Bosnia's Banks Must Tackle Bad Loan Rise
Sarajevo, Bosnia, December, 11 2009 -
Bosnia's commercial banks must tackle a rise in bad loans that will lead them to post losses this year for the first time since the end of the 1992-95 war, central bank governor Kemal Kozaric said on Tuesday.
"The worsening of the business climate and declining living standard have fuelled Bosnia's bad loans," Kozaric told Reuters, adding that nine banks that recorded losses would most likely "have to dive into their capital assets to cover the loss."
He said that non-performing loans account for 2.8 percent or about 20 billion Bosnian marka ($15.1 billion) of commercial banks' total assets.
"This is a significant increase which has still not jeopardised the health of the banking system but must be urgently addressed," Kozaric said on the sidelines of a conference on responsible financing.
He said that the banks, which are 80 percent foreign-owned, have reduced lending in 2009 and that credit growth has slowed down to 4 percent from 28 percent last year.
Kozaric underlined that the rise in bad loans has been even larger in Bosnia's micro-credit sector.
Doris Kohn, a senior vice-president of Germany's state development bank KfW, also stressed the problem of over-indebtedness in Bosnia.
"Financial institutions are concerned with this development and this is a problem that should be addressed through financial sector," said Kohn. "I know that banking supervision has an eye on it," she added.
Kozaric said that microcredit organisations weren't obliged to report on their clients to the central credit registry until several months ago and that many people have several loans.
"The micro-finance institutions have operated in the shadow of commercial banks, which are always in the spotlight, and the problem has emerged only recently," he said.
The microcredit sector, set up and funded by the World Bank and other international donors after the war, has been praised as a success in reviving small business in the war-torn country. It has helped create more than 100,000 jobs so far.
Some organisations in the sector had seen growth in recent years of as much as 40-50 percent, but microcredit fell for the first time in the first half of 2009, slipping about 4 percent.
"There is a general responsibility of all those involved in the chain for such development," said Kozaric. "We need to see if that was simply because of profit-taking or whether the responsibility lies with the clients."
The Bosnian economy, which grew 5.4 percent in 2008 but is expected to contract 3.5 percent this year, is likely to grow 0.5 percent in 2010 and 3 percent in 2011, Kozaric told Reuters.