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Credit Risk Regulation in Bosnia and Herzegovina

Standardised Approach to Credit Risk

The regulatory framework for credit risk in Bosnia and Herzegovina is equivalent to that outlined in the Capital Requirements Regulation (CRR). All banks in the country use the Standardised Approach, as authorized by the supervisory authorities.

Exposure Classes

The Standardised Approach includes the same exposure classes as the CRR. However, some notable differences exist:

  • Residential Properties Secured by Mortgages: 50% risk weight vs. 35% in the CRR.
  • Commercial Real Estate Secured by Mortgages: 75% risk weight vs. 50% in the CRR, with a Loan to Value ratio of 60% vs. 50%.
  • Covered Bonds: Treated similarly to the CRR, but only exposures guaranteed by central banks, central governments, or institutions qualifying for credit quality step 1 can benefit from preferential treatment.

Public Sector Entities and Retail Exposures

Public Sector Entities are defined identically to the CRR:

  • Non-commercial administrative bodies responsible to central/regional/local governments
  • Non-commercial legal entities owned by or set up by central/regional/local governments, with explicit unconditional guarantees for their obligations

Retail exposures are also defined similarly, but with a limit of approximately 125,000 EUR (vs. 1 million EUR in the CRR).

Defaulted Exposures

Defaulted exposures are treated in the same manner as in the CRR:

  • 150%/100% treatment
  • Credit risk adjustments less/no less than 20% of the unsecured part of the exposure value if these credit risk adjustments were not applied
  • Definition of default includes both the 90-day past due and unlikely-to-pay criteria

Cross-Dependence between Property Values and Borrower Credit Quality

Unlike the CRR, the regulation does not explicitly consider cross-dependence between property values and borrower credit quality. However, according to Article 7 of the Decision on Credit Risk Management and Accounting, banks should take this dependence into account prior to approving exposures and assessing client creditworthiness.

Credit Risk Mitigation

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The regulatory framework for credit risk mitigation in Bosnia and Herzegovina is equivalent to that outlined in the CRR. However, some specific provisions exist:

  • Defined Benefit Obligations (DBOs): No deduction is prescribed for DBOs related to pension funds.
  • Deferred Tax Assets: All banks in RS and FBiH must deduct the entire amount of deferred tax assets; no netting against deferred tax liabilities is allowed.

Minority Interests

Minority Interests are not specifically addressed, but this has a negligible effect on the overall framework.