26 March, 2020
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Banking Agencies in BIH announce coronavirus relief measures

Like most prudential regulatory bodies the world over, those in the Republika Srpska and the Federation of Bosnia and Herzegovina have adopted measures to facilitate the repayment of loans owed by private individuals and legal entities to banks in the Republika Srpska, and respectively to banks and non-depository financial institutions (microcredit organizations and leasing companies) in the Federation of Bosnia and Herzegovina, while maintaining the stability of the financial system.

 

Decisions adopted by the Banking Agencies

On March 20, 2020, the Banking Agency of the Republika Srpska adopted the Decision on Temporary Measures to be implemented by Banks to Mitigate the Detrimental Economic Effects caused by COVID-19, while on the same day the Banking Agency of the Federation of Bosnia and Herzegovina adopted the Decision on Temporary Measures to be implemented by Banks and Non-deposit Financial Institutions (microcredit organizations and leasing companies) to Mitigate the Detrimental Economic Effects caused by COVID-19.  The decisions require banks and non-depository financial institutions to grant relief to financial services consumers (private individuals and legal entities) aimed at overcoming the difficulties they face due to the detrimental economic effects caused by COVID-19, as well as ensuring that they meet their repayments going forward.

The measures

Accordingly, banks and non-depository financial institutions are required to identify financial services consumers whose creditworthiness has taken a knock or will be affected owing to COVID-19.  Customers in arrears of 90 days or more will not qualify for the relief.

Once qualifying clients have been identified, banks and non-depository financial institutions will offer clients a series of arrangements, including: repayment moratorium – max. 6-months; grace period – max. 6 months (only for annuities); repayment term extension; liquidity loans; or any other measure they believe could help customers to meet their obligations.  A bank or a non-depository financial institution may also offer a combination of the aforementioned measures, the first step of which is a moratorium during the state of emergency in Republika Srpska, or state of natural or other disaster in Bosnia and Herzegovina, followed by an assessment of the most effective measures for the client or group of clients concerned.

Comparison with National Bank of Serbia measures

When compared with a similar decision adopted by the National Bank of Serbia on March 17, 2020, the following differences were identified:

  • Banks operating in the Republika Srpska and the Federation of Bosnia and Herzegovina will offer measures aimed at facilitating repayments of monthly obligations only to financial service customers assessed as facing or likely to face detrimental economic effects caused by COVID-19. Those in arrears of 90 days or more do not qualify, whereas the National Bank of Serbia requires banks to offer blanket relief to all clients;
  • Banks operating in the Republika Srpska and the Federation of Bosnia and Herzegovina must offer other measures in addition to the moratorium, whereas banks operating in the Republic of Serbia may offer additional measures in addition to the moratorium, but are under no requirement to do so,
  • The Banking Agency of the Republika Srpska and the Banking Agency of the Federation of Bosnia and Herzegovina allows banks to use a capital conservation buffer during the state of emergency in the Republika Srpska, or the state of natural or other disaster in Bosnia and Herzegovina. On the other hand, the National Bank of Serbia does not permit the use of a capital conservation buffer.

The objective

These decisions also serve to safeguard the risk profile and financial position of banks and non-depository financial institutions from the impact of COVID-19 and to allow banks to maintain their capital in line with their risk profile.  To that end, banks should consider retaining profit from 2019 and deferring or canceling dividend payments to shareholders, as well as variable remuneration to management and employees in risk-taking functions.

 

For more information, please contact us via covid19@geciclaw.com