Equivalence Assessment of Bosnia and Herzegovina’s Regulatory Framework with the European Union’s Capital Requirements Regulation (CRR)

Overview of Key Findings

Bosnia and Herzegovina’s (BiH) regulatory framework has been assessed for its equivalence with the European Union’s (EU) Capital Requirements Regulation (CRR). The assessment covers various sections, including own funds requirements, credit risk, and credit risk mitigation.

Own Funds Requirements

BiH’s regulations have slightly higher own funds requirements compared to the EU framework. Key ratios are:

• Common Equity Tier 1 (CET1): 6.75%
• Tier 1 (T1): 9%
• Total Capital: 12%

The trigger event for reducing own funds is set at 7.687% or higher.

Credit Risk

BiH’s framework for Standardised Approach to Credit Risk is equivalent to the EU’s CRR. However, it includes more conservative risk weights for specific exposure classes:

• Residential properties secured by mortgages: Higher risk weight (50%) compared to the EU’s 35%
• Commercial real estate secured by mortgages: Higher risk weight (75%), but with a slightly higher Loan-to-Value ratio (60% vs. 50%)

Credit Risk Mitigation

BiH’s regulations are equivalent to the EU’s CRR in terms of credit risk mitigation. However, they do not provide for preferential treatment for covered bonds backed by real estate properties.

Deductions and Adjustments

BiH’s regulations have some differences compared to the EU framework regarding deductions and adjustments:

• Defined Benefit Obligations (DBO): Related to pension funds are not deductible, reflecting the fact that this type of instrument is not applicable in the BiH market.
• Retail exposures: Have a lower limit of 125,000 EUR, reflecting local market conditions.

These points provide an overview of the assessment’s findings on the equivalence of BiH’s regulatory framework with the EU’s CRR.