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Assessment of Bosnia and Herzegovina’s Banking Regulations against EU Capital Requirements Regulation (CRR)

Bosnia and Herzegovina has implemented a set of banking regulations that align with the European Union’s Capital Requirements Regulation (CRR). This assessment evaluates how Bosnia and Herzegovina’s regulatory framework compares to the CRR in several key areas.

Section 1: Supervisory Powers

The Central Bank of Bosnia and Herzegovina (CB BH) and the Agency for Statistics (BARS) / Financial Stability Board (FSA) have been granted supervisory powers to assess banks’ risk profiles, including credit risk management. The Single Supervisory Mechanism (SREP) methodology used by these agencies is aligned with the EU’s approach.

  • Key responsibilities:
    • Assess banks’ risk profiles
    • Evaluate credit risk management practices
    • Ensure compliance with regulatory requirements

Section 3: Own Funds

Bosnia and Herzegovina has established its own funds requirements, which are higher than those prescribed in the EU framework. The composition of core capital items is similar to Common Equity Tier 1 (CET1) under CRR, with eligibility criteria matching those set out in the CRR for all capital instruments.

  • Own funds requirements:
    • Higher than EU framework
    • Composition similar to CET1
    • Eligibility criteria match CRR
  • Trigger event: 7.687% or higher

Section 5: Credit Risk (Standardised Approach)

Bosnia and Herzegovina’s framework for credit risk under the Standardised Approach is equivalent to the EU’s approach, with similar exposure classes and risk weights.

  • Notable exceptions:
    • Residential properties secured by mortgages: higher risk weights (50% vs. 35%)
    • Commercial real estate secured by mortgages: higher risk weights (75% vs. 50%) but with a Loan-to-Value ratio of 60%
    • Covered bonds: same approach as CRR Art. 129, but only exposures guaranteed by central banks, governments, or institutions qualifying for credit quality step 1 can allow for preferential treatment

Section 7: Credit Risk Mitigation

The framework is equivalent to the EU’s approach, with similar definitions of public sector entities, retail exposures, and defaulted exposures.

  • Key features:
    • Equivalent to EU’s approach
    • Similar definitions of public sector entities, retail exposures, and defaulted exposures
    • Cross-dependence between property value and borrower creditworthiness not explicitly envisaged in the regulation