1. MARKET OF GOVERNMENT SECURITIES IN BH Securities in the BH Financial Market – Preparation for Issuing of Government Securities Banja Vrućica, 18. May 2006 KEMAL KOZARIĆ

2. 2 Resolving of old internal debt issue, emphasizing the old foreign savings issue Resolving of foreign debt issue New investments Short-term funding of the budget at all levels Government Securities are Useful for:

3. 3 Indebtment on the basis of long-term state debt can occur if, at the time of debiting from the long-term direct internal state debt or long-term direct foreign state debt, the amount of servicing of long- term debt being due in any following year, does not pass 18% of regular incomes performed in preceding fiscal year. Limitation on state debt amount of 18% from this Article shall be valid three years since the date of this Law entering in force, and it shall be subject to annual analysis The CBBH is the fiscal agent for internal securities in accord to the terms defined by credit agreements and BH securities in accordance with the Agreement signed with the BH Ministry of Finance and Treasury Legal basis:

4. 4 The Law on Debt Issuance, Debt and Guarantees of Bosnia and Herzegovina Agreement with the Ministry of Finance and Treasury of BH on performing fiscal agent tasks for securities Entity Laws on Debt Issuance, Debt and Guarantees Contracts with Registry of Securities in FBH and Central Registry of Securities of RS Contracts with Sarajevo and Banja Luka stock exchanges Contracts with commercial banks Operative rules for trading in government securities Legal Framework of the CBBH Engagement in Operations with Government Securities:

5. 5 Participants in the market: Commissions for Securities, stock exchanges (Sarajevo and Banja Luka); registries of securities, brokerage houses and commercial banks BH Capital Market Council – the body coordinated by the CBBH which unites all the market participants: the CBBH, Ministry of Finance and Treasury of BH, Entity Ministries of Finance, Commissions for Securities of both Entities, commercial banks and the stock exchanges. The BH Law on Indebting, Debt and Guarantees was adopted in Parliamentary proceedings on June 29, 2005 Capital Market :

6. 6 Capital Market: Stock Exchanges in BH (1)

7. 7 Capital Market: Stock Exchanges in BH (2) The total turnover on stock exchanges in BH in 2005 was 426.140.785,96 € Sarajevo Stock Exchange Banja Luka Stock Exchange 283.946.946,66 €142.193.839,32 €

8. 8 Role of the BH commercial banks – Possibility to invest excess liquidity

9. 9 BH Parliamentary Assembly adopted the Law on Settlement of Liabilities out of old foreign currency savings. The Law sets the proceeding, way and deadlines of BH liabilities’ settlement according to accounts of old foreign savings deposited in local banks in BH territory. For the settlement of these liabilities, BH is considered to be responsible, and assets are provided by FBH, RS (entities) and BH Brčko District Proceeding of claims’ verification is prior to the liabilities’ settlement. In the proceedings of verification, banks are required to cooperate with Entities’ Ministries of Finance, District’s Income Administration, Agencies and Commissions for Verification of Old Foreign Savings Accounts Deadline for submission of requests on verification of all foreign savings accounts in six months since the day of this Law entering in force and the Agencies are obliged to complete the verification proceeding within nine months from the day of this Law entering in force. Old Foreign Savings:

10. 10 PAYOUT PROCEDURE: When the verification of individual requests is completed and the claimer agrees with the amount verified by the Agencies, the claimer should sign the verification certificate. Upon signing of the Statement on renouncing of plea right, the claimer is paid out the maximum amount of KM 100, or the total amount of claims up to KM 100. Along with this, each individual claimer recorded in the Register, upon submitting the verification certificate, is paid out the maximum amount of KM 1.000, or total amount of claims up to KM 1.000, including the already paid amount of KM 100 and this by the end of 2007. Cash payout shall be done according to the proceeding and in the way defined by executive regulations of Entites and District, and the remaining unpaid claims are settled with bonds in accordance to this Law. Old Foreign Savings(2):

11. 11 Obligations from the old foreign currencies accounts, which have never been recalculated, shall be recalculated in the CBBH middle exchange rate on the day of this Law entering in force. Liabilities not paid out in cash are settled with bonds that shall be issued no later than March 31, 2008 under following terms: Maturity date up to 13 years and no later than December 31, 2020, but the schedule on bonds’ maturity years shall be defined by the Decision of BH Council of Ministers Annual interest 2, 5%; Possibility of advanced repurchase. Principal capital and interest on securities are directly paid out from the part of Entities’ assets and of District from the Unified Account of BH Treasury. Escrow account and Account for debt servicing according to bonds of all foreign savings shall be opened in CBBH for this purpose, and BH Ministry of Treasury and Finance shall manage it. Old Foreign Savings (3):

