1. Cross Section of the Financial Sector Developments in Bosnia and Herzegovina Radomir Božić. Ph.D. Sarajevo. October 5. 2011. Fifth SASE International Conference

2. Macroeconomic indicators. 2 200920102011 Gross domestic product (GDP) KM 23.95 bill KM 24.75 bill GDP per capita KM 6.233KM 6.440 Real growth rate-3.2%0.7%3.2% (proj.) Industrial production growth rate -3.3% 1.6%7.7% (period till June) The average annual inflation0.0%3.1%3.8% (June) Unemployment rate at the state level24.1%27.1%27.1%27.6 % Average wage at the state level KM 790KM 798KM 820 (June) External debtKM 5.2 bill (21.7% GDP) KM 6.25 bill (25.4 % GDP) KM 6.193 mill (June) Current account deficitKM 1.48 bill (6.2% GDP) KM 1.36 bill (5.5% GDP) KM 1.423 mill Q1(16.7 % compared to 2010) Coverage of import by export44.8%52.1%58.1% DFI (estimate) KM 358.9 millionsKM 93.7 millionsKM 131 mill in Q1 Foreign exchange reserves KM 6.212 bill KM 6.457 bill KM 6.265 mill (Aug)

3. The structure of BH financial sector The banking sector dominates the financial system in Bosnia and Herzegovina. The share of this sector in the assets of the financial system amounted to 84.3% at the end of 2010. At the end of 2010 82% of average equity was concentrated in banks with majority foreign ownership. A large percentage of foreign ownership is a potential risk due to the fact that the strategic decisions are made out of the scope of monetary authorities of Bosnia and Herzegovina. Table: The value of the assets of financial intermediaries 3 2007200820092010 Value. KM millions Share. % Value. KM millions Share. % Value. KM millions Share. % Value. KM millions Share. % Banks19.57079.820.81580.820.60482.720.41684.3 Investments Funds1.7627.21.2254.88713.58883.7 Leasing Companies1.3785.61.6076.21.4165.71.1084.6 Insurance and Reinsurance Companies8533.58903.59403.89413.9 Microcredit Organization9463.91.2134.71.0874.48563.5 Total24.510 25.749 24.919 24.210

4. Profitability and the level of the non-performing loans. 4

5. The results of the banking sector of Bosnia and Herzegovina for Q2 2011 Better business results compared to the same period last year – KM 82.9 millions of profit compared to KM 63.9 millions of loss The total income of banks in this period amounted to KM 828.4 millions (increase by 5% compared to Q2 2010), while total expenditure amounted to KM 741.7 millions (decrease by 13% compared to Q2 2010) 22 banks reported the positive financial result (profit) in the total amount of KM 100.5 millions and 7 banks reported negative financial result (loss) in the total amount of KM 17.1 millions 5

6. The results of the banking sector of Bosnia and Herzegovina for Q1 2011 The total of 29 commercial banks, two under provisional administration 25 banks had a licence for the deposit insurance The total of 10.319 employees, being the increase of 0.4% compared to Q1 this year 6 31.12.2008. 31.12. 2009.31. 12. 2010.31. 03. 2011. Total number of banks30 29 Private owned banks28 State owned banks2211

7. The structure of share capital At the end of the first quarter realized capital adequacy ratio amounted to 15.5 (at the end of 2010 it amounted to 16.1). 7 31. 12. 2008 amount Share 31. 12. 2009 amount Share 31. 12. 2010 amount Share 31. 06. 2011 amount Share TOTAL CAPITAL1.528100 %1.597100 %1.719100 %1.746100 % STATE CAPITAL493 %443 %543 %503 % PRIVATE CAPITAL1.47997 %1.55397 %1.66597 %1.69697 % Herein: -foreign capital 1.28484 %1.34784 %1.41682 %1.44182 % -domestic capital19513 %20613 %24915 %25515 %

8. The banks assets The banks continue to keep significant funds in the accounts with depository institutions abroad amounting to KM 1.66 billions, which is 32% of total funds. Compared to the same period of 2010, this share decreased by three percentage points. 8 31. 12. 2008 amount Share 31. 12. 2009 amount Share 31. 12. 2010 amount Share 31. 06. 2011 amount Share TOTAL ASSETS Out of which: 20.821100 %20.617100 %20.451100 %20.648100 % -Funds6.18030 %6.28831 %5.75628 %5.16325 % -Placements to other banks1091521 %2031 %3882 % -Loans13.51865 %12.84262 %12.95363 %13.38865 % -Fixed assets and business premises6743 %7313 %7654 %7594 % -Securities331711 %4312 %5682 % -Other3072 %4332 %3432 %3822 % In KM millions

