Date: 28 September, 2022
SUBJECT: PRESS RELEASE
Banking Agency of Republika Srpska issued the Decision on temporary measures
to mitigate the risk of increase in interest rates in response to a possible increase in interest rates
In order to adequately and timely inform the public about the measures adopted by the Banking Agency of Republika Srpska (hereinafter: the Agency), related to the mitigation of risks caused by a significant increase in reference interest rates, inflation and other disturbances that may have negative effects on the market of Republika Srpska, we inform the public that the Agency, acting in accordance with the legal provisions and stipulated competences, and taking into account the new situation on the financial market, has issued a new by-law, i.e. the Decision on temporary measures to mitigate the risk of increase in interest rates, which was adopted by the Management Board of the Agency on September 28, 2022.
The reason for adopting the relevant Decision is to fulfill one of the basic goals and tasks of the Agency, that is, to preserve the stability of the banking sector. In this regard, the adoption of this by-law represents the Agency's timely response to mitigating current and future risks caused by significant increase in reference interest rates, inflation growth and other disturbances, and the expected effects thereof on the banking sector of Republika Srpska.
Due to the increased impact of interest rate risk, and with respect to the institutional and regulatory framework that does not allow inflation management through interest rates, the Agency considered it necessary to preemptively mitigate possible negative effects on the financial system, users of financial services and the economy of Republika Srpska. Bearing in mind the supervisory and regulatory function within its competences, stipulated by the Law on the Banking Agency of Republika Srpska, as well as the analysis of potential shocks due to the rise in interest rates, this Decision aims at the timely management of credit risk and all other risks to which banks are or could be exposed be exposed in the upcoming period. Furthermore, by applying this Decision, banks are required to establish an efficient process and controls in order to plan, analyze and monitor the effects of disturbances related to the growth of interest rates and other macroeconomic disturbances.
The primary objectives of the relevant Decision are to mitigate the sharp rise in interest rates in Republika Srpska, i.e. to protect users of banking services, as well as the stability of the banking sector and the achievement of macroeconomic balance, as well as additional stimulation of banks to find a way to keep interest rates at reasonable levels, in order to avoid negative effects on the economy and citizens, which directly affects the avoidance of the risk of losing the bank due to the inability to service obligations towards the bank.
The provisions of the Decision particularly affect the protection of the users of financial services, which implies that the bank can offer the user of banking services the possibility of modifying the credit exposure if the default status could occur for them as a direct consequence of a significant increase in interest rates.
It is necessary for banks to plan adequate management of interest-induced credit risk, which implies, among other things, a comparison of the current level of interest rates in relation to the levels of interest rates on the reference date, projections of interest rate growth and the effects of increased credit risk. Through the preventive and planned activities envisaged by this Decision, economic disturbances due to the rise in interest rates for the banking sector of Republika Srpska will be reduced, and potential long-term damages that would arise through the growth of the share of non-performing assets will be minimized.
In view of the expected additional pressures of economic shocks in the first half of 2023, the Agency will monitor the situation in the financial sector as part of its regular activities, and in accordance with previous practice, and in accordance with the assessment of current needs will introduce additional measures within its jurisdiction for the purpose of protecting citizens, the economy and the stability of the banking system.
Banking Agency of Republika Srpska.