that banks will not have such strong expansion as it was the case so far. However, problems are fundamentally not connected with BiH and thus, our banks may suffer the consequences from outside, which might have an impact on credit availability, but it will not have an impact on our deponents and their deposits at all.

Foreign banks can easily support their daughters. The share of BiH banks within foreign banking groups is very small and amounts to around 3-5%. Thus, big foreign groups cannot have a problem to support their banks-daughters in BiH and can easily intervene, if it proves to be necessary. Considering the fact that significant disorders have not yet been noticed within these groups, we can expect that foreign groups are ready and willing to help in case of need. Similar conclusion could not be made in case of their daughters in Russia or Ukraine, where they have significantly higher level of exposure.

Implicit guarantee for foreign banks in BiH. Prime Ministers of EU Governments have conveyed a very clear message that they will not allow at any price the collapse of banks, and for that reason already for two days increase of investments positive thinking in EU and USA is recorded. With such guarantees, practically implicit guarantee was provided for all the members of the banking groups in Austria and Italy, which dominate at our market. It is almost impossible that some foreign bank would allow a collapse to happen to its subsidiary in some of the countries, as that would have a negative impact on their reputation and would cause a domino effect in other countries as well.

Structure of business performance of our banks is significantly different from those banks that faced collapse, that is, problems, in England, Iceland and similar. Our banks are engaged in traditional banking and did not include in their assets potentially dangerous assets, but almost exclusively only credits intended for domestic economy. Therefore, their assets are not jeopardized by significant drop in value of stocks or property in countries with overpriced property.

Not risky method of financing. Also, our banks, in terms of financing, are not exposed to markets, which vanished over the night. Problem of many banks in the West incurred when they could no longer realize their financing at money markets or markets of short-term bonds, who were deserted by the investors, as soon as confidence was shaken. Thanks to strong requirements in terms of term harmonization, our banks, luckily, did not have that flexibility to go in debts for short-term period of time and to launch long-term credits. Our banks are significantly financed on the basis of domestic deposits and that is the model, which survived in the USA, where such banks are now buying investments banks.

Banks in BiH are not quoted at stock-exchanges. One of the causes of collapse of banks in USA and in Great Britain is variability of their stocks at stock exchanges due to "short selling", when, due to the drop of their market value, those banks become less capable for indebtedness. Banks in BiH are not the subject of speculations at stock exchanges and their creditors know very well their financial ability and on those basis they provide them with the necessary financing with appropriate price which reflects their financial ability. There is no possibility that, due to drop in value at stock exchanges, they then have to pay much more for new indebtedness, as they already now have adequate price of financing.

Loss due to keeping out of banks. Keeping the money without interest out of banks is not worthwhile in the inflationary environment. In the periods, when inflation is low, that effect was not felt so much. But today, when inflation in Euro-zone amounts to 4%, keeping euros out of banks means that savers suffer a significant loss at their saving. Instead of having an earning after one year around cca 5% for the deposit in the bank, by keeping their money at home, savers lose 4%.

We will not be able to avoid the consequences, but financial system is not in danger. Economic consequences of crisis will certainly be felt in BiH through various forms. Less demand for our imports, less foreign investments, less tourists, les transfers, especially from USA, less donation aid, poor privatization, etc. But, even in such developments, our financial institutions are not in danger. They will keep working and it will be particularly important that we begin to save more and put that money at disposal for production activities.

Data. Intervention of CBBiH, which provided 200 million Euros in cash, and then reduced required reserve rate from 18% to 14% and additional 727 million KM, will help banks in terms of additional liquidity.

Indirect impact. Indirect consequences can be felt and it is impossible to avoid them - they are reflected in mild increase of interest rates, more strict requirements for obtaining the credit, etc. By withdrawing deposits from the banks, additional problem is being created in terms of reduction of funds for investments and increase in price of capital. All that would have an impact on the standard of citizens, and economy would also face difficulties.

Role of media. At the end, I would emphasize the role and importance of media, without any wish to have any influence over them in any way, but with a need to emphasize their responsibility too, as actually in the existing situation we all have to work in the interest of citizens and state. Increase of tensions without reason, sensationalism, possible creation of the feeling of panic amongst citizens do not contribute to stabilization of the situation. Therefore, I invite media to base their reports on arguments, but also all those competent in the banking and financial sector, to base their statements on arguments as well and as much as possible support them with appropriate data.