9. The banks liabilities The share of obligations in total liabilities is 88% and the share of equity is 12% 9 In KM millions 31. 12. 2008 Amount Share 31. 12. 2009 Amount Share 31. 12. 2010 Amount Share 31. 06. 2011 Amount Share TOTAL LIABILITIES Out of which: 20.821100 %20.617100 %20.451100 %20.648100 % -Deposits15.16773 %15.20774 %15.01173 %15.07773 % -Liabilities based on loans2.55912 %2.32911 %2.12011 %2.13110% -Borrowing from other banks3372 -Reserves for potential loan losses22234347 -Capital2.16611 %2.21011 %2.40212 %2.48712 % -Other liabilities9044 %8454 %8684 %9045 %

10. The structure of deposits by sectors The deposits in local currency increased by KM 143 millions or 8% and deposits in foreign currency decreased by KM 77 millions or 1%. The share of deposits in local currency in total deposits increased by one percentage point - from 44% to 45%. 10 In KM millions 31. 12. 2008 amount Share 31. 12. 2009 amount Share 31. 12. 2010 amount Share 31. 06. 2011 amount Share TOTAL DEPOSITS Out of which: 15.167100 %15.207100 %15.011100 %15.077100 % -Government institutions2.13214 %1.83312 %1.46610 %1.2418 % -Public enterprises1.56710 %1.64510 %1.65411 %1.88413 % -Econ. comp. and associoations2.13414 %1.97513 %1.94113 %1.74212 % -Non-profit organizations3122 %5593 %4703 %4973 % -Banking institutions 3.177 21 %2.95319 %2.36216 %2.37516 % -Households5.31135 %5.76140 %6.62444 %6.85145 % -Other5343 %4813 %4943 %4893 %

11. The structure of deposits by currencies In period January – March 2011 there was a change in the maturity structure of deposits – the share of short-term deposits increased from 53% to 55% and the share of long-term deposits decreased from 47% to 45%. 11 In KM millions 31. 12. 2008 amount Share 31. 12. 2009 amount Share 31. 12. 2010 amount Share 31. 06. 2011 amount Share TOTAL DEPOSITS15.167100 %15.207100 %15.011100 %15.077100 % Out of which: -Deposits in KM 6.03040 %6.21141 %6.57344 %6.71645 % -Deposits in foreign currency9.13760 %8.99659 %8.43856 %8.36155 %

12. Savings The savings in local currency increased by KM 135 millions or by 8% and the savings in foreign currencies increased by KM 108 millions or by 2%. 12 In KM millions 31. 12. 2008 amount Share 31. 12. 2009 amount Share 31. 12. 2010 amount Share 31. 06. 2011 amount Share TOTAL SAVINGS4.808100 %5.255100 %6.044100 %6.287100 % Out of it: -Savings in KM 1.44730 %1.43527 %1.71228 %1.84729 % -Savings in foreign currencies3.36170 %3.82073 %4.33272 %4.44071 %

13. Loans 13 In KM millions 31. 12. 2008 amount Share 31. 12. 2009 amount Share 31. 12. 2010 amount Share 31. 06. 2011 amount Share TOTAL LOANS14.040100 %13.496100 %13.936100 %14.407100 % Out of which: -Private companies 6.63347 %6.47448 %6.73248 %7.08649 % -Public enterprises2222 %2372 %3092 %3502 % -Government institutions2311 %3432 %4363 %4453 % -Households6.68748 %6.29247 %6.31446 %6.41245 % -Other sectors2672 %1501 %1451 %1141 % The loans to private companies increased by KM 354 millions or 5% and the loans to households increased by KM 98 millions or 1.5%.

14. Lending interest rates Year INTEREST RATES ON LOANS IN KM INTEREST RATES ON LOANS IN KM WITH CURRENCY CLAUSE INTEREST RATES ON LOANS BY CREDIT CARDS Short-term loans Long-term loans Short-term loans Long-term loans Short-term loans to households Long-term loans to households Private companies and associations Households Households Households Households 20067.669.557.399.34... 20077.0310.547.19.977.810.067.838.4211.5612.76 20087.429.147.1611.098.939.888.5510.211.4413.96 20098.19.886.87.878.629.817.749.5611.7115.06 20107.849.678.259.18.159.517.848.711.9314 7.20117.399.93 7.47 8.368.509.597.658.5711.6414 The data on the average interest rate on loans to private companies and households in foreign currencies are provided by small number of banks and therefore not included in this review.

