The document provides a review and analysis of key constraints to access to finance in Bosnia and Herzegovina. It finds that while the financial sector has grown rapidly, with loan growth expanding from 14% to 27% of GDP from 2003 to 2007, there remain several impediments. These include the lack of a comprehensive credit bureau, limitations on leasing practices, and constraints on various types of lending like receivables finance, pre-export finance, and inventory finance that are important for small businesses. The document recommends elements to include in a SME Support Project to help expand access to finance, such as addressing weaknesses in the legal and regulatory framework around movable property and improving financial transparency and business skills.
The Impact Of Minimum Capital Requirements On Performance Of Commercial Banks...iosrjce
The study was carried out to establish the impact of minimum capital requirements on the
performance of commercial banks in Zimbabwe and to analyse the relationship between minimum capital
requirements and bank performance. The study used the triangulation of a quantitative and qualitative research
design where both primary and secondary data were used .The population under study was drawn from the
entire commercial banking sector in Zimbabwe. Questionnaires and documentary analysis were used. The
sample size of nine out of the fifteen commercial banks in Zimbabwe was used. Minimum capital requirement
enable banks to make profits since meeting the minimum capital reduces the chances of bank distress as banks
will not be pressured by short-term borrowing which is usually at high cost
Although banks have a higher risk perception of the MSME sector, they continue to be the key players in formal financing. The higher share of bank supply can be attributed primarily to Priority Sector Lending (PSL). PSL guidelines require banks to allocate sizeable share of their credit portfolio to micro and small enterprises.
The document summarizes the performance of Indian banks in the second quarter of fiscal year 2013. It finds that private banks continued to outperform, with stable or improving margins, strong loan growth, and contained asset quality issues. However, public sector banks struggled with rising stress levels, declining margins due to higher funding costs and slippages, and deteriorating asset quality. Overall, private banks met or exceeded expectations while most public sector banks disappointed due to higher than expected stress on asset quality and a fall in net interest margins. Asset quality trends will remain the key determinant of valuations going forward.
The document discusses non-performing loans (NPLs) in China's banking system. In the 1980s and 1990s, state-owned enterprises (SOEs) accumulated large debts from banks that they struggled to repay, resulting in over 30% of banking assets being NPLs. In 1999, China created asset management companies (AMCs) to take NPLs from banks, but the AMCs have conflicting mandates and have not been financially sustainable. While NPLs have declined at major banks, they remain high across China's financial system, and new NPLs may emerge from recent economic stimulus programs.
- State-owned banks in India restructured 3.1% of overall loans in FY12, with around 20% pertaining to corporate debt restructuring (CDR) cases. Excluding SBI, other state banks restructured around 4% of loans.
- Gross non-performing assets (NPAs) and net NPAs increased 54% and 58% year-over-year respectively. Provision coverage ratios declined for most banks despite higher loan stress.
- Gross slippages increased 48% year-over-year while the pace of recoveries and upgrades moderated, leading to higher balance sheet stress overall. The aggregate gross and net slippage ratios increased.
- While the net present value
The Indian banking sector has made good progress over the last five years in areas like annual credit growth, profitability, and reducing gross non-performing assets. However, it faces ongoing challenges such as higher interest rates, tighter monetary policy, large government deficits, and stress in some sectors. While credit growth was strong in 2010-2011, led by infrastructure and NBFC lending, growth may slow to 17-18% in 2011-2012 due to these challenges and large government borrowing needs. Asset quality showed some deterioration for public sector banks but improvement for private banks. Maintaining healthy credit growth while managing asset quality risks will remain key priorities for the banking sector.
Chapter 5 perspectives on concumer financeHakim Ali Shar
Consumer finance has grown rapidly in Pakistan in recent years, though it remains relatively small compared to other economies. This growth has generated debate about its impacts. The document explores different perspectives on consumer finance, examining stylized facts about its growth and composition. It also addresses common myths, such as whether consumer finance has fueled consumerism, inflation, or speculation. The document finds that consumer finance has met consumer needs while also promoting economic activity, and that the data does not support claims that it has had solely negative impacts.
Analysing green initiatives effect on operating profit Devansh Doshi
This document provides a summary of a business statistics project report analyzing the impact of green initiatives on bank operating profits in India. It includes an introduction on the size and structure of India's banking industry. Key statistics are presented on deposits, credit growth, and market shares. Recent developments in the industry including partnerships and acquisitions are also discussed. The government's proposed reforms to consolidate banks and enhance financial inclusion through new licensing and technology are summarized.
The Impact Of Minimum Capital Requirements On Performance Of Commercial Banks...iosrjce
The study was carried out to establish the impact of minimum capital requirements on the
performance of commercial banks in Zimbabwe and to analyse the relationship between minimum capital
requirements and bank performance. The study used the triangulation of a quantitative and qualitative research
design where both primary and secondary data were used .The population under study was drawn from the
entire commercial banking sector in Zimbabwe. Questionnaires and documentary analysis were used. The
sample size of nine out of the fifteen commercial banks in Zimbabwe was used. Minimum capital requirement
enable banks to make profits since meeting the minimum capital reduces the chances of bank distress as banks
will not be pressured by short-term borrowing which is usually at high cost
Although banks have a higher risk perception of the MSME sector, they continue to be the key players in formal financing. The higher share of bank supply can be attributed primarily to Priority Sector Lending (PSL). PSL guidelines require banks to allocate sizeable share of their credit portfolio to micro and small enterprises.
The document summarizes the performance of Indian banks in the second quarter of fiscal year 2013. It finds that private banks continued to outperform, with stable or improving margins, strong loan growth, and contained asset quality issues. However, public sector banks struggled with rising stress levels, declining margins due to higher funding costs and slippages, and deteriorating asset quality. Overall, private banks met or exceeded expectations while most public sector banks disappointed due to higher than expected stress on asset quality and a fall in net interest margins. Asset quality trends will remain the key determinant of valuations going forward.
The document discusses non-performing loans (NPLs) in China's banking system. In the 1980s and 1990s, state-owned enterprises (SOEs) accumulated large debts from banks that they struggled to repay, resulting in over 30% of banking assets being NPLs. In 1999, China created asset management companies (AMCs) to take NPLs from banks, but the AMCs have conflicting mandates and have not been financially sustainable. While NPLs have declined at major banks, they remain high across China's financial system, and new NPLs may emerge from recent economic stimulus programs.
- State-owned banks in India restructured 3.1% of overall loans in FY12, with around 20% pertaining to corporate debt restructuring (CDR) cases. Excluding SBI, other state banks restructured around 4% of loans.
- Gross non-performing assets (NPAs) and net NPAs increased 54% and 58% year-over-year respectively. Provision coverage ratios declined for most banks despite higher loan stress.
- Gross slippages increased 48% year-over-year while the pace of recoveries and upgrades moderated, leading to higher balance sheet stress overall. The aggregate gross and net slippage ratios increased.
- While the net present value
The Indian banking sector has made good progress over the last five years in areas like annual credit growth, profitability, and reducing gross non-performing assets. However, it faces ongoing challenges such as higher interest rates, tighter monetary policy, large government deficits, and stress in some sectors. While credit growth was strong in 2010-2011, led by infrastructure and NBFC lending, growth may slow to 17-18% in 2011-2012 due to these challenges and large government borrowing needs. Asset quality showed some deterioration for public sector banks but improvement for private banks. Maintaining healthy credit growth while managing asset quality risks will remain key priorities for the banking sector.
Chapter 5 perspectives on concumer financeHakim Ali Shar
Consumer finance has grown rapidly in Pakistan in recent years, though it remains relatively small compared to other economies. This growth has generated debate about its impacts. The document explores different perspectives on consumer finance, examining stylized facts about its growth and composition. It also addresses common myths, such as whether consumer finance has fueled consumerism, inflation, or speculation. The document finds that consumer finance has met consumer needs while also promoting economic activity, and that the data does not support claims that it has had solely negative impacts.
Analysing green initiatives effect on operating profit Devansh Doshi
This document provides a summary of a business statistics project report analyzing the impact of green initiatives on bank operating profits in India. It includes an introduction on the size and structure of India's banking industry. Key statistics are presented on deposits, credit growth, and market shares. Recent developments in the industry including partnerships and acquisitions are also discussed. The government's proposed reforms to consolidate banks and enhance financial inclusion through new licensing and technology are summarized.
Weaker Corporate Balance sheet and its implication Mohit Kumar
This presentation will give information about weak and twin balance sheet of company. What twin balance sheet is and any balance sheet is called weak balance sheet.
This document provides an analysis of the Turkish banking sector. Some key points:
- Bank margins are expected to improve modestly in 2012 as loan repricing from 2011 takes effect, though fee and commission income growth will slow due to regulatory changes.
- Non-performing loans and cost of risk are expected to rise gradually as economic growth slows, but the deterioration is seen as manageable.
- Implementation of Basel II capital requirements in July 2012 will likely reduce banks' capital adequacy ratios by 1-1.5 percentage points.
- Return on equity in the sector is expected to normalize around 15-16% going forward.
- Monetary policy will aim to maintain flexibility given
- The global financial crisis severely impacted Kazakhstan's banking sector as access to foreign financing dried up. BTA Bank, one of Kazakhstan's largest banks, faced insolvency due to fraud by its chairman and non-performing loans.
- In February 2009, Kazakhstan's sovereign wealth fund took a 75% stake in BTA Bank to recapitalize it but a long-term restructuring plan was still needed. International banks and creditors pressured Kazakhstan to provide a blanket sovereign guarantee for bank debt.
- Marcia Favale-Tarter was brought in as an independent advisor to devise and lead a restructuring program for BTA Bank and Kazakhstan's banking sector. She had less than 24 hours to develop
Non-performing assets (NPAs) in the Indian banking system have significantly increased in recent years. NPAs totaled around 2.5 lakh crores (approximately $37 billion) by the end of March 2015, equal to the budget of the state of Uttar Pradesh. State-run banks account for two-thirds of total loans but 80% of bad assets. Rising NPAs hurt bank profitability, constrain new lending, and undermine public confidence in the banking system if left unaddressed. The majority of the increased NPAs have occurred in public sector banks that extensively lent to corporates between the early 2000s and 2008; many of these companies subsequently struggled amid a global slowdown.
