The First Month of Application of New Regulations on Reserve Requirements Resulted in Rise of the CBBH Foreign Reserves With Continuing Moderate Fall of Interest Rates of Commercial Banks

The first month of application of the new Decision on setting and fulfilling reserve requirements (RR) and setting compensation on the total reserve deposits which commercial banks in BH keep at the Central Bank of BH (CBBH), among other things, resulted in the rise of the CBBH foreign reserves in the amount of KM 118 million.

In more details, as of May 31 2003, which is one day before the beginning of the implementation of this Decision, foreign reserves were KM 2,146 billion and as of 30 June they were KM 2,267 billion. New regulations on reserve requirements define that the CBBH calculates to banks compensation on entire amount of funds at reserve account with the CBBH, which is the reason banks at reserve accounts have bigger amounts of funds in respect to obligation of fulfilment of RR. Therefore it is realistic to expect that upward trend of the CBBH foreign reserves will continue. The Decision on setting and fulfilling reserve requirements and setting compensation on reserves, which took effect as of 1 June 2003, was the first change of the RR regulation which CBBH has made since the startup of its operations in 1997.

There is also an evident trend of moderate but continuous fall of interest rates of commercial banks. Average interest rates on short-term loans in May 2003 were 11.20 % while those on long term loans were 10.42 %.

Further stabilization of banking sector and moderate fall of interest rates of commercial banks are expected to continue.