Masaryk University Faculty of Economics and Administration DIPLOMA WORK 2011 Emina Dţubur Masaryk University Faculty of Economics and Administration Field of study: Financial Management FINANCIAL MARKET AND INSTRUMENTS IN BOSNIA AND HERZEGOVINA, DEVELOPMENT, PERSPECTIVES AND LIMITATIONS Diploma work Thesis Supervisor: Author: Ing. Dagmar Linnertová Emina Dţubur Brno, 2011 Masaryk University Faculty of Economics and Administration Department of Finance Academic year 2010/2011 ASSIGNMENT OF DIPLOMA THESIS For: Bc. Emina Džubur, B.Sc. Field: Financial Management Title: Financial market and instruments in Bosnia and Herzegovina, development, perspectives and limitations P r i n c i p l e s o f t h e s i s w r i t i n g: Objective of the thesis: The aim of the thesis is the analysis of financial market trends in Bosnia and Herzegovina with intention of financial instruments. Approach and methods used: Procedure of work: 1. Introduction and setting of the main aim 2. Introduction of Bosnia and Herzegovina financial system 3. Analysis of financial instrument scale in Bosnia and Herzegovina 4. Analysis of trends in Bosnia and Herzegovina financial market 5. Comparison of situation in Bosnia and Herzegovina with intention of selected characteristics of financial products 6.Conclusion Methods: Analysis, comparison, deduction The extent of graphical works: according to the supervisor's guidelines, the assumption is about 10 charts and graphs The thesis length without appendices: 60 – 70 pages List of specialist literature: Mishkin, Frederic S. - Eakins, Stanley G. Financial markets and institutions. 6th ed. Boston: Pearson Prentice Hall, 2009. xxxix, 675. ISBN 978-0-321-37421. Mishkin, Frederic S. The economics of money, banking and financial markets. 7th ed. Boston: Addison-Wesley, 2004. xxxix, 679. ISBN 0-321-12235-6. Diploma thesis supervisor: Ing. Dagmar Linnertová Date of diploma thesis assignment: 20/3/2011 Submission deadline for Diploma thesis and its entry in the IS MU is provided in the valid Academic Calendar. Department Head Dean In Brno on 20/3/2011 Table of Contents 1. Introduction ......................................................................................................................................... 1 2. Financial markets ................................................................................................................................. 3 2.1. Generally about financial markets ................................................................................................ 3 2.2. Banks or capital markets .............................................................................................................. 3 3. Financial market of Bosnia and Herzegovina...................................................................................... 4 3.1. Macroeconomic indicators ............................................................................................................... 4 3.2. Financial Market Structure ............................................................................................................... 6 4. Banking sector of Bosnia and Herzegovina ........................................................................................ 7 4.1. Institutional frame ............................................................................................................................ 8 4.2. Overview of banking sector ............................................................................................................. 9 4.2.1. The year 2007 ..................................................................................................................... 10 4.2.2. The year 2008 ..................................................................................................................... 12 4.2.3. The year 2009 ..................................................................................................................... 14 4.2.4. The year 2010 ..................................................................................................................... 16 5. Insurance Market in Bosnia and Herzegovina ................................................................................... 18 5.1. Institutional frame of Insurance market of BiH ............................................................................. 19 5.2. Sector structure ............................................................................................................................... 21 5.2.3. Premiums ............................................................................................................................ 22 5.2.3. Investment structure ................................................................................................................ 23 5.3. Comparison of banking sector and insurance sector in BiH .......................................................... 26 6. Leasing companies ............................................................................................................................ 27 6.1. Institutional frame of leasing market ............................................................................................. 28 6.2. Review of leasing market ............................................................................................................... 28 7. Microcredit Organizations ................................................................................................................. 32 7.1. Institutional Frame ......................................................................................................................... 32 7.2. Sector structure ............................................................................................................................... 33 7.3. Lending activities and competition ................................................................................................ 34 7.4. Fall of microcredit activities .......................................................................................................... 35 8. Investment Funds ............................................................................................................................... 37 8.1. From Privatization Investment Funds to Investment Funds ........................................................... 37 8.2. Mutual funds .................................................................................................................................. 39 9. Capital markets in Bosnia and Herzegovina ...................................................................................... 41 9.1. Regulatory frame of capital markets .............................................................................................. 41 9.2. How the Stock Exchanges Are Organized ..................................................................................... 43 9.3. The Sarajevo stock exchange and Banja Luka Stock Exchange Indices ....................................... 46 9.4. Sarajevo Stock Exchange (SASE) .................................................................................................. 48 9.5. Banja Luka Stock Exchange (BLSE) ............................................................................................. 52 9.6. BLSE and SASE in 2011 ............................................................................................................... 56 10. Financial Instruments in BiH .............................................................................................................. 58 10.1. Stocks (Initial Public Offers) ........................................................................................................ 58 10.2. Bonds ............................................................................................................................................ 60 10.3. Commercial bills .......................................................................................................................... 61 10.4. Treasury bills ................................................................................................................................ 61 11. Perspectives of Bosnia and Herzegovina financial market ................................................................. 63 12. Conclusion .......................................................................................................................................... 68 13. Literature ............................................................................................................................................. 69 14. Abbreviations ...................................................................................................................................... 72 15. List of charts, graphs, pictures and diagrams ...................................................................................... 73 16. Appendix ............................................................................................................................................. 75 1. Introduction The objective of the present work is to describe financial market of Bosnia and Herzegovina and existing financial instruments. At the same time, it addresses challenges of individual segments of market, providing short overview of limitation and enabling factors of its development, working in broad range of subject areas including banking system, microcredit, leasing sector, capital markets, as well as supervision bodies, legislation, investors’ opportunities,