Banking Sector Q4FY15 preview: Asset quality will remain under pressureIndiaNotes.com
- Loan growth for state-owned banks is expected to be moderate at 10-11% YoY due to weak corporate demand and capital conservation efforts, while private banks may see higher growth of 18-20% due to strong retail loans.
- Asset quality is likely to remain under pressure with high slippages of 2.4% and increased restructuring as the RBI forbearance period ends. Stress additions will be a key factor for state-owned bank earnings.
- Net interest margins are expected to be stable for most banks, while treasury gains from falling bond yields and provision reversals may support earnings. However, retail fees growth and high operating expenses will impact state-owned bank profits.
- The
This document discusses public-private partnerships (PPPs) in Kazakhstan. It provides background on Kazakhstan's experience with PPP projects in infrastructure, particularly in railways. It outlines proposed amendments to Kazakhstan's Law on Concessions to facilitate private sector participation and competition in PPPs. The amendments include co-funding projects, guarantees for loans and infrastructure bonds, and protections against double tariffs for users. It recommends establishing a PPP unit to standardize the PPP process and provide guidance. The document analyzes Kazakhstan's investment climate and economic indicators, finding foreign investment has been strong, particularly in oil and gas, and economic growth has been high in recent years.
Indian Banking entering the new era of Basil III and Financial InclusionAnmol Narang
The document discusses non-performing assets (NPAs) in the Indian banking sector and how upcoming Basel III regulations and financial inclusion efforts will impact the sector. It provides details on how NPAs are classified and calculated. Global NPA levels are compared, showing they are not solely correlated with GDP and are influenced more by economic conditions and policies. Factors influencing Indian NPAs are analyzed, such as GDP growth, exchange rate fluctuations, and stock market performance.
The document discusses India's rising non-performing assets (NPAs) in the banking sector. It notes that NPAs have ballooned to over $180 billion, equal to 11.17 lakh crores rupees, primarily driven by rising corporate debt. A small number of large companies account for the majority of stressed assets. The rising NPAs pose significant risks to banks and require large capital infusions to meet regulatory requirements. In the short-term, resolution of NPAs will be challenging but consumption growth and economic reforms could help reduce debt issues in the medium to long-term.
This document provides a summary of a study on non-performing assets (NPAs) in India with a focus on State Bank of India and its associates from 2008 to 2014. It finds that NPAs have been steadily increasing in India's banking sector, reaching Rs. 1,198 billion (4.36% of total advances) by 2014. The study also examines the gross and net NPAs of SBI and its associates over the period, finding that while gross NPAs increased, provisions also rose. The document outlines objectives, methodology, definitions, literature reviewed, reasons for rising NPAs, measures taken by banks and government to address the problem, and recommendations of committees to control NPAs in India's banking system.
Aldo AndreoniHead of International Department @Unicredit Bulbank
Italian Festival in Bulgaria 2010
Forum economico “Bulgaria-Italia: insieme per uscire dalla crisi”
Sofia, 7 giugno 2010
The banking sector in Pakistan has undergone significant changes since independence in 1947. It initially suffered from a lack of resources and trained professionals. The State Bank of Pakistan was established in 1948 as the central bank. In the 1970s, all banks were nationalized but their performance deteriorated. Reforms in the early 1990s privatized many banks. Today, Pakistan's banking sector plays a key role in the economy. It includes commercial, specialized, microfinance and Islamic banks. The sector has expanded services and introduced new payment methods in recent years. Reforms have created an efficient, competitive system dominated by private banks rather than state-owned banks.
The document discusses the history and evolution of banking in India. It covers the following key points:
1) Banking was initially concentrated in urban areas post-independence, but nationalization in 1969 led to rapid branch expansion and prioritization of credit to agriculture and small industries.
2) Further nationalization in 1980 extended public control over banking. This led to inefficiencies but also social objectives around access.
3) Banking reforms since 1992 have provided operational flexibility and autonomy, improving efficiency, productivity and profitability.
4) The future of Indian banking presents both opportunities from economic reforms and globalization, as well as challenges from past issues around NPAs and overstaffing that need to
Cover Story A shaky vision for Financial Inclusion
Outlook US Dollar
Stats Share of Public sector in capital formation
Emerging Country Peru
In Focus USA is second to China in monetary stimulus
What are the Stimulating Factors Affecting NPL in Banking Sector of Banglades...ijtsrd
A well organized, well structured and developed financial sector ensures efficient allocation of financial resources and perks up the competitiveness of the private sector, thereby promoting investment and growth in the real sector. The thrust of the development is to improve the regulatory and governance environment and to enhance the ability of bank owners, management and regulators, and the markets themselves to provide for better governance and regulation to achieve the objectives. In this perspective, improvement of the situation of non performing loan is important. A high volume of non performing loan can never be a boon for the economy. Credit to economy is the main source for financial support of business. On the other side, banks have limited investment tools for their deposits. This study present results from an econometric analysis, favorably Random Effect Model, using pooled panel data collected from the central bank of Bangladesh categorizing four sectors of banking based on the pattern of ownership. Based on the analysis of the bank specific microeconomic factors, which are selected on the availability from reliable sources, used as the regressors, it is observed that the liquidity and the management soundness is more significantly affect the Non performing loan NPL in Bangladesh. Therefore, the recommendation is placed towards formulation policy instruments in favor of solvency rather liquidity. In addition to that, the improvement of managerial efficiency must be sought as well. Ratna Biswas | Mohammed Nazrul Islam | Chanu Gopal Ghosh ""What are the Stimulating Factors Affecting NPL in Banking Sector of Bangladesh? Evidence from Econometric Exercises"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-4 | Issue-2 , February 2020, URL: https://www.ijtsrd.com/papers/ijtsrd29861.pdf
Paper Url : https://www.ijtsrd.com/economics/financial-economics/29861/what-are-the-stimulating-factors-affecting-npl-in-banking-sector-of-bangladesh-evidence-from-econometric-exercises/ratna-biswas
Public sector banks account for over 90% of gross and net non-performing assets (NPAs) in India's banking system according to an RBI report. NPAs have increased in recent years for several reasons, including the economic slowdown affecting corporate profits and ability to repay loans, relaxed lending norms, and lack of a bankruptcy code to help banks recover loans. The document outlines various short-term and long-term measures that can be taken to curb the growing problem of NPAs at public sector banks, such as reviewing existing loans, passing a bankruptcy code, establishing an asset reconstruction company, and improving credit risk management practices.
Standard & Poor's raised its long- and short-term counterparty credit ratings on Bank of Astana JSC to 'B/B' from 'B-/C' due to the bank improving its funding diversification over the past year by reducing reliance on a large deposit and attracting funding from various other sources including state companies, retail deposits, and government programs. The outlook is stable as S&P expects the bank's financial profile to remain generally unchanged. The upgrade reflects the bank now having an average rather than below average assessment of its funding profile according to S&P's criteria.
Non-performing assets (NPAs) refer to loans that are in default or close to being in default. NPAs have become a major issue for Indian banks and financial institutions, totaling over Rs. 1.1 trillion. The origin of rising NPAs lies in poor credit risk management practices in banks. To resolve NPAs, the government established asset reconstruction companies (ARCs) to purchase NPAs from banks and resolve them to enable banks to focus on core operations and lending. ARCs operate under the legal framework of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002.
The document summarizes the liquidity crisis facing India's financial system. It describes how a cleanup of banks, the IL&FS default, and a slowdown in key sectors like real estate and automobiles disrupted the flow of funds from non-bank financial companies to these sectors. This led to a liquidity deficit as banks and mutual funds withdrew financing from NBFCs. The RBI and government have since taken steps to inject liquidity but the credit system remains fragile, highlighting the need for policies to support both the financial system and the real economy.
This document discusses measures of nominal and real effective lending rates of banks in India from 1992-2010. It finds that nominal lending rates have declined significantly over this period from around 16-17% in the 1990s to about 10.5% by 2010. Real lending rates have also declined from their peak levels in the early 2000s. There is a statistically significant negative relationship between real output growth and real interest rates. The analysis is based on computation of weighted average lending rates using granular bank credit data from the BSR system.
This document provides an overview of the Pakistani banking sector in 2014. It notes that while macroeconomic conditions improved last year, it was a challenging year for banks. Banks had shifted away from private sector lending after the 2008 financial crisis and instead focused on low-risk government bonds. This led to declining private sector credit and economic growth. However, government bond issuance boosted bank profits in 2014 without real banking activity. The document calls for banks to refocus on commercial and private sector lending in 2015, such as consumer, SME, mortgage, and corporate lending, to maintain profitability as bond issuance declines. It also discusses challenges around improving recovery laws, expanding financial inclusion, and growing the Islamic banking sector.
This document provides an overview of the Pakistani banking sector in 2013. It contains several articles and interviews on topics related to economics, finance, and banking in Pakistan. The editor's note provides commentary on the State Bank of Pakistan's economic review and monetary policies. It questions whether sufficient monitoring of the financial market has occurred and why credit growth has failed to support SMEs and regional development. The banking sector has shown strong performance but economic growth has been sluggish since 2007. Overall, the document examines issues facing the banking industry and economy in Pakistan.
Weaker Corporate Balance sheet and its implication Mohit Kumar
This presentation will give information about weak and twin balance sheet of company. What twin balance sheet is and any balance sheet is called weak balance sheet.
This document provides an analysis of the Turkish banking sector. Some key points:
- Bank margins are expected to improve modestly in 2012 as loan repricing from 2011 takes effect, though fee and commission income growth will slow due to regulatory changes.
- Non-performing loans and cost of risk are expected to rise gradually as economic growth slows, but the deterioration is seen as manageable.
- Implementation of Basel II capital requirements in July 2012 will likely reduce banks' capital adequacy ratios by 1-1.5 percentage points.
- Return on equity in the sector is expected to normalize around 15-16% going forward.
- Monetary policy will aim to maintain flexibility given
- The global financial crisis severely impacted Kazakhstan's banking sector as access to foreign financing dried up. BTA Bank, one of Kazakhstan's largest banks, faced insolvency due to fraud by its chairman and non-performing loans.
