The proposed by the entities laws on banks could adversely affect the domestic banking sector and result in decrease in lending activities to companies and households, the Banks Association of Bosnia and Hercegovina (UBBiH) has warned. The bankers noted that the proposed solutions significantly increase capital requirements, while the set deadlines for adjustment are very short, which could be a problem for small banks that are mostly domestic. They also pointed out that a problem is the reduction of the allowed maximum exposure to a single entity or a group of related entities from 40% of core capital to 25% of recognized capital, which for some of the banks would be extremely difficult for implementation. Bankers also mentioned high fines foreseen for banks and responsible persons, as well as a number of provisions that would directly lead to increase of the operating costs of banks. The Association expressed support for the initiative from the Letter of Intent to the IMF and the Reform Agenda with regard to improvement of the situation in the banking sector, but complained that it has not been invited to participate in the drafting process of the entities' banking laws. UBBiH head Milan Radovic said that application of the laws next year will not lead to increase in interest rates but will result in reduction of the volume of lending to both companies and households because of the required increase in capital requirements. He noted that the Association has submitted its suggestions to entity governments two months ago, but no feedback has been provided.
The two entities have said the new laws on banks and banking agencies are in line with IMF recommendations that aim to increase the resilience of individual banks and the entire banking system and to contribute for NPL resolution. One of the objectives of the newly approved Extended Fund Facility with the IMF is safeguarding financial sector stability and reviving credit growth.