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Assessment of Bosnia and Herzegovina’s Banking Regulations

Section Assessment: Credit Risk Mitigation Techniques

Bosnia and Herzegovina’s banking regulations allow for credit risk mitigation techniques that are equivalent to those in the Capital Requirements Regulation (CRR), with some limitations. The main credit risk mitigation techniques allowed under Bosnian regulations are:

• Cash collateral: equivalent to the CRR
• Financial collateral: subject to the same conditions as in the CRR (e.g. perfection, enforceability, transferability)
• Credit risk mitigation through eligible guarantees: subject to the same conditions as in the CRR
• Default swaps: not explicitly mentioned in the regulation, but could be considered equivalent to credit default swaps (CDS) under the CRR

However, there are some differences and limitations:

• Eligible collateral may only be pledged by credit institutions and financial institutions that have a high credit rating (in accordance with the regulation on credit risk management)
• The valuation of collateral is not explicitly mentioned in the regulation, but could be considered equivalent to the CRR’s approach
• There are no specific rules for the minimum amount of collateral required to reduce the risk weight of an exposure
• There are no specific rules for the use of collateral substitution or rehypothecation

Section 9: Operational Risk

Standardised Approach

Operational risk requirements and the calculation of own funds for operational risk can be considered equivalent to those in the CRR. The standardised approach is used, with some differences:

• Internal data is used instead of the standardised approach’s basic indicator approach
• The internal data must include a minimum number of events (at least 5 per year) and must cover at least 3 types of operational risk events (e.g. external events, human error, etc.)
• The internal data must be updated annually or whenever there is a significant change in the bank’s activities or structure
• A stress test must be performed on a regular basis to assess the potential impact of operational risks on the bank’s capital adequacy

Standardised Approach for Operational Risk

The standardised approach for operational risk in Bosnia includes:

• A list of 12 categories of events (e.g. damage to buildings, loss of customers’ information, etc.)
• A table with corresponding weights and thresholds for each category
• A formula to calculate the operational risk charge based on the number and severity of events

Section 11: Market Risk

Standardised Approach

Market risk requirements can be considered equivalent to those in the CRR. The standardised approach is used, with some differences:

• The standardised approach is used for trading book positions
• The internal model approach is not allowed for market risk (only for credit risk)
• Stress testing is performed on a regular basis to assess the potential impact of market risks on the bank’s capital adequacy

Standardised Approach for Market Risk

The standardised approach for market risk in Bosnia includes:

• A list of 12 categories of assets and liabilities
• A table with corresponding weights and thresholds for each category
• A formula to calculate the market risk charge based on the number and severity of events