- In February 2009, Kazakhstan's sovereign wealth fund took a 75% stake in BTA Bank to recapitalize it but a long-term restructuring plan was still needed. International banks and creditors pressured Kazakhstan to provide a blanket sovereign guarantee for bank debt.
- Marcia Favale-Tarter was brought in as an independent advisor to devise and lead a restructuring program for BTA Bank and Kazakhstan's banking sector. She had less than 24 hours to develop
Non-performing assets (NPAs) in the Indian banking system have significantly increased in recent years. NPAs totaled around 2.5 lakh crores (approximately $37 billion) by the end of March 2015, equal to the budget of the state of Uttar Pradesh. State-run banks account for two-thirds of total loans but 80% of bad assets. Rising NPAs hurt bank profitability, constrain new lending, and undermine public confidence in the banking system if left unaddressed. The majority of the increased NPAs have occurred in public sector banks that extensively lent to corporates between the early 2000s and 2008; many of these companies subsequently struggled amid a global slowdown.
Banking Sector Q4FY15 preview: Asset quality will remain under pressureIndiaNotes.com
- Loan growth for state-owned banks is expected to be moderate at 10-11% YoY due to weak corporate demand and capital conservation efforts, while private banks may see higher growth of 18-20% due to strong retail loans.
- Asset quality is likely to remain under pressure with high slippages of 2.4% and increased restructuring as the RBI forbearance period ends. Stress additions will be a key factor for state-owned bank earnings.
- Net interest margins are expected to be stable for most banks, while treasury gains from falling bond yields and provision reversals may support earnings. However, retail fees growth and high operating expenses will impact state-owned bank profits.
- The
This document discusses public-private partnerships (PPPs) in Kazakhstan. It provides background on Kazakhstan's experience with PPP projects in infrastructure, particularly in railways. It outlines proposed amendments to Kazakhstan's Law on Concessions to facilitate private sector participation and competition in PPPs. The amendments include co-funding projects, guarantees for loans and infrastructure bonds, and protections against double tariffs for users. It recommends establishing a PPP unit to standardize the PPP process and provide guidance. The document analyzes Kazakhstan's investment climate and economic indicators, finding foreign investment has been strong, particularly in oil and gas, and economic growth has been high in recent years.
Indian Banking entering the new era of Basil III and Financial InclusionAnmol Narang
The document discusses non-performing assets (NPAs) in the Indian banking sector and how upcoming Basel III regulations and financial inclusion efforts will impact the sector. It provides details on how NPAs are classified and calculated. Global NPA levels are compared, showing they are not solely correlated with GDP and are influenced more by economic conditions and policies. Factors influencing Indian NPAs are analyzed, such as GDP growth, exchange rate fluctuations, and stock market performance.
The document discusses India's rising non-performing assets (NPAs) in the banking sector. It notes that NPAs have ballooned to over $180 billion, equal to 11.17 lakh crores rupees, primarily driven by rising corporate debt. A small number of large companies account for the majority of stressed assets. The rising NPAs pose significant risks to banks and require large capital infusions to meet regulatory requirements. In the short-term, resolution of NPAs will be challenging but consumption growth and economic reforms could help reduce debt issues in the medium to long-term.
This document provides a summary of a study on non-performing assets (NPAs) in India with a focus on State Bank of India and its associates from 2008 to 2014. It finds that NPAs have been steadily increasing in India's banking sector, reaching Rs. 1,198 billion (4.36% of total advances) by 2014. The study also examines the gross and net NPAs of SBI and its associates over the period, finding that while gross NPAs increased, provisions also rose. The document outlines objectives, methodology, definitions, literature reviewed, reasons for rising NPAs, measures taken by banks and government to address the problem, and recommendations of committees to control NPAs in India's banking system.
Aldo AndreoniHead of International Department @Unicredit Bulbank
Italian Festival in Bulgaria 2010
Forum economico “Bulgaria-Italia: insieme per uscire dalla crisi”
Sofia, 7 giugno 2010
The banking sector in Pakistan has undergone significant changes since independence in 1947. It initially suffered from a lack of resources and trained professionals. The State Bank of Pakistan was established in 1948 as the central bank. In the 1970s, all banks were nationalized but their performance deteriorated. Reforms in the early 1990s privatized many banks. Today, Pakistan's banking sector plays a key role in the economy. It includes commercial, specialized, microfinance and Islamic banks. The sector has expanded services and introduced new payment methods in recent years. Reforms have created an efficient, competitive system dominated by private banks rather than state-owned banks.
The document discusses the history and evolution of banking in India. It covers the following key points:
1) Banking was initially concentrated in urban areas post-independence, but nationalization in 1969 led to rapid branch expansion and prioritization of credit to agriculture and small industries.
2) Further nationalization in 1980 extended public control over banking. This led to inefficiencies but also social objectives around access.
3) Banking reforms since 1992 have provided operational flexibility and autonomy, improving efficiency, productivity and profitability.
4) The future of Indian banking presents both opportunities from economic reforms and globalization, as well as challenges from past issues around NPAs and overstaffing that need to
Cover Story A shaky vision for Financial Inclusion
Outlook US Dollar
Stats Share of Public sector in capital formation
Emerging Country Peru
In Focus USA is second to China in monetary stimulus
What are the Stimulating Factors Affecting NPL in Banking Sector of Banglades...ijtsrd
A well organized, well structured and developed financial sector ensures efficient allocation of financial resources and perks up the competitiveness of the private sector, thereby promoting investment and growth in the real sector. The thrust of the development is to improve the regulatory and governance environment and to enhance the ability of bank owners, management and regulators, and the markets themselves to provide for better governance and regulation to achieve the objectives. In this perspective, improvement of the situation of non performing loan is important. A high volume of non performing loan can never be a boon for the economy. Credit to economy is the main source for financial support of business. On the other side, banks have limited investment tools for their deposits. This study present results from an econometric analysis, favorably Random Effect Model, using pooled panel data collected from the central bank of Bangladesh categorizing four sectors of banking based on the pattern of ownership. Based on the analysis of the bank specific microeconomic factors, which are selected on the availability from reliable sources, used as the regressors, it is observed that the liquidity and the management soundness is more significantly affect the Non performing loan NPL in Bangladesh. Therefore, the recommendation is placed towards formulation policy instruments in favor of solvency rather liquidity. In addition to that, the improvement of managerial efficiency must be sought as well. Ratna Biswas | Mohammed Nazrul Islam | Chanu Gopal Ghosh ""What are the Stimulating Factors Affecting NPL in Banking Sector of Bangladesh? Evidence from Econometric Exercises"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-4 | Issue-2 , February 2020, URL: https://www.ijtsrd.com/papers/ijtsrd29861.pdf
Paper Url : https://www.ijtsrd.com/economics/financial-economics/29861/what-are-the-stimulating-factors-affecting-npl-in-banking-sector-of-bangladesh-evidence-from-econometric-exercises/ratna-biswas
Public sector banks account for over 90% of gross and net non-performing assets (NPAs) in India's banking system according to an RBI report. NPAs have increased in recent years for several reasons, including the economic slowdown affecting corporate profits and ability to repay loans, relaxed lending norms, and lack of a bankruptcy code to help banks recover loans. The document outlines various short-term and long-term measures that can be taken to curb the growing problem of NPAs at public sector banks, such as reviewing existing loans, passing a bankruptcy code, establishing an asset reconstruction company, and improving credit risk management practices.
Standard & Poor's raised its long- and short-term counterparty credit ratings on Bank of Astana JSC to 'B/B' from 'B-/C' due to the bank improving its funding diversification over the past year by reducing reliance on a large deposit and attracting funding from various other sources including state companies, retail deposits, and government programs. The outlook is stable as S&P expects the bank's financial profile to remain generally unchanged. The upgrade reflects the bank now having an average rather than below average assessment of its funding profile according to S&P's criteria.
Non-performing assets (NPAs) refer to loans that are in default or close to being in default. NPAs have become a major issue for Indian banks and financial institutions, totaling over Rs. 1.1 trillion. The origin of rising NPAs lies in poor credit risk management practices in banks. To resolve NPAs, the government established asset reconstruction companies (ARCs) to purchase NPAs from banks and resolve them to enable banks to focus on core operations and lending. ARCs operate under the legal framework of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002.
The document summarizes the liquidity crisis facing India's financial system. It describes how a cleanup of banks, the IL&FS default, and a slowdown in key sectors like real estate and automobiles disrupted the flow of funds from non-bank financial companies to these sectors. This led to a liquidity deficit as banks and mutual funds withdrew financing from NBFCs. The RBI and government have since taken steps to inject liquidity but the credit system remains fragile, highlighting the need for policies to support both the financial system and the real economy.
This document discusses measures of nominal and real effective lending rates of banks in India from 1992-2010. It finds that nominal lending rates have declined significantly over this period from around 16-17% in the 1990s to about 10.5% by 2010. Real lending rates have also declined from their peak levels in the early 2000s. There is a statistically significant negative relationship between real output growth and real interest rates. The analysis is based on computation of weighted average lending rates using granular bank credit data from the BSR system.
This document provides an overview of the Pakistani banking sector in 2014. It notes that while macroeconomic conditions improved last year, it was a challenging year for banks. Banks had shifted away from private sector lending after the 2008 financial crisis and instead focused on low-risk government bonds. This led to declining private sector credit and economic growth. However, government bond issuance boosted bank profits in 2014 without real banking activity. The document calls for banks to refocus on commercial and private sector lending in 2015, such as consumer, SME, mortgage, and corporate lending, to maintain profitability as bond issuance declines. It also discusses challenges around improving recovery laws, expanding financial inclusion, and growing the Islamic banking sector.
This document provides an overview of the Pakistani banking sector in 2013. It contains several articles and interviews on topics related to economics, finance, and banking in Pakistan. The editor's note provides commentary on the State Bank of Pakistan's economic review and monetary policies. It questions whether sufficient monitoring of the financial market has occurred and why credit growth has failed to support SMEs and regional development. The banking sector has shown strong performance but economic growth has been sluggish since 2007. Overall, the document examines issues facing the banking industry and economy in Pakistan.
