Financial Regulations in Bosnia and Herzegovina: A Comparison with European Union Standards

Introduction

This report assesses the financial regulations in Bosnia and Herzegovina (BiH) against European Union (EU) standards. The evaluation focuses on various sections of the BiH regulations, including own funds, credit risk, and credit risk mitigation.

Own Funds Requirements

The BiH regulations have higher own funds requirements compared to the EU framework:

• CET1 ratio: 6.75%
• T1 ratio: 9%
• Total Capital ratio: 12%

The trigger event is set at 7.687% or higher.

Credit Risk Framework

The BiH framework for Standardized Approach to Credit Risk includes the same exposure classes as in the EU’s CRR, with some notable exceptions:

• Residential properties secured by mortgages: The approach is more conservative.
• Other exposure classes: The approach is equivalent to the EU standards.

Credit Risk Mitigation

The BiH regulations are considered equivalent to the EU standards in this section, allowing banks to use credit risk mitigation techniques such as:

• Collateralization
• Guarantees

Securitisation

Investments in asset-backed securities issued abroad would be treated as deductible items from CET1 or risk-weighted 1250%, although this is not relevant at present.

Cross Holdings

The regulations provide that significant investments in CET1 instruments or the deduction of DTA (Deferred Tax Assets) is not allowed.

Conclusion

While there are some differences between the BiH regulations and EU standards, the overall effect is not material.