The banking system of Bosnia and Herzegovina incorporates the Central Bank of Bosnia and Herzegovina, commercial banks, and other financial institutions. The Central Bank defines and controls the implementation of the monetary policy of Bosnia and Herzegovina, and assists and maintains appropriate payment and accounting systems. It also coordinates the activities of the banking agencies of the B&H entities (hereinafter: regulators), which are responsible for issuing licenses for the operation and supervision of banks.
Frequent Problems of the Banking Sector
Various problems in the banking system of B&H hinder the development of the market economy as well as the creation of conditions for attracting foreign investors to the realization of investment projects. Therefore, banks often don’t provide adequate service to entrepreneurs with their operations in an incompletely regulated system, where inconsistent actions cause additional problems and challenges in support of the real sector.
Consequently, even a simple operational activity such as opening a bank account (a prerequisite for starting a business or carrying out transactions) can be a challenge, given the inconsistency of the approach to the interpretation of regulations on preventing money laundering and financing terrorist activities.
One of the practical examples is that, if there is a non-resident entity within the group in the form of a private foundation, certain banks will also ask for information about the stake of the founder of the foundation – even though this is not prescribed by domestic or foreign regulations – so it is impossible to provide this information to the banks which, in the end, often results in an obstacle when opening a bank account.
Furthermore, it is not only the initial step of investing in B&H that is problematic: we have a similar problem in the opposite direction, where residents of B&H as natural persons have absolutely no possibility to transfer their funds for the established capital, i.e., in the name of establishing a company abroad, precisely because of the vagueness of the regulations as well as the interpretation of those valid regulations by the competent institutions.
(Non)Business with Cryptocurrencies
Contemporary trends in financial circles cause additional practical problems, especially in the area of dealing with cryptocurrencies, given that in the entities and Bosnia and Herzegovina this area is not legally regulated, which clearly follows from the following examples:
It bears pointing out that not a single institution from the banking system in Bosnia and Herzegovina gives specific warnings to foreign investors about the possibility of their project being obstructed by banks, and this is exactly what happened in 2018 to one investment project over USD 100 million, which aimed to collect foreign investments and invest in the production of electricity from renewable sources and the equipment for the production of digital space on the Ethereum platform, and the development of blockchain technology itself.
The District Commercial Court in Banja Luka, by a judgment dated December 30, 2022, required a Banja Luka bank to pay Bitminer Factory Ltd. BAM 256 million in damages due to a non-business relationship, i.e., the unilateral closing of the business account of a business entity, which had led to the failure of the investment project.
In the reasoning for the verdict, it is clearly stated that the bank behaved unprofessionally in this case because it first allowed Bitminer Factory to open an account and then, unilaterally, terminated the contract and returned the payments.
An additional example is that of a bank terminating the contract on a business account without any explanation, after having previously refused several times to accept the money that the client was supposed to receive from one of the world’s well-known cryptocurrency exchanges. The bank justified the action by invoking its legal obligation to monitor and react when it notices suspicious transactions: given that the laws in B&H do not regulate cryptocurrency operations at all, nor can any company be registered for such business activities. However, the Competition Council later concluded that the bank went beyond its prerogatives on that issue.
Going forward, entity regulators should work on the more efficient functioning of the banking system, where they would lead banks to act with a higher degree of flexibility. This implies the construction of products and services that will correspond to the needs of clients and projects and their exposure to risk, otherwise, the B&H banking system will suffer significantly.
By Nadin Kantic, Partner, Ibrahimovic & Co