Aleksandra Dolnikova, "Bank-to-Business Interaction in Russia"Mikhail Vink
1) Rates of crediting for small and medium businesses in Russia have significantly decreased in recent years due to a slowdown in bank deposit growth, decreased foreign borrowing by Russian banks, and increased credit risks.
2) A major problem for banks is the growth in "bad debts", or unpaid loans, which is often due to insufficient collateral from borrowers to cover the debt, interest, penalties, and legal costs in the event of default.
3) Improving the crediting situation will require changes in the credit risk evaluation process used by banks, including considering both the financial situation and value of collateral together rather than in isolation.
The document discusses microfinance growth and vulnerabilities based on case studies of Nicaragua, Morocco, Bosnia and Herzegovina, and Pakistan. It finds that from 2004-2008, microfinance in these countries experienced unprecedented growth rates of 33-67% annually, fueled by abundant funding especially in the form of debt. Initially financial performance was strong. However, after a few years of growth, all four countries began experiencing microfinance loan repayment crises from 2008-2009, with portfolio-at-risk rates exceeding 10%. The document analyzes that three internal industry vulnerabilities - concentrated market competition/multiple borrowing, overstretched MFI systems/controls, and erosion of lending discipline - lie at the core of the problems,
The document discusses growth and vulnerabilities in microfinance in four countries from 2004 to 2008. It summarizes that microfinance experienced unprecedented growth during this period, fueled by abundant funding, but that several countries then began experiencing microfinance loan delinquency crises in 2008 and 2009. The document analyzes case studies from these four countries to identify three vulnerabilities within the microfinance industry that contributed to the problems: concentrated market competition and multiple borrowing, overstretched MFI systems and controls, and erosion of MFI lending discipline.
Our MENA Weekly for 14 May 2017. We look at Saudi Arabia's Q1 budget data, the latest credit sentiment survey in the UAE, and Oman's sovereign credit downgrade.
MTBiz is for you if you are looking for contemporary information on business, economy and especially on banking industry of Bangladesh. You would also find periodical information on Global Economy and Commodity Markets.
Signature content of MTBiz is its Article of the Month (AoM), as depicted on Cover Page of each issue, with featured focus on different issues that fall into the wide definition of Market, Business, Organization and Leadership. The AoM also covers areas on Innovation, Central Banking, Monetary Policy, National Budget, Economic Depression or Growth and Capital Market. Scale of coverage of the AoM both, global and local subject to each issue.
MTBiz is a monthly Market Review produced and distributed by Group R&D, MTB since 2009.
The document discusses key points from a banking conference in India regarding regulatory views on Basel III and opportunities for infrastructure and SME financing. Regulators are taking a conservative approach to Basel III implementation to ensure long-term stability. Additional capital requirements for Indian banks are estimated at ~INR5t by 2018, with financing state-owned banks being a challenge. Priority sector lending remains a focus, and structural changes are needed to better support SME and infrastructure financing opportunities.
The document discusses a partial credit guarantee provided by the World Bank to the Croatian Bank for Reconstruction and Development (HBOR) to enhance access to credit markets in Croatia. Due to the European financial crisis, HBOR's ability to raise funds efficiently without credit enhancement was limited. The partial credit guarantee allowed HBOR to raise up to €250 million from international lenders for onlending to private sector companies in Croatia to support economic growth and competitiveness. The guarantee was designed to provide long-term funding at competitive rates to improve HBOR's debt sustainability and reduce borrowing costs.
The document discusses a partial credit guarantee provided by the World Bank to the Croatian Bank for Reconstruction and Development (HBOR) to enhance access to credit markets in Croatia. Due to the European financial crisis, HBOR's ability to raise funds efficiently without credit enhancement was limited. The partial credit guarantee allowed HBOR to raise up to €250 million from international lenders for onlending to private sector companies in Croatia. The guarantee aimed to improve HBOR's debt sustainability and access to long-term funding from international markets at favorable rates.
Empowering MSMEs - Challenges in MSME Financing - Part - 4Resurgent India
Lack of Experience Entrepreneurs of first generation with lack of experience, has been revealed as the foremost reasons of poor SME credit, followed by lack of collaterals & infrastructure put together 26% and poor financials of SMEs by 24% respectively.
Making NBFCs relevant to ‘Make-in India’& ‘Start-up India, Stand-up India’ Resurgent India
With the economic revival of the rural and suburban economies, NBFCs' contribution in deposit mobilisation and credit extension can hardly be over-emphasised.
Mercer Capital's Bank Watch | September 2023 | The Interest Rate Environment ...Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
Basel III capital standards were implemented in the Philippines beginning in 2014, earlier than other countries. This led Philippine banks to raise capital through various means in 2014. While the largest banks already had strong capital positions, other banks saw their capital ratios decline by around 200 basis points on average after Basel III took effect, in line with expectations. From 2010 to 2018, GDP growth remained steady around 6-8% despite changes to capital levels, contrasting predictions that growth may decline. However, returns on equity declined noticeably across big banks during this period, converging to around 8-10% for most, suggesting Basel III may have compressed bank profitability as expected by research.
Etude PwC sur les opérations de fusions et acquisitions dans le secteur banca...PwC France
The document discusses how banking mergers and acquisitions (M&A) are evolving in a new environment shaped by long-term trends and short-term factors. It notes that banking M&A has declined significantly since the financial crisis but will remain important for adaptation. Key drivers changing banking M&A include economic growth in emerging markets, increasing banking integration globally, ongoing regulatory reforms, and strategic shifts in goals and participants. The document then analyzes how banking M&A is evolving differently across key regions and through other transactions like loan sales.
This document discusses non-performing assets (NPAs) in banks, particularly public sector banks in India. It notes that NPAs occur when borrowers default on loan repayments of principal or interest, representing credit risk for banks. Growing NPAs negatively impact banks by reducing profits from interest income, increasing provisioning costs, and eroding capital resources. The rise in Indian public sector bank NPAs in recent years was attributed to the global recession and domestic economic slowdown impacting corporate and SME borrowers. Data showed thirty large companies owed over $2 billion to public banks, and gross NPAs as a percentage of advances have been trending upward, representing stressed assets that banks must address going forward.
Fitch affirms south africa at 'bb+'; outlook stableSABC News
Fitch Affirms South Africa's sovereign credit ratings at 'BB+' with a Stable Outlook. While South Africa faces challenges including low growth, high government debt, and weakening governance, the ratings affirmation reflects potential fiscal consolidation after ANC leadership elections in December. However, fiscal pressures are rising as deficits and debt are higher than expected. Political uncertainty ahead of the elections is also contributing to policy paralysis. Growth is projected to remain low at around 2% due to structural problems.
Basel II is an international banking accord that establishes capital requirements for banks. It aims to create an international standard for how much capital banks need to put aside to guard against financial and operational risks. Basel II includes three pillars: minimum capital requirements, supervisory review, and market discipline. It addresses deficiencies in Basel I by incorporating additional risk categories like credit and operational risk. Implementing Basel II poses challenges for Indian banks like increased capital requirements, the need for risk management expertise and technology investments. However, gradual implementation could help Indian banks migrate smoothly to the new framework.
Basel II is an international standard that establishes capital requirements for banks to guard against financial and operational risks. It consists of three pillars: minimum capital requirements to cover credit, market and operational risks; supervisory review to ensure adequate capital to cover all risks; and market discipline through disclosure requirements. While Basel II aims to make capital requirements more risk sensitive, Indian banks face challenges in implementing it due to lack of risk management expertise, need for technology investments, and restructuring of non-performing assets. A gradual implementation process will help ensure a smooth transition to the new framework.
The IMF conducted its first review of Bangladesh's performance under the Extended Credit Facility (ECF) and found that Bangladesh had made progress on most targets but fell short on some structural reforms. Bangladesh stabilized its fiscal position, strengthened foreign reserves, and improved its trade and investment climate. However, delays occurred in implementing a new VAT law and banking sector reforms. The IMF sees risks from a worsening eurozone crisis and recommends Bangladesh focus on tax revenue generation, priority spending, and fiscal sustainability.
Similar to Bosnia and Herzegovina Financial Sector Report (20)
The document discusses concepts related to Crew Resource Management (CRM), which aims to enhance safety in aircraft operations through effective teamwork and management. It covers basic CRM concepts, training components, risk factors, accident causation models, and strategies for managing risk and situational awareness. CRM training teaches skills like team building, decision making, and maintaining situational awareness to improve performance and safety.
The Sage CRM Solutions 2010 Strategy aims to:
1) Build on Sage's customer base, distribution channels, and product brands.
2) Differentiate the Sage CRM Solutions family in the global marketplace.
3) Create strategic synergies among Sage's existing CRM, ERP, and vertical products.
4) Deliver near-term customer benefits starting in 2008.
The document outlines the policy and guidelines of a bank on expanding credit to small and medium enterprises (SMEs). It discusses the bank's SME division and products offered, including customized solutions. It describes credit approval processes like program lending and pre-approved limits. The document also discusses monitoring portfolio performance, restructuring policies for stressed loans according to RBI guidelines, and providing flexible restructuring for borrowers affected by natural calamities.
HDFC Bank implemented Polaris Software's Intellect Business Rule Engine credit decisioning system to better target customers and manage credit risks for its retail lending business. The system performs online application scoring and policy evaluation, and will next incorporate behavioral scoring. HDFC Bank chose the Intellect system over other options for its lower cost and integration capabilities. The system enables faster credit processing and offers only to genuine customers.
The Reserve Bank of India released its credit policy for the second half of 1997-98. Key points include:
- Inflation has declined while economic growth remains satisfactory
- Interest rates have fallen due to lower inflation and improved bank liquidity
- Bank lending to businesses has increased significantly compared to the previous year
This document outlines a unit standard for managing credit policies and procedures. It contains three elements: developing a credit policy, implementing and managing credit policies, and assessing and reviewing credit policies. Performance criteria are provided for each element. The document also provides context regarding the level, credits, purpose, and comments for the unit standard.