15. Deposit interest rates 15 Year INTEREST RATES ON DEPOSITS IN KM INTEREST RATES ON DEPOSITS IN FOREIGN CURRENCIES Demand Deposits Time and Saving Deposits Demand Deposits Time and Saving Deposits Private companies and associations Households Households Households Households 20060.370.493.753.48... 20070.330.353.653.980.060.363.413.83 20080.370.322.993.610.110.314.944.2 20090.30.253.63.570.220.274.234.18 20100.170.153.382.890.040.183.213.25 7.20110.150.112.013.000.020..272.623.22 The data on the average interest rate on deposits by private companies and households in KM with currency clause are provided by small number of banks and therefore not included in this review.

16. Microcredit sector in Bosnia and Herzegovina as of June 30, 2011 24 microcredit organizations operating on state level Federation of BHRepublika Srpska 16 microcredit foundations One microcredit association Four microcredit foundations Three microcredit associations 1.844 employees in BH micorcredit sector Federation of BHRepublika Srpska 1.477 emloyees367 employees There is a trend of reducing the number of employees, as well as the number of organizational units. Compared to December 31, 2010. number of employees decreased by 3.4% (total of 64 employees)

17. The organization of microcredit sector in Bosnia and Herzegovina The legal basis The Law on microcredit sector in the Federation of BH The Law on microcredit sector in RS Form of organization MC foundations as non-profit institutions (max. Loan up to KM 10.000) MC associations as profit institutions (max. loan up to KM 50.000)

18. The structure of assets of the microcredit sector in Bosnia and Herzegovina The balance sum in first half of the year amounts to KM 774 millions and it decreased by KM 70 millions or 8.3% compared to the previous year.

19. The structure of the liabilities of microcredit sector in Bosnia and Herzegovina There is a downward trend in balance sum compared to the previous year in all entries of assets and liabilities

20. Profit and Loss Account for the microcredit sector in Bosnia and Herzegovina Profit and Loss Account Total income KM 70.1 millions Total expenditures KM 74.9 millions The excess of expenditures KM - 4.8 millions The income decreased by 22% compared to the same period in previous year, while the expenditures decreased by 31% in the same period. In the first six months of 2011, the MCO sector reported the profit amounted to KM 3.05 millions (in the same period of previous year the loss amounted to KM 16.8 millions)

21. The total loans portfolio of the microcredit sector The total loans portfolio amounts to KM 629.6 millions

22. The structure of loans to legal entities.

23. The structure of loans to physical entities

24. The interest rates in the microcredit sector in Bosnia and Herzegovina.

25. Trends in the microcredit sector in Bosnia and Herzegovina Reduction of lending activities due to restrictive lending policy Increase in written off loans Increase in liquidity Improving of the business results Improving of internal control systems in most MCOs. the adjustment of lending policies to the demands of regulators.

26. Neccessary measures at the sectoral level Amendments to the Law on the MCOs in order to eliminate ambiguities of existing regulations Improving in corporate management and internal controls Limitation of transactions with connected persons Increasing the transparency of MCOs business through the exchange of information at the sectoral level through the CRC Consolidation of the sector

27. The situation in the leasing sector in Bosnia and Herzegovina The balance sum of the leasing companies in Bosnia and Herzegovina for the first six months of 2011 amounted to KM 1.066 millions with the following structure and it decreased by 4% compared to 2010.

28. The organization and ownership structure of the leasing sector Legal framework The Law on Leasing in the Federation of BH The Law on Leasing in RS In Bosnia and Herzegovina there are nine leasing companies registered, as follows: In Federation of BH - seven In RS - two The ownership structure of leasing associations 100% foreign owned - three Majority foreign ownership - four Majority domestic ownership - two There are 245 employees in the leasing companies in Bosnia and Herzegovina

29. The structure of liabilities of the leasing sector The structure of liabilities as follows: obligations based on loans 101.1% Other obligations 2.7% equity * -3.8% *the total obligations are bigger than the total liabilities due to the negative value of equity

30. The situation in the leasing sector in Bosnia and Herzgovina The first half of the year ended with a loss of KM 32.06 millions, which is by 54% less compared to the same period last year. Total income KM 59.3 millions Total expenditures KM 91.4 millions Profit before taxation KM - 32.1 millions Taxes KM 10 millions Loss after taxation KM 32 millions

31. Trends in the leasing sector The sector shows signs of recovery and the stopping of negative trends A slight increase in business activities The biggest negative impact on the financial indicators of leasing companies have loans being lended before the law on leasing entered into force The negative equity of the sector is the result of accumulated losses

32. Neccessary measures at the sectoral level Capital strengthening Improving the policies and procedures for management of loans, operational and market risks. Establishing the system of internal controls and the functions of the internal audit Increasing the transparency of business through the exchange of information at the sectoral level through the CRC.

33. 33 Thank you for your attention http://www.cbbh.ba 33