Interview: The Governor of the Central Bank Kemal Kozarić
By: Nevena Šarenac
In an interview with “Sarajevo Times” the Governor of Central Bank Kemal Kozarić said that this institution since its establishment has made a profit of about 700 million KM, claiming that thanks to the investment’s policy have had no losses. The chances of recovery of B&H economy, Governor sees in increased production and in help of the real sector of employment, and in the arrival of foreign investments for which is necessary to ensure political stability and legal safety. He thinks that the state institutions of Bosnia and Herzegovina must give support to sectors that have a chance, especially energy, tourism, agriculture and food production. In an interview with “Sarajevo Times” the Governor of the Central Bank of Bosnia and Herzegovina, among other things, comments the incentives to create and introduce two separate payment systems in our country, emphasizing that this is incorrect, and that a single payment system will not be changed.
According to the estimates, the Central Bank (CB) of B&H have reached around 700 million KM profits, of which 60 percent is transferred in the budget of B&H and it can be concluded that it is a positive example of operations of state institutions. How do you assess the work of the Central Bank since it is founded until now?
Central Bank since its establishment has made a profit of 700 million KM, while last year we have made a 34 million KM profit and for the first six months of this year about 26 million KM. In accordance with the law of CB B&H, 60 percent profit of 700 million KM we have transferred to the budget of Bosnia and Herzegovina, and the remaining 40 percent went to the capital and reserves of CB B&H. Although is not a profit-making organization, CB B&H deals with the investment of foreign exchange reserves, which is one of our key tasks. Our foreign exchange reserves in 2009 we have moved to the central bank of the European Union (EU). Thanks to the investment policy, we had no losses, which is important for the credibility of the institution and for the confidence in the local currency.
However, the conditions in market have changed substantially. Before the interest rate was three to four percent and now is below one percent. Until 2015 we do not expect an increase in interest rates, so it will be very difficult to achieve financial goals. Nevertheless, I believe that we will work positively, and that a part of the profits will go to the state budget.
We are witnesses of the global economic crises. In your opinion, how B&H coped with the recession? What are the key factors in the recovery of the B&H economy?
Considering that small open economies do not have enough instruments to cope with external shocks, Bosnia is experiencing a significant impact of the global economic crisis. As a country that yet hasn’t the candidate status of the EU, B&H is not able to access European funds for the situation of crisis. Therefore, we had to require for a stand-by arrangement of the International Monetary Fund (IMF). That was the only solution for B&H government to obtain certain funds under favorable conditions. Unfortunately, these funds are used to close the budget deficit, and not for the investments. Public debt has increased, but it was mainly to finance government spending, which is not good on long term.
Although there is a Law on Public Debt, Bosnia and Herzegovina as a state did not release financial papers what was another reason for turning to the IMF. In the local market the entities released the financial papers, that is good on one side, because the commercial banks recognized them as reliable partners. But also on the other hand, it is not good, because the real sector is shortened for the amount that was withdrew from the financial markets.
The only solution for B&H is to increase the productions and to help the real sector of the employment and the arrival of foreign investments. State institutions must provide support to sectors that have a chance, especially in energy, tourism, agriculture and food production.
How to create favorable grounds in B&H for foreign investments?
Foreign investments are very important opportunity which unfortunately hasn’t yet been sufficiently recognized in B&H. Although verbally we are committed to foreign investors, we are not doing enough to attract them. Investment and capital seeks safety and that is the crucial factor in political stability. To foreign investors must be provided legal security, and simplified administrative procedures.
Also, we should not forget the local investors, which at least must be equal to the foreign investors.
How many banks are currently operating in B&H and do you expect in the near future strengthening of banking sector in our country?
Currently in B&H operate 28 banks, which is a big number for our country. Recently, we have established a methodology for calculating important systematic banks. In the list are seven important systematic banks that are mainly foreign-owned, which clearly indicates that they have an important role in loans, collecting deposits, payments, money exchange … These banks cover almost 90 percent of the market, while the remaining banks should assess if they can survive in the market competition. These facts suggest that there will be strengthening of the banking sector and I hope that this process will not stop. In the market are valid the market laws, competition is present and welcomed. A large number of banks are losing unnecessarily resources because individual banks can not follow any larger project. The syndicated loans for the first time appeared where banks jointly follow the larger projects.
To strengthen the local banks, it is needed the support of the state, which should show to the economy and citizens that local banks are reliable.
The reform of the payment system was conducted in 2001 and the introduction of the single payment system is perhaps the most successful project of the Central Bank. However, in public circulates the idea to introduce two separate payment systems in our state. What would that specifically mean for Bosnia and Herzegovina?
According to the law, the Central Bank established and maintains the payment systems in its ownership. As it was in the past even in the future the settlement between commercial banks will go through the Central Bank. The system of payment will remain the same.
According to the Dayton Agreement, the Entities are authorized to regulate the issues of finance at the entity level and to regulate the legislation of the payment system same as it was until now.
Meanwhile, the RS has adopted the law on payment system, where is defined the way of opening account, the method of forced payment and the way to define the main account. Federation of B&H such a law has submitted to the parliamentary procedure and it is likely that will be adopted in September.
There was a misunderstanding, because one entity started to implement this law, while the other entity has not yet. Therefore, the public started with the story of two payment systems, but it is not true. The payment system will not be changed.
Micro-credit sector is open for people who do not have access to funds of the banks. Do you think that micro-credit organizations have lost their social dimension, considering that interest rates in these institutions could reach even 30 percent?
I was very clear when I talked about this issue. Previously I was advocating for the idea that is good for B&H to develop micro-credit sector. Before the economic crisis it was very important for clients who did not have access to banks. It opened possibilities to clients to get funds from micro-credits and to start their own business.
However, the shortcoming of this kind of financing is that most of the micro-credit users did not register their businesses. Therefore they remained in the gray area of economy, which of course is not good.
I also spoke about the fact that micro-credit organizations must restore their social dimension. How to help anyone if the interest rate is 30 percent? For such high-interests there is no justification.
Also, the micro-credit organization must resolve their ownership, as well as corporative management.
All the weaknesses of these organizations came out into the open, when they came under the supervision of the Banking Agency, and when they entered the credit register.
We are witnesses of crises at all levels of B&H governments. How the political relations in the country are influencing the economic and financial flows? Do B&H citizens have reason for optimism?
The fact is that the politics has affected all spheres of our lives. I believe that there will be an accelerated process of reforms that are preconditions to European integration. Croatian accession to the EU should have a positive impact on the political elites of B&H to speed up certain processes and not remain European black hole. I hope that this will happen in 2014. The progress towards European path will be the reason for optimism. B&H has a chance, because it has the resources and young educated people who have European manners and who deserve to be equal citizens of Europe.