Cooperative marketing societies are farmer associations formed to help members market their produce more profitably than through individual trade. They work to sell members' products in the best markets and at prices that benefit growers. Cooperative marketing provides economic and quality benefits like reduced costs, bargaining power, and access to storage, grading, loans and other services. However, cooperative marketing faces challenges like a lack of coordination, trained staff, and financial and infrastructure resources. Strengthening areas like storage, skills, and coordination between credit and marketing cooperatives could help address issues.
This document discusses buybacks of shares by companies. It begins by providing context on internal restructuring and how section 100-105 of the Companies Act governs capital reduction. It then explains that section 77A, 77B, and 77AA now allow companies to buy back their own shares. The rest of the document defines various terms related to share buybacks and discusses the advantages and mechanics of companies conducting share buybacks.
This document outlines Lonmin Plc's code of business ethics. It discusses guidelines for ethical conduct regarding the workplace, environment, conflicts of interest, gifts, relationships with suppliers and customers, use of confidential information, political activities, accounting practices, competition, and protecting company assets. Employees are expected to observe high ethical standards, treat all people fairly and with respect, ensure a safe workplace, and act in compliance with all applicable laws.
This document provides guidelines for the use of electronic commerce at Stanford University. It defines electronic commerce as using electronic ordering and payment mechanisms via the web. The policy applies to all Stanford entities generating revenue. It establishes that electronic commerce must be consistent with the university's mission and that departments must use an authorized vendor or get approval to use an alternative. It also provides guidelines for safeguarding confidential customer data and complying with privacy and security procedures.
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
13 Jun 24 ILC Retirement Income Summit - slides.pptxILC- UK
ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.
Contributors included:
Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board
Madhya Pradesh, the "Heart of India," boasts a rich tapestry of culture and heritage, from ancient dynasties to modern developments. Explore its land records, historical landmarks, and vibrant traditions. From agricultural expanses to urban growth, Madhya Pradesh offers a unique blend of the ancient and modern.
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
Every business, big or small, deals with outgoing payments. Whether it’s to suppliers for inventory, to employees for salaries, or to vendors for services rendered, keeping track of these expenses is crucial. This is where payment vouchers come in – the unsung heroes of the accounting world.
Fabular Frames and the Four Ratio ProblemMajid Iqbal
Digital, interactive art showing the struggle of a society in providing for its present population while also saving planetary resources for future generations. Spread across several frames, the art is actually the rendering of real and speculative data. The stereographic projections change shape in response to prompts and provocations. Visitors interact with the model through speculative statements about how to increase savings across communities, regions, ecosystems and environments. Their fabulations combined with random noise, i.e. factors beyond control, have a dramatic effect on the societal transition. Things get better. Things get worse. The aim is to give visitors a new grasp and feel of the ongoing struggles in democracies around the world.
Stunning art in the small multiples format brings out the spatiotemporal nature of societal transitions, against backdrop issues such as energy, housing, waste, farmland and forest. In each frame we see hopeful and frightful interplays between spending and saving. Problems emerge when one of the two parts of the existential anaglyph rapidly shrinks like Arctic ice, as factors cross thresholds. Ecological wealth and intergenerational equity areFour at stake. Not enough spending could mean economic stress, social unrest and political conflict. Not enough saving and there will be climate breakdown and ‘bankruptcy’. So where does speculative design start and the gambling and betting end? Behind each fabular frame is a four ratio problem. Each ratio reflects the level of sacrifice and self-restraint a society is willing to accept, against promises of prosperity and freedom. Some values seem to stabilise a frame while others cause collapse. Get the ratios right and we can have it all. Get them wrong and things get more desperate.
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...Donc Test
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
Confirmation of Payee (CoP) is a vital security measure adopted by financial institutions and payment service providers. Its core purpose is to confirm that the recipient’s name matches the information provided by the sender during a banking transaction, ensuring that funds are transferred to the correct payment account.
Confirmation of Payee was built to tackle the increasing numbers of APP Fraud and in the landscape of UK banking, the spectre of APP fraud looms large. In 2022, over £1.2 billion was stolen by fraudsters through authorised and unauthorised fraud, equivalent to more than £2,300 every minute. This statistic emphasises the urgent need for robust security measures like CoP. While over £1.2 billion was stolen through fraud in 2022, there was an eight per cent reduction compared to 2021 which highlights the positive outcomes obtained from the implementation of Confirmation of Payee. The number of fraud cases across the UK also decreased by four per cent to nearly three million cases during the same period; latest statistics from UK Finance.
In essence, Confirmation of Payee plays a pivotal role in digital banking, guaranteeing the flawless execution of banking transactions. It stands as a guardian against fraud and misallocation, demonstrating the commitment of financial institutions to safeguard their clients’ assets. The next time you engage in a banking transaction, remember the invaluable role of CoP in ensuring the security of your financial interests.
For more details, you can visit https://technoxander.com.
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Bosnia and Herzegovina Financial Sector Report
1. UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT
SME Support Project
Expanding Access to Finance
Chris Barltrop, USAID/EGAT/EG
2/7/2008
Review of the key impediments to access to finance in Bosnia‐Herzegovina and recommendations for
elements to be included in the SME Support Project.
2. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Contents
Contents........................................................................................................................................2
Development of the Financial Sector ............................................................................................3
Market Depth.............................................................................................................................3
Bank Capital Adequacy .............................................................................................................4
Profitability.................................................................................................................................5
Liquidity .....................................................................................................................................5
Key Market Constraints.................................................................................................................5
Credit Bureau ............................................................................................................................5
Leasing......................................................................................................................................6
Lending Practices......................................................................................................................8
3. Receivables Finance .........................................................................................................8
2. Pre-export Finance ............................................................................................................9
1. Inventory Finance ..............................................................................................................9
Cash Flow Lending ..............................................................................................................10
Equipment Finance..............................................................................................................10
Agricultural Finance .............................................................................................................10
Real Estate as Collateral.........................................................................................................11
Company Registration.............................................................................................................14
Financial Transparency ...........................................................................................................14
Business Planning...................................................................................................................15
Missing Middle.........................................................................................................................15
Expanding Access to Finance.....................................................................................................16
Discussants.................................................................................................................................19
2
3. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Development of the Financial Sector
Market Depth
The Bosnia-Herzegovina (BiH) financial sector
has been growing rapidly. Loans to GDP have
expanded from 14% in 2003 to 27% in 2007, as
shown in Figure 1 - Loans as a Percentage of
GDP for the period 2003 to 2007, with the 2007
figure extrapolated from November data.
Annualized monthly loan growth for the first
eleven months of 2007 peaked in April at an
annualized rate of 45%, but has settled down to a
more sustainable rate of around 25% per year, as Figure 1 – Loans as a Percent of GDP, 2003-2007
shown in Figure 2 - Annualized growth in Loans
to the Private Sector. This is rapid growth by any
measure, even though recovering from a low
base, with capacity within lenders likely to be a
major constraint as a shortage of bankable
clients if credit quality is to be maintained.
Growth has predominantly been in loans to
private sector business and individuals, as shown
in Figure 3 – Private Sector Loans in 2007.
Loans to individuals and companies have been Figure 2 - Annualized growth in Loans to the Private
growing in tandem from KM 1.5 billion each in Sector during 2007
2002, while loans to other categories are
becoming less significant with rapidly declining
market share.
This growth is consistent with the rapid
expansion in banking offices – a brief walk
around the town center showed some two dozen
ATMs plus three banking office where ATMs
were not visible. Rapid entry of foreign banks
into what is a small market of only some four
million people would have created a very
competitive environment and a need for rapid
growth in earning assets to justify the substantial
Figure 3 - Private Sector Loans in 2007 (KM millions)
investment in modern bricks and mortar.
Even with the import of modern policies and procedures, automation, financial and management
expertise, developing a BiH cadre of qualified lending and operational staff takes time -
expansion ahead of staffing capacity can (and usually does) lead to control and quality
problems. Acquiring and training staff, using internal training facilities within sister
organizations, is viewed as less of a challenge that retaining those staff once they are trained,
indicating a tight market for qualified bank personnel. Expansion of credit for trade finance and
the productive assets needed to expand capacity for exports may well require cut-backs in other
3
4. Financial Sector Analysis February 2008 Bosnia-Herzegovina
areas that at the moment may seem more attractive. Such a change in the composition of the
banks’ loan portfolios would require that trade related finance become more financially attractive
to lenders than the current alternatives. Reducing the risks in trade related finance would be a
major step in this direction.
Figure 4 shows that short term lending has been growing slowly, but more strongly for private
sector enterprises and cooperatives. Long term lending, on the other hand, has soared,
particularly for individuals – probably heavily vehicle loans – as shown in Figure 5 1 .
Figure 4 - Short Term Lending 2002 – 2007 (KM millions) Figure 5 - Long Term Lending 2002 – 2007 (KM millions)
Prudential regulations limit the extent of maturity transformation (use of short term funds for long
term lending) – this does not seem to be inhibiting term lending growth.
[Is leasing included in these statistics?]
Bank Capital Adequacy
The BiH banking system appears over-capitalized. The ratio of capital to total assets (which
understated capital adequacy, since this includes all assets without risk weighting) is shown in
Figures 6 and 7.
This high capital adequacy ratio 2 implies that the banks are not able to adequately leverage
their capital, increasing pressure to expand earning assets as fast as staffing and market
opportunity permit, and to rely heavily on fee income to generate an adequate return on equity.
Given staffing constraints, proliferating credit products is likely to seem less attractive than
maximizing reliance on existing products as long as market absorptive capacity for the existing
products continues unless there is a significant shift in the risk/reward factors, at least until
staffing capacity deepens.
1
Year end 2007 data extrapolated from November 2007 data.
2
The standard minimum capital adequacy ratio according to Basle I is 8% of risk weighted assets. Risk
weighted assets would be less than total assets by the amount that is risk weighted at less than 100%,
but offset by the amount of risk weighted off-balance sheet liabilities that could become claims on others
(assets) if realized.
