Changes To Reserve Requirements

The Governing Board of the Central Bank of Bosnia and Herzegovina (CBBH) at its meeting in Mostar on 6 August, 2004 decided to increase the level of the reserve requirement that the CBBH imposes on commercial bank deposits from 5% to 10%. The reserve requirement sets the minimum level of their customers' deposits that a bank must hold on deposit at the CBBH.
The Governor of the CBBH Peter Nicholl said 'the main reason for the increase is to reduce the very high level of surplus liquidity the banking system currently has because of the continued strong growth in their deposits.' In the latest 10 day reserve requirement period, which finished on 31 July, the commercial banks collectively held 17.85% of their deposits in their reserve accounts at the CBBH, more than three times the level required by the CBBH. The increase in the reserve requirement to 10% will reduce the level of their excess reserves at the CBBH.
The increase will take effect in two steps. The requirement will increase to 7.5% from 1 September, 2004 and then to 10% from 1 December, 2004. This will allow those few banks which will need to increase their reserve deposits at the CBBH in order to meet the new requirement a short period of time to adjust to the changed requirements.
Governor Nicholl said that bank deposits and bank lending have continued to grow strongly this year. One favorable aspect is that a higher proportion of bank lending is now going to the enterprise sector which should be positive for economic growth, employment and exports. However, there are some signs that bank lending is beginning to accelerate again from an already high level.
The increase in the reserve requirement to 10% is a precautionary measure that will put the CBBH in a better position to contain the acceleration in credit should it cause adverse economic effects, such as an acceleration in imports and a widening of BiH's already large trade deficit. The CBBH will monitor the economic situation closely and will take further measures should this prove to be necessary.