Completion of the European Union supported cooperation between the Eurosystem and the Central Bank of Bosnia and Herzegovina

The Eurosystem today delivered its report under the “Eurosystem needs assessment programme to the benefit of the Central Bank of Bosnia and Herzegovina”

Today, the Eurosystem needs assessment programme that started on 16 February 2007 came to an end with the final discussion and approval of its needs analysis report during a Programme Steering Committee meeting in Sarajevo that was attended by all involved parties. The report identifies areas where the Central Bank of Bosnia and Herzegovina (CBBH) will need to make progress in the form of implementing new rules or policies, changing practices and training of staff over the coming years in order to operationally advance preparations for accession to the European System of Central Banks, once Bosnia and Herzegovina is ready for entry into the European Union.

Financed by the European Union, the programme was implemented by the European Central Bank (ECB) in partnership with the Deutsche Bundesbank, Eesti Pank, the Bank of Greece, the Banco de España, the Banque de France, the Banca d’Italia, the Oesterreichische Nationalbank and Banka Slovenije.

The programme covered the CBBH’s functions with regard to: economic analysis and research; statistics; monetary policy under a currency board arrangement; payment and settlement systems; financial stability; coordination of the activities of the agencies responsible for licensing and supervision and internal audit.

The Eurosystem’s needs analysis report acknowledges that the CBBH is an institution with a very good technical reputation and capability among state-level institutions in Bosnia and Herzegovina, which is reflected in practices and policies at or close to EU standards in some areas. In a number of other areas, however, significant progress needs to be made to attain a level close to EU standards. Further information on the recommendations for each individual function of the CBBH can be found in the attachment.

The programme has been characterised by a smooth and transparent cooperation between all involved parties, meeting the deadlines and delivering high-quality outcomes.

The recommendations in the area of economic analysis and research aim at strengthening the analytical capability of the CBBH, with a view to improve the analysis of economic issues. The deficiencies in the availability of statistical data represent a serious drawback in this regard, especially with a view to developing econometric models that are necessary for a more accurate economic analysis. Limited resources represent a constraint that would need to be addressed gradually.

In the area of statistics it is recommended to design a long-term strategy that is both ambitious and realistic, and which would require cooperation with other BiH statistical agencies. In terms of resources, one of the recommendations would be to replace limited IT tools currently used with more potent and adequate statistical tools.

In the view of Eurosystem experts, in the area of monetary policy under a currency board arrangement, the existing framework has contributed to the success and credibility of the CBBH’s monetary policy. The need to adapt to EU standards would require in the long term certain legal changes in the area of central bank independence and participation in the ESCB. The development of a domestic money market is recommended in order to introduce incentives for banks to strengthen their liquidity management.

In the area of payment and settlement systems the Eurosystem experts’ view was that the CBBH is at or very close to EU standards as far as operational aspects are concerned. Areas where enhancements are needed include the development of the oversight role of the CBBH and the monitoring of market standards and activity in the payment and settlement systems field, in accordance also with EU Directives.

In the area of financial stability it is recommended to clarify publicly how the CBBH understands this function, and to deepen the analysis with a view to improving the internal discussions of the CBBH, contribute to the coordination with other public bodies and ultimately transmit this analysis to the general public. The plans already initiated for the preparation and eventual publication of a Financial Stability Report were considered appropriate, ambitious and requiring intensive work and resources in the comming years.

The Eurosystem experts have looked at how the CBBH performs its role of coordination of banking supervision. They were of the view that the present fragmentation of banking supervision is not an optimal situation. The report includes a number of suggestions for improving in the short and medium term the exchange of information between the CBBH and banking supervisors; strengthening the role of the CBBH in the coordination with foreign supervisors, as well as with other domestic supervisory bodies; enhancing the CBBH’s role to ensure the consistency of regulations; and harmonising disclosure policies.

In the internal audit area, the Eurosystem experts considered that the CBBH would need to develop a regular quality assessment, a systematic risk-based approach to the conduct and planning of its audits and information system audits that take into account the applications run by the CBBH. Standardisation of processes and documentation would also need to be improved.