4
5. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Figure 6 - Capital to Total Assets, 2003-2007 Figure 7 – Capital to Total Assets, 2007
One bank confirmed that it is rethinking its approach to its asset management. With all the
banks chasing the best clients and its finding that going down market while following corporate
lending credit management practices is not economically viable, it is looking at restructuring its
SME lending to raise the limit above which it will conduct full credit analysis, while introducing a
more statistically based system of credit scoring on credits below this threshold.
Profitability
Liquidity
Bank liquidity in BiH, as measured by deposits in the
bank’s liquidity reserve accounts with the CBBH, has
consistently been over 50% higher than the mandated
requirement, as shown in Figure 7. Deposit growth
and liquidity have grown steadily during the year, with
no indication of seasonality. Short term resources do
not appear constrained – although since most of the
banks are part of a larger network, cash management
within the group will enable liquidity in BiH to be Figure 7 – Bank Liquidity in 2007 (KM millions)
managed. Interest paid on the excess liquidity is [ ]%,
compared to only [ ]% on the mandatory liquidity reserves. Raising the liquidity requirement –
one way of tightening money supply to restrain lending and inflation – serves more to reduce the
amount of interest the CBBH must pay to the banks.
Key Market Constraints
Credit Bureau
A private credit bureau was established and was operating, apparently effectively. It included
positive and negative information, plus credit character information from outside of the banking
system, including utility payments. However, two of the larger banks refused to participate, as
did some of the micro-finance instructions. This lack of full participation ensured that credit
5
6. Financial Sector Analysis February 2008 Bosnia-Herzegovina
information provided by the credit bureau was likely to be incomplete, and thus unreliable.
Assuming that this credit bureau was duly licensed by the Central Bank, one option to ensure its
function would have been for the Central Bank to require that all lending institutions provide data
to all licensed credit bureaus, thus ensuring complete coverage.
However, the Central Bank, with USAID support, established a separate credit bureau with full
participation by the banking community, housed in the CBBH. This has been working well, and
provides full (although not necessarily timely or accurate) data from all banks, and is now used
by the banking community to check credit backgrounds. In principle, data on exposure to
individual banks is camouflaged using codes, but in practice it did not take long for the banks to
figure out the codes used for each reporting institution. However, this system
• does not track data from other sources, such as utility companies, so provides no
assistance to first time borrowers;
• is not linked in with the international credit bureau network, so cannot provide the cross
border checking necessary for a lender to evaluate whether to discount an export
receivable; and
• has undercut the usefulness of the existing private sector credit bureau, essentially
making it irrelevant.
It is also unlikely that the Central Bank’s system provides the credit scoring and data mining that
are essential attributes of effective private sector credit bureaus. [This needs verification]
On discounting export receivables, those banks that are part of an international network could in
principle establish an efficient process for feeding credit inquiries into its appropriate sister
institution to obtain a credit check. At least one of the banks that has this capacity has not yet
implemented such a process.
A full service, comprehensive credit bureau is essential to informing the credit decision making
process, particularly for new clients that do not have established banking relations. BiH has
traded full service for comprehensiveness. The result is that borrowing by new market entrants
is made more difficult, since demonstrated reliability in honoring obligations other than bank
loans cannot be used to demonstrate character. BiH could benefit from either combining these
two systems or alternatively expanding the Central Bank based system into a full commercial
credit bureau, possibly with one or more international partner(s) that could provide access to
credit scoring and data mining expertise and cross border capacity.
Leasing
Leasing provides finance for plant and equipment while enabling the lessor to retain title to the
object that is financed, enabling simplified, non-judicial recovery of the property if the lessee
fails to meet the payment schedule. In BiH, vehicle leasing encounters three potentially terminal
challenges:
6
7. Financial Sector Analysis February 2008 Bosnia-Herzegovina
1. The vehicle registration process serves the additional purpose of evidencing ownership,
and only the registered party may legally operate the vehicle. As a result:
a. A leasing company may not register the vehicle in its own name, since only
employees of the leasing company would be legally allowed to operate the
vehicle, thus excluding the lessee.
b. Registering the vehicle in the lessee’s name so that the lessee can operate the
vehicle effectively also conveys ownership, eliminating the lessor’s ability to
repossess the vehicle.
2. The work around has been to structure the lease as a loan and registering a lien through
the movable property registry – but new legislation in RS prohibits this approach. And in
any case it eliminates non-judicial repossession and also the transfer of the tax benefit of
depreciation, both of which are the major economic justifications for leasing.
3. The legislation enabling non-judicial registration of liens through the movable property
registry specifically limited access to banks. Logically, this facility should be equally
available to all duly licensed financial institutions, which would include leasing
companies.
In principle, having a combined title and registration system should work, but it should enable
the lessor as owner to register the vehicle in the name of the lessee while recording retention of
ownership by the lessor 3 . This should allow the lessor to repossess the vehicle extra-judicially
in case of failure of the lessee to conform to the terms of the lease 4 , and should prevent the
registered operator from transferring ownership to a buyer as long as the record shows the
lessor as owner 5 .
Leasing of real estate also is impaired, although not terminally, by the requirement that the
property transfer tax be paid twice, once when the leasing company purchases the property on
behalf of the lessee, and again at the end of the lease when title to the property is transferred to
the lessee on completion of all payments. Since the lessor will have incorporated the property
transfer tax into the lease payments, the lessee will already have paid the tax in full by the end
of the lease, and requiring duplicate payment represents double taxation on a single
transaction.
Leasing has proven to be a very effective component of the financial sector that opens access
to finance for plant and equipment by spreading the cost for the user over the useful life of the
asset while protecting the financier by enabling non-judicial contract enforcement. It would
seem in the interests of economic development in BiH for the Government to ensure that
unnecessary impediments are not placed in the way of this transaction type.
3
Or record of the lien in the case of a secured bank loan.
4
Or the bank lender to exercise foreclosure in case of failure to comply with the terms of a bank loan.
5
Or the bank as lien holder.
7
8. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Lending Practices
Financing export trade occurs in three stages, working backwards from the buyer as source of
payment:
3. Receivables Finance
The buyer will have to hold purchased goods in inventory until they are sold to the consumer.
Financially strong buyers can finance the inventory carrying cost based on their own credit
standing as self liquidating cash flow lending supported by their balance sheets, and if
necessary with the inventory as the secondary source of repayment. The financing cost may be
at or close to prime, given the credit standing of the borrower, so will be cheaper than financing
the BiH exporter is likely to obtain.
However, financially weaker buyers may require differed payment terms, typically 30, 60 or 90
days to pass the inventory carrying cost back to the BiH exporter, which may be required to
provide such sales terms in order to be competitive. This is where the challenge currently lies
for BiH small exporters. The credit decision by the BiH bank to advance the funding is based on
the following factors:
• Confidence that the buyer will pay when due. Given that the BiH credit bureau system is
not linked with similar systems in the buyer’s country, the BiH bank has no easy way of
checking the credit standing of the buyer. For large transactions, a credit inquiry can be
sent to the buyer’s bank, or a sister bank in the buyer’s country may be asked to access
the local credit bureau – but this is time consuming and costly.
• If the buyer does not pay when due, or the payment is diverted from the seller’s bank,
then the second way out if for the seller’s bank to charge the buyer’s account, possibly
advancing funds through a loan account if the deposit account is not sufficient to cover
the obligation. This requires confidence in the BiH seller’s financial condition and
performance. For a large company, this is not an issue – accounts will be audited by a
major firm and the business volume will justify the cost of the bank’s credit analysis.
However, for a smaller company with less certain accounts and volume too small to
justify the cost of the credit analysis, this can be a significant impediment.
Certainty of payment can be improved through the buyer having its bank open a letter of credit
(L/C) in favor of the BiH seller, advised through the seller’s bank, that provides for differed
payment terms. This way the BiH bank can look to the credit standing of the opening bank,
which is easier to evaluate. The downside is that this process incurs bank charges, typically
¼% per quarter (three months) for the amount of the L/C, plus advising and negotiating fees,
which lessens the price competiveness of the BiH exporter. Also, since most trade within
Europe is conducted on an “open account” basis, the buyer may resist requesting its bank to
open an L/C on principle.
In addition, there is a performance risk on the seller – if the goods shipped prove to have failed
to meet the buyer’s specifications or EU standards, the buyer may refuse to make payment
based on breach of the sales contract.
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9. Financial Sector Analysis February 2008 Bosnia-Herzegovina
So even sales to an “undoubted” buyer are not certain until the cash is received, requiring the
BiH seller’s bank to look carefully at the credit standing of its exporting client.
2. Pre-export Finance
If a BiH small company receives a significant order from a European buyer, it may find that it
does not have the financial resources to procure or produce the goods to be shipped. This
requires pre-export finance, where the BiH seller’s bank advances the funds needed based on
the sales contract that, if fulfilled, will provide the source of repayment. Here, not only is the
buyer’s credit standing important, but the BiH seller’s capacity to actually produce and deliver
the goods in the sales contract represents a significant performance risk that the seller’s BiH
bank must believe is acceptable. This requires an established relationship of trust, and a
thorough knowledge of the seller’s operations and capacity.
1. Inventory Finance
If the seller is not strong enough to justify pre-export finance, then the fall back position can be
inventory finance. The seller accumulates the goods to fill the sales contract, using its own
funds. But as inventory builds, it recovers part of its investment by financing that inventory. The
first repayment path (way out) is for the seller to complete the sales contract, ship the goods,
converting the inventory finance into receivables finance, with repayment to the bank occurring
once funds are received from the buyer.
For this to be bankable, the goods accumulated in inventory must have a readily definable
market value. In evaluating the recoverable liquidation value of the pledged inventory, the bank
has to assume that the sales contract may not be completed, and that the inventory will have to
be repossessed and sold, probably at auction. Such sales are typically at a lower price than
that quoted in the sales contract, and in the case of specialized goods where there is a limited
secondary market, or perishable goods, the recoverable value may be significantly lower. In
addition, foreclosing on and selling collateral is a time consuming and expensive proposition.
