Bosnia and Herzegovina: Strengthening Banking Sector Supervision

Progress Made Since 2006 Review

The banking sector in Bosnia and Herzegovina has shown significant improvement since the last review in 2006. However, key shortcomings still remain. To address these issues, supervisory authorities have taken steps to enhance the regulatory framework and supervisory processes.

Key Initiatives

• A new Law on Banks is being developed to address deficiencies in supervisory powers, resolution tools, and consolidated supervision.
• Comprehensive regulations on risk management are being drafted to tackle remaining weaknesses identified in this assessment.
• The new law and regulations aim to strengthen the banking sector’s resilience and reduce the risk of financial crime.

Challenges Persist

Despite progress, challenges persist in Bosnia and Herzegovina’s banking sector oversight system. These include:

• Difficulty in monitoring and regulating commercial banks: Supervisory agencies face difficulties in effectively monitoring and regulating commercial banks.
• Lack of clear guidelines on market risk management: There is a lack of clear guidelines on market risk management, which can lead to inadequate risk assessment and mitigation strategies.
• Inadequate external audit processes: External audit processes are not sufficient to ensure that banks are operating in a transparent and accountable manner.

Way Forward

To address these shortcomings, Bosnia and Herzegovina must continue to strengthen its regulatory framework and enhance supervisory processes. This includes:

• Implementing comprehensive regulations on risk management: Developing and implementing robust regulations on risk management can help mitigate the risk of financial crime.
• Improving the resolution of bank crises: Strengthening the resolution process for bank crises can help prevent systemic risks and protect depositors’ interests.
• Increasing transparency in banking operations: Improving transparency in banking operations can help build trust and confidence in the sector.

Conclusion

By taking these steps, Bosnia and Herzegovina can further improve its banking sector supervision system and reduce the risk of financial crime. This will not only benefit the country’s economy but also contribute to regional stability and cooperation in the Western Balkans.