12. 12 Old Foreign Savings (4): BONDS ON THE BASIS OF OLD FOREIGN SAVINGS FBH1.004.000.000 RS719.800.000 10 years13 years Year FBHRSFBHRS 2006 30,0019,5530,0019,55 2007 125,2239,59115,1832,39 2008 74,5553,4554,7239,23 2009 93,3766,9464,0145,89 2010 111,7080,0873,0452,37 2011 119,4885,6681,8358,66 2012 137,0598,2590,3664,78 2013 134,0396,0998,6470,72 2014 141,06101,1396,6469,28 2015 147,84105,99114,7182,24 2016 154,37110,67112,2080,44 2017 - -129,7793,03 2018 - -126,7690,87 2019 - -133,7895,91 2020 - - - -

13. 13 Old Foreign Savings (5):

14. 14 HardwareSoftware Network Infrastructure Hardware and software – donation of the USA Government, through agency US Treasury Technical Pre-conditions for Operations with Government Securities:

15. 15 Market of Government Securities: The Process of Securities Trading (1) BLSE SASE Bank A (Buyer) Bank B (Seller) The Central Bank of BH Trading Platform Payment Single Registry State Ministry of Finance and Treasury FBH Registry RS Registry 1. Bank A sells bonds to bank B through the trading platform or trade is performed through the stock exchange. The trade starts by entering data in the trading platform on offer for purchase and sale by the seller and the buyer. In order to effect the trade, the entered data on sale and offer have to match. 1.1.

16. 16 BLSE SASE Bank A (Buyer) Bank B (Seller) The Central Bank of BH Trading Platform Payment Single Registry State Ministry of Finance and Treasury FBH Registry RS Registry 2. After the parties agree on trade, the transaction is “locked” until the end of the day or until the process of delivery and payment is completed. The information on trade will be sent to the registry (or the registries, if the seller and the buyer are registered in different registries) and at the same time, the payment order will be issued. The ownership of bonds in the registries will not be changed until the payment is fully effected. 2.2. Market of Government Securities: The Process of Securities Trading (2)

17. 17 BLSE SASE Bank A (Buyer) Bank B (Seller) The Central Bank of BH Trading Platform Payment Single Registry State Ministry of Finance and Treasury FBH Registry RS Registry 3.After the registry (registries) receives the data on trade, these data are entered in the system of the registry, without changing the ownership status. The transaction then has the unresolved status until the official registry confirms that the payment has been performed. 3.3. Market of Government Securities: The Process of Securities Trading (3)

18. 18 BLSE SASE Bank A (Buyer) Bank B (Seller) The Central Bank of BH Trading Platform Payment Single Registry State Ministry of Finance and Treasury FBH Registry RS Registry 4. After the registries receive confirmation on the effected payments, they check if both banks are registered in their registry. Except for the registration of banks, the Entity registries will open one account for the other registry (for the situations when the buyer and the seller are not registered in the same registry). 4.4. Market of Government Securities: The Process of Securities Trading (4)

19. 19 Every participant in trade is registered in one registry, NOT IN BOTH OF THEM! Direct participants (banks) in trade have to have accounts in the CBBH for payment and settlement. Other participants (from Sarajevo and Banja Luka Exchanges) have to perform payment and settlement through direct participants (banks). There can be no change of ownership before the payment is completed. Market of Government Securities: Important Rules of the Trading Process Itself

20. 20 And Tomorrow? Issuing of quality government securities Future initiatives: Development of capital market in BH; To make the capital market attractive to foreign investors; Regional connecting of stock exchanges in Southeastern Europe; Developing other capital market instruments: corporate securities, entity and municipality securities etc... SEM - an informational platform of the Stock Exchanges of SE Europe. At the moment, there are 8 participating Exchanges, which operate markets with more than 2,190 securities and more than 170 brokerage houses

21. 21 Conclusion CBBH is ready for the role of the fiscal agent – it has infrastructure and trained staff members Also, Commissions for Securities of both Entitles, Registers of Securities of both Entities, Stock Exchanges of both Entities and commercial banks are ready for start of issuing. We are waiting for the decision of State authorities and issuance of stocks by the State. It is important to issue the securities of high quality in the very beginning, which will make this market more credible.