Since the realizable value of the collateral will generally be less that the cost, the bank will lend
only up to a percentage of the value of the goods. As an example, non-perishable commodities,
such as grain, stored in a certified public warehouse that ensures certainty of quality, quantity
and access through a warehouse receipts program may finance up to 80% of the value
calculated at the price low point during the season. Inventory stored on the seller’s premises
require periodic inspection to ensure that the quantity and quality meet the loan criteria, and
repossession becomes more complicated since the goods may have to be physically removed
from the seller’s property in case of default. If the bank does not have the technical staff
qualified to inspect and value the inventory, or the law does not permit automatic right of access
to the seller’s property for inspection or repossession, or the law requires lengthy court
proceedings for the bank to assume ownership control over the inventory, the bank may find
that the inventory has little real value as collateral.
Key then to inventory finance is the degree of certainty that the BiH seller will be able to sell the
goods and receive payment in the normal course of business, backed by the degree of
confidence that the goods can be seized and sold if that becomes necessary. The evaluation of
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10. Financial Sector Analysis February 2008 Bosnia-Herzegovina
these factors is costly, and will mitigate against financing for smaller companies where the bank
cannot reasonably recover these costs through fees and/or interest differential income.
Other forms of finance include:
Cash Flow Lending
Rather than relying heavily on the underlying commercial transaction and the goods involved,
cash flow lending is based on evaluation of the borrower’s financial condition and performance.
This requires a good understanding of the borrower’s business supported by reliable financial
statements that accurately reflect past performance and can be used to project future debt
service capacity. For larger companies, this is a viable form of finance, since the size of the
banking relationship will justify analysis of the borrower’s business and financial statements. In
larger markets where there are a significant number of companies operating in the same
economic segment, the bank may have industry specialists that develop a clear understanding
of the particular industry and can evaluate an individual company’s performance with that
industry context. The wood industry or auto parts manufacturing might be suitable sectors in
BiH. Again, size matters. Smaller companies, particularly those that are closely held or family
controlled, are likely to be more opaque 6 and the auditing that the company can afford may
become less reliable, increasing the level of on-site analysis that the lending officer must
undertake.
Equipment Finance
Product quality is a significant issue in BiH. Traditional production methods may not meet EU
standards, and improving quality may require significant investment in new equipment and
processes. Equipment leasing has often been an effective approach, particularly where the
equipment is sufficiently general that there is a reliable secondary market, and where it is stand-
alone so has limited unrecoverable installation and removal costs. As detailed on Page 6 -
Leasing – the legal and regulatory environment for leasing in BiH does not adequately support
this type of financing, to the detriment of economic development in BiH and particularly to the
development of small and medium BiH enterprises that typically should be the major source of
jobs and wealth generation.
Agricultural Finance
The LAMP work has focused on enabling access to finance to agribusiness, with 77 loans
developed including 35 that originally required a DCA guarantee to tip the balance in the credit
decision making process, but to whome the banks now lend without the guarantee 7 .
6
Full disclosure of income has incurred a tax liability. The income tax rate is being dropped from 30% to
10%, which may be enough to sufficiently remove the incentive for tax avoidance that financial
statements can become more reliable.
7
This case is a clear example of successful use of DCA as a market opening catalyst, with the exit
strategy being that it becomes unnecessary as the banks become comfortable with the clients involved.
Three claims for losses were received, all paid, so maintaining the credibility of the DCA guarantee. The
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11. Financial Sector Analysis February 2008 Bosnia-Herzegovina
The experience of the LAMP project has been that the banks in BiH are not equipped to handle
seasonal loans. Their loan systems are designed to amortize loans at a fixed amount at fixed
periods over the life of the loan. Matching the loan disbursements and payments with the
seasonal cash flows of agricultural lending is apparently not possible, particularly for financing of
orchards, where it may take three to five years before the trees mature enough to start
generating cash, requiring an extensive grace period before loan payments can start.
Financing of primary producers is lagging. Some provision of in-kind supplies is being made by
agribusinesses that depend on primary producers for their feed-stock, but payment for crops
delivered to the processors only occurs after the processor receives payment from its clients,
which can be up to 120 days later. This lack of financing for expanding primary production, and
for improving quality control (particularly for milk) to EU standards is a significant constraint on
the expansion of agricultural production and both exports and import substitution.
An open question is the size of the potential market for primary producer financing. A
commercial bank looking at entering this market, or for a specialized agricultural bank, such as
the Rabobank, to set up operations in BiH, would require a cost/benefit analysis that would
identify the potential market and earnings opportunities that would justify the cost of market
entry. Conducting such a market study, possibly in collaboration with one or more of the local
agricultural training institutions, could be useful in opening this market.
Real Estate as Collateral
Small companies, particularly start up companies, typically rely heavily on the value of existing
personal property owned to collateralize borrowings. For real estate to become a reliable
source of financing for small family owned companies, the following must apply:
• Certainty of Ownership: the owner of the property must be able to demonstrate clear
title, free of conflicting claims, with any existing liens (pledges to other lenders) clearly
identified and limited to the amount of the funding available. This is essential to
determine the nature and location of the property and pre-existing, higher ranking claims
on it.
• Certainty of Marketability: for real estate to serve as collateral, the law must enable
rapid and predictable foreclosure while reasonably protecting the rights of the owner,
and a viable secondary market must exist that will allow the lender to sell foreclosed
property.
• Certainty of Market Value: reasonable valuation of the property as collateral requires
that there be a system that records sales transactions of similar properties in like
condition and surroundings to that a reasonable assumption can be made on the likely
realizable value, should the property be foreclosed and sold.
amount of claims has been slightly less than the Mission contribution to the guarantee fund, so the risk
was reasonably assessed at inception of this program.
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12. Financial Sector Analysis February 2008 Bosnia-Herzegovina
GTZ has been supporting the development of a cadastre system that will enhance certainty of
ownership and transferability when properties are sold. An internet based Land Registry is
being implemented. USAID’s development partner, the International Real Property Foundation,
has been supporting establishment of the real estate industry, including implementation of the
Bosnia Real Estate Business Association (BREBA), which will enhance marketability and
valuation. These activities will improve the certainty of realizable value of real estate as
collateral for lending, and will open access to finance while improving the loan to value ratio 8 .
Feed back from market participants varied –
• The new notary system improved the efficiency of the title transfer process, with no court
involvement necessary, but at a substantially increased cost. The old court fees were
some 100 MK, while the new fees are based on the value of the property, starting with a
legally prescribed floor of 1,000MK.
o Since these fees are legally prescribed, there is no competitive pressure to bring
them down – the assumption was that these notaries would do very well
financially.
o Since the fees are based on the value of the property, both buyer and seller have
a vested interest in understating the sales price. This distorts price discovery for
valuation purposes and undermines the base for real estate taxes.
o Given the high cost of both sales transactions and pledge registration, there is
strong incentive to avoid formally recording transactions unless absolutely
necessary, which undermines the rationalization of property rights.
• The new registration process may actually have complicated real estate transactions.
The old system, requiring judicial approval, was slow but well understood and worked.
The new system that brings in a notary to approve transactions adds an additional layer,
since the old system has continued. Since the notaries and judges do not have to
accept each other’s rulings, transfers of title have been substantially complicated, with
the new notaries acting as expensive choke points. Some notaries have taken to putting
disclaimer clauses on their documents to the effect that the document may not conform
to the law, but is what the particular judge is demanding. The impact of this is shown in
Sarajevo, where there is substantial demand for real estate but supply is blocked by the
current convoluted process, resulting in prices that match those in London, according to
a leading local real estate professional.
• The Land Administration in B&H Newsletter indicated that the new internet based Land
Registry had been successfully tested in the Municipal Court in Sarajevo, indicating that
the court system is indeed still involved.
8
The amount that can be lent on a property based as a percentage of its value.
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13. Financial Sector Analysis February 2008 Bosnia-Herzegovina
• The new cadastre system is an attempt to automate the process that dates back to the
late 19th century, rather than using IT to rationalize the underlying process. This is
complicated since many of the property registries were destroyed during WWII, and
never reconstituted. The new system thus has incomplete or inaccurate data on the
location of properties, outdated or inaccurate descriptions, and little or no information on
ownership. The banking system had been using a system they rated as much more
effective that provided much better information, but the government was encouraged to
replace it with the new cadastre. The result is that much of the property is not recorded
in the cadastre, making it unavailable for use as collateral without a substantial risk
premium that would serve as a form of title insurance.
Some confusion on implementation and the impact of a change in the process is to be
expected. The market rationalization process initiated with GTZ support needs to continue to
ensure that the real estate market is opened up. Linking the GTZ project with IRPF’s activities
and those of the BREBA could help to identify areas that need further work, such as ensuring
that progress is made on updating the data in the system, that the notary process is not
contradicted by the courts and that pricing is rationalized to enable competition and avoid
distorting the market.
An additional issue is lack of clarity on zoning. Building permits are subject to municipal
approval, but the municipality is subject to direction from the planning commission [is this
municipal, cantonal, entity or state?] – these development “plans” appear to be constantly under
revision, during which there is no certainty of what zoning rules apply. Adding certainty would
require that existing plans stay in force and be publicly available until such time as a change is
approved – any work authorized prior to the change should be “grandfathered”, meaning that
authorizations are final and not subject to revocation by subsequent changes in the
development plan.
A side effect of the lack of a functioning real estate market may be that the market value of
properties could be up to several hundred times the original cost, which is all the public sector
appraisal process uses to assign value. Value discovery through a multiple listing system that
would track property sales and values to enable determination of market based orderly
liquidation market value, alternate use value and replacement cost – the three usual
approaches to valuation, would enable banks to rely on more informed property values in
determining collateral coverage, thus expanding access to finance, and at the same time
present a more rational basis for property taxation needed to fund municipal services. More
rational property taxation would encourage property owners to use the property for its most
productive purpose.
Public confidence in the certainty of title to property and in reasonable limits to the risk of
pledging that property in order to support financing is a critical component of opening access to
finance and, by lowering the risks for all concerned, lowering the transaction and risk premium
costs.
