Banks and Banking Services

Introduction

It is almost impossible to imagine living without banks today. We all use such a wide array of bank products to make and receive payments, save, finance current consumption and long-term investments, acquire financial assets, and so on. Customers often lack basic knowledge about these products, however, and have inadequate understanding of the financial regulations governing banks and their own rights and responsibilities in dealing with them.

Following the Organization for Economic Cooperation and Development (OECD) recommendations on financial education, the Central Bank of Bosnia and Herzegovina, with the assistance of the USAID PARE project, want to contribute to raising public financial literacy in Bosnia and Herzegovina. The content on these web-pages is informed by the following principles:

• Financial education should be clearly distinguished from commercial advice
• Public institutions and other stakeholders should promote unbiased and fair financial education

Financial education ensures that customers receive the information they need to make informed decisions, free of unfair or deceptive practices, and can understand the mechanisms for resolving disputes when transactions go awry, as well as knowing how to protect the privacy of their personal information. Financial education gives consumers the knowledge, skills and confidence to understand and evaluate the information they receive and enables them to purchase the financial products and services they and their families need. Together consumer protection and financial literacy set clear rules of engagement for financial firms and their retail customers, as well as helping to narrow the knowledge gap between them. In combination with adequate financial regulation, financial education can significantly contribute to financial sector stability.

Expanding access to financial services is an important goal, particularly in developing countries. Providing a low-cost bank account, for example, can provide an entry-level product that brings new consumers into the financial sector. While expanding access to financial services helps stimulate the economy, both financial institutions and financial consumers need to be responsible in their use of financial services.

The global financial crisis has highlighted the importance of consumer protection and financial literacy for the long-term stability of the financial sector. The rapid growth of personal lending in recent years left many households facing difficulties in understanding the risks and obligations involved or the full range of choices available. Financial institutions have also transferred financial risks to households, which have become increasingly exposed to new types of risk, including those related to foreign exchange and variable interest rates.

The OECD has developed a widely acknowledged and comprehensive definition of financial education that encompasses the various steps of this capacity-building process, from raised awareness and enhanced knowledge and capabilities to behavior modification:

"Financial education is the process by which financial consumers/investors improve their understanding of financial products and concepts and, through information, instruction and/or objective advice, develop the skills and confidence to become aware of (financial) risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being and protection."

Consumer financial education and awareness have become critically important for several reasons:

• Individuals are increasingly involved in the essential financial decisions needed to ensure their future wellbeing, with less reliance on government safety nets and increased personal investment in private financial institutions (including bank loans and deposits, as well as health insurance, pension planning, and other forms of insurance)
• Life expectancy is higher, with a affiliated need to build long-term relationships with financial institutions
• More households are investing more of their income in financial assets
• The financial services and products available in the market economy are increasingly complex
• It can be difficult to obtain full financial disclosure
• The starting level of individual financial literacy and capability is very low, even though  individuals tend to overestimate their own financial knowledge and skills
• Confidence in financial institutions is low
• Certain vulnerable groups are particularly likely to be affected

The aim of the following pages is to provide certain basic knowledge about key banking products and services in Bosnia and Herzegovina. The content has been adapted for the general public and should help the average consumer understand the main characteristics of bank products, as well as their rights and responsibilities in dealing with banks. In addition to explaining these products and services, the text also provides some guidance on how to use them and avoid financial distress.

This section on banking products and services has four subcomponents:

• Current Accounts
• Savings
• Loans (Housing Loans andPersonal (Consumer) Loans)
• Credit Cards

This information does not represent the official position of either the Central Bank of Bosnia and Herzegovina or the USAID and cannot be taken as legally binding on either institution.