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14. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Company Registration
Difficulties registering a company present a major deterrent to formalizing businesses – and
since loan agreements are only enforceable if signed by duly authorized representatives of
legally constituted companies. DfID has been supporting improving this process, and has
managed to ensure that registration times have been reduced from months to weeks. However,
as with the property registry, the focus was on automating a paper based process rather than
automating the objective. Bosnia scores way below other countries in the region on this issue
and the level of general frustration with the effectiveness of this system may have reached a
sufficiently high level that the political will to institute a more modern system design may be
developing. Also the success of the movable property registry, which did automate the
objective rather than the existing process, is a clear demonstration of what can be
accomplished. It may be appropriate to collaborate with DfID on taking this reform process to
the next level.
Financial Transparency
Apparently there is plenty of accounting software available in BiH, both locally produced and at
least one illegal copy of Quicken Home and Business 2004. Any company that wants to
implement corporate accounting can do so – the disincentive has been the corporate tax of 30%
and the social tax of 58% on staff payroll. With the corporate tax dropping to 10%, the incentive
for tax avoidance is diminished, but the social taxes still act as a powerful deterrent to
transparent accounting practices and job creation.
Given the high level of informality and tax avoidance, the tax authorities are understood to
assume guilt unless proven otherwise. While this may not be an invalid assumption, the result
is an intrusive tax inspection system and expense documentation process that is intended to
screen out improper expenses by requiring irrefutable proof from the recipient of any cash that
the expense incurred is a legitimate business expense through duly stamped invoices and
receipts. The cost of obtaining and recording such receipts may exceed the expense incurred,
which logically reduces taxable income through the incremental labor cost incurred (or diversion
of labor from taxable income producing activities), so may be counter-productive. Setting a
threshold below which receipts are not required, as is the practice in other countries, could
facilitate small petty cash expenses without any meaningful loss of revenue to the tax
authorities.
BiH has introduced a VAT at 17%, including the ability to claw back VAT as the goods are
passed on. Anecdotal evidence suggests that attempts to legitimately claw back VAT result in
visits by the tax inspectors that take up inordinate amounts of management time, resulting in
businesses deciding that giving up the VAT is less onerous than the disruption of business that
results from trying to recover it. The effective VAT tax rate is thus much higher than the nominal
17%.
But understating income and opaque accounting undermines potential borrowers’ ability to
document debt service capacity to a potential lender, and is a major impediment to expansion of
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15. Financial Sector Analysis February 2008 Bosnia-Herzegovina
access to finance, particularly for smaller companies that can operate effectively without formal
internal management information systems.
The high social charges also discourage formal employment and act as an incentive for
companies not to grow so as to stay under the radar.
Business Planning
Local consulting services are available to SMEs to assist with development of business plans as
support for credit applications. However, these are judged either to be expensive or formulaic,
in the former case out of reach for an SME that is just reaching the point of applying for credit, in
the second case easily recognizable by potential lenders as being off-the-shelf plans that the
SME presenter may not even understand.
Missing Middle
One of the banks visited is undergoing a rethink of its business model, looking at moving down
market, given the current crowding at the top and competitive pressure on lending conditions.
This is likely to be a general trend, given the excess capitalization in the banking system.
At the other end of the spectrum, micro-finance institutions (MFIs) have been highly successful
and the market has become somewhat crowded, leading to competition on rates and quality of
services. The BiH micro-finance industry has become a world leader. The new law allows NGO
foundations to set up commercial activities, including lending and insurance companies,
providing that the foundation maintain majority interest. This enables the current NGO
foundations to bring in equity investors through subsidiaries – the foundation structure is proving
to be a challenge, since in essence these foundations have no owners. This law also caps
loans issued by NGO foundations to 10,000 MK, down from the previous cap of 30,000 MK.
The objective was listed as ensuring that tax exempt status applied only to institutions that were
indeed engaged in social lending. Given the crowding at the lowest end, institutions have been
moving up market into the SME sector, which requires modification of lending practices and
assumption of a corporate (non tax exempt) structure.
MFI licensing, regulation and supervision has been brought under the central bank’s bank
supervision process – viewed as a positive development by market participants – this process
needs to be rationalized to avoid disruption of the existing successful business model of these
institutions. With formal licensing and supervision within the central bank, it may now be
appropriate for these institutions to be given direct access to the credit bureau and to the
property registration process that is already available to the banks. These issues are likely to
be of interest to the PARE program.
Bottom line: the existing financial system is moving solidly towards closing the “missing middle”
for credit worthy SMEs. There is no shortage of expertise within the financial system – due to
the pre-existing excellent educational system, USAID’s past higher education programs that
have been highly successful in developing Bosnian staff that are increasingly showing up in
senior leadership positions within the financial sector, and the import of expertise, management
and systems through foreign investment in the financial sector.
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16. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Expanding Access to Finance
A key objective of the upcoming project is to expand access to finance, particularly for small and
medium enterprises that are or could export, in the process aiding BiH’s balance of payments,
expanding the employment necessary to reduce poverty and enhance social stability, and
generating the tax receipts necessary to fund government services to the public.
As this report found, the banking system in BiH is well develop, and may even be the most
developed part of the economy. Outstanding systemic issues in the financial sector are being
addressed in the upcoming Partnership for Advancing Reforms (PARE 9 ) program, which seeks
to flexibly respond to requests for assistance in implementing essential reforms to the financial
sector enabling environment as the political will to do so develops.
The SME Support Project Concept Paper identifies the following:
Assist SMEs in securing finance from commercial outlets for expansion of their enterprise as well
as to cover existing costs associated with production and marketing. Access to modern
commercial financing (short and medium term lending) is a key component to the ability of a SME
to plan and grow in today’s economy. The BiH financial system is able and willing to fund SME
development, however, SMEs are unable to tap into this due primarily to a lack of knowledge on
how to properly prepare and market their enterprise to lending institutions. Under this new
activity, assistance may include providing training to SMEs on proper business plan development,
packaging financial materials for commercial banks, and other types of financial assistance
training. Types of financial assistance that may be targeted include short and medium term
instruments such as warehouse and inventory receipt programs, equipment leasing, accounts
receivable financing, and other traditional finance mechanisms.
The section on Key Market Constraints starting on Page 5 identifies the challenges. The factors
that drive up market risk and cost are:
Challenge Objective Approach
Credit Information
The CBBH credit bureau does not Individuals and companies can Work with CBBH to expand credit bureau
provide non-bank origin data that use their track record of services to international standard range of
would support market entry of new honoring financial obligations to information to all with a legitimate reason
borrowers, and is not accessible by expand access to credit and for accessing it.
all licensed financial institutions. lower cost.
The CBBH credit bureau does not Companies able to verify credit Work with CBBH to link credit bureau with
enable commercial credit checkings standing of potential business international networks and open access to
– these would facilitate development partners, domestically and corporate inquiries on credit score.
of commercial relations between internationally.
companies, within BiH and cross
border, that have not previously
known each other.
Tax Regime
9
Pare is “money” in Bosnian.
16
17. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Challenge Objective Approach
The tax regime discourages the use Fiscal project
of the accurate company accounting
practices that are essential for a
prospective borrower to document
cash flow and debt service capacity
to a potential lender. Tax statements
cannot be relied on to demonstrate
income.
VAT pull back not functioning,
increasing effective tax rate,
undermining regional
competitiveness.
Impediments to using real estate as Collaborate with GTZ, as appropriate, and
collateral: process, cost and market the International Real Property Foundation
valuation. to build on the current cadastre system to
produce a modern property and ownership
recording system that would form the base
for improved certainty of property location,
description, ownership and liens, including
on properties under construction. Design
should be for a single national system with
nodes as necessary to conform to regional
divisions.
Impediments to registering Collaborate with DfID, as appropriate, to
companies: process and time. rework a national internet based company
registration process and publicly available
company database.
SME managements have little ability Re-activate the previous successful
to accurately present their process of bringing potential borrowers
companies and business to potential and banks together, this time in the form
lenders – support is either expensive of a web based LendingTree.com
or ineffectual. approach to leading applicants through
developing loan applications, including
using a question and answer approach to
developing a basic business plan (or
rather explanation of their business) and
financial data, including a cash flow
analysis that demonstrates the expect
incremental income to be generated
through use of the funds requested and its
timing, so as to demonstrate the source of
repayment.
Services offered by banks in other
countries in the region, particularly
export finance and seasonal finance,
are not offered in BiH, due in part to
the factors above.
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19. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Discussants
Affiliation Representative
Chemonics International Stephen Farkas, Chief of Party, Streamlining Permits and Inspection
Regime Activity (SPIRA)
Boris Maslo, Commercial Lawyer, SPIRA
Central Bank of Bosnia and Herzegovina Amir Hadžiomeragić, Head. Economic Research and Statistics
Department
Emerging Markets Group (EMG) David King, Chief of Party
IFC International Finance Corporation Ivana Curic, Operations Officer, PEP – Southeast Europe
Sanjin Arifagic, Associate Operations Officer, Advisory Services
Southern Europe
Prizma Micro Kenan Crnkić, Executive Director
Jure Žigo, Operations Manager
Raiffeisen Leasing Izmira Aličić-Tuka, Executive Director
Belma Sekavić-Bandić, Director
Volksbank Reinhold Kolland, Director and Vorstand Chairman
Nedim Šahović, Head of Corporate Banking
UPN Association Mirza Mohansilović, President
USAID/Sarajevo Gregg Wiitala, Supervisory Private Enterprise Officer
Amira Vejzagic Ramhorst, Development Assistance Specialist
Vladimir Milin, Development Specialist and CTO
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21. Financial Sector Analysis February 2008 Bosnia-Herzegovina
Questions:
• What accounting software and service support exists?
• What loan products do the banks have available?
o Leasing?
o Inventory finance?
o Receivables finance / factoring?
o Cash flow lending for working capital?
o Export finance?
• What capacity do the banks have to expand lending?
• What information do the banks request from potential borrowers?
• Are the banks conducting site visits?
• What are the banks’ lending policies?
• What are the predominant reasons for turning down loan requests?
• Why is DCA needed – what risks are unacceptable without it?
• What regulations impact lending?
• What insurance exists?
o Vehicle
o Fire/casualty/business interruption
o Transit
o Liability
o Key man
o Health
o Life
• How effective is the bankers’ association?
• How effective is bank supervision?
• Can the statistics be updated to 2007?
• What are the central bank’s objectives for the financial industry?
21