94 10 3494 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 988 Title A name given to the resource Investigating Interaction Author Author Rakovac, Selma Abstract A summary of the resource. Verbal interaction has been a research object of several approaches and theories, including discourse analysis, conversation analysis, ethnography of speaking, critical discourse analysis, functional pragmatics, interactional linguistics. Those approaches (some of them deserve to be called theories) have one and the same object of observation: talk. However, as a result of different perspectives, the name of their object varies. Both discourse linguistics and functional pragmatics are focused on the way in which languages in use function. Ethnography of speaking is concerned with cultural aspects of human production, and the language itself is observed as a part of a culture. Conversation analysis investigates regularities in social activities, whereby language is one of the products of human society. Different names, different backgrounds and traditions, different scope of interest, different categories, methods and goals, and different naming of one and the same object, are resulting in a general confusion considering study of language interaction. This paper researches both possibilities and limits of the approaches being observed, by analyzing several transcribed talks from outlined perspectives Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Conference or Workshop Item PeerReviewed P Philology. Linguistics Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 945 Title A name given to the resource Two-in-One Instructors…Ikisi bir Arada…The Best of Both Worlds Author Author Ozturk, Nursel Abstract A summary of the resource. This paper will argue for the benefits and prosperity of native/native instructors as defined by Medgyes. I add that instructors with the knowledge and ability to utilize, for learning purposes, the language, culture, and religion of L1 students as well as a firm grasp of these features in their native culture and language provide the most beneficial English language learning environment; 2 in 1 instructors: those who are both native (foreigners) and native (to the populous they teach). A befitting example: a Canadian/American English instructor who is also a Turkish national, familiar since childhood with the customs and language of Canadians/Americans as well as Turks. This paper will not explore, per say, the strengths or weaknesses of non-native vs. native or vice versa, but the fortes, and if any, the shortcomings of a native/native instructor as well as advocate these types of instructors as being a future asset to the EFL world and thus employers and students of English teaching institutions. Thus, it must be assumed that experience, training, and other EFL qualifications are accorded. It is certainly the case, as Medgyes claims, where variables such as age, sex, aptitude, charisma, motivations, training, and so on play a decisive role in the teaching/learning process…yet he notes, are non-language specific variables. What we are interested in here are the best of both worlds…an instructor with a multitude of variables (charisma, motivation ...) as well as language specific ones. Here I argue that non-natives no matter how much L2 they have acquired will most likely not be completely native as is the case with the native who tries to become non-native. I conclude, contrasting to Medgyes, that native/native instructors are the repositories of NESTness and non-NESTNESS, a rare commodity that should be amplified. Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Conference or Workshop Item PeerReviewed P Philology. Linguistics Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 976 Title A name given to the resource Bosna Hersek`te Yabanci Dil olarak Tyrkce Ogretiminin Problemleri Uzerine Bir Arastirma Author Author Osmanbegovic-Baksic , Samira Arslan, Mustafa Abstract A summary of the resource. Bu çalışmanın amacı, Bosna-Hersek’te Türkçe öğreniminin ve öğretiminin problemlerini bir yöntem kapsamında incelemektir. Araştırma evreni olarak Saraybosna, Zenica, Tuzla Üniversitesi Türk Dili ve Edebiyatı Bölümünde okuyan 3. ve 4. sınıf öğrencileri belirlenmiştir ve Bosna-Hersek’te Türkçe öğreniminin ve öğretiminin problemleri anketi uygulanmıştır. Araştırma sonucunda elde edilen veriler faktör analizi yöntemiyle değerlendirilmiştir. Öğretim elemanlarının yetersizliği, ana dilde eğitim verilmesi, konuyla ilgili araç-gereç eksikliği ve eğitim müfredatının yetersiz olduğu gibi temel sorunlar tespit edilmiştir. Bu bağlamda ilk olarak Bosna Hersek üniversitelerindeki Türk dili ve edebiyatı bölümlerinin öğretim müfredatlarının yenilenmesi gerektiği anlaşılmıştır. Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Conference or Workshop Item PeerReviewed P Philology. Linguistics Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 942 Title A name given to the resource Correlation between Teaching Strategy and Students’ value Orientations at Higher education institutions(International University of Sarajevo and University of Travnik) Author Author Obralic, Nudzejma Obralic, Hanifa Abstract A summary of the resource. Old methodology did not pay a lot of attention to the students' needs, interests and value orientation. The reason for that was the fact that the teaching strategies considered a teacher-centred methodology. Nowadays, it is becoming more and more students-centered way of teaching. Students' needs and value orientations are becoming primary doctrine applied within process. Therefore, we can say that they shape the world's outlook. In practice, it is a bit complicated in the higher education institutions when it comes to matching teaching strategies and students’ value orientations. In depth, the methodology meets various implications of the challenges. Post-war education system in Bosnia and Herzegovina requires comprehensive redesigning reforms, and at the same time requires to be attended to it with earnestness. We claim that the reform of the education system in Bosnia should be taken into the consideration and integrate the students’ value orientation and apply the curriculum done right after the brief analysis of the previous curriculum, syllabus and textbooks. Learners’ ethnic and cultural background should play an important role while teaching. The aim of paper will be to clarify the scope of students' value orientation and teaching strategy, to what extand it is payed attention within education system and the importance of its correlation. Therefore, teaching strategies together with the experiments, lectures and skills integrated activities with the realm of values need to promote the objectives of students’ value orientation. The finding of the research points out to what extents is the correlation between teaching strategy and students’ value orientation important in order to obtain the learning environment and achieve knowledge. Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Conference or Workshop Item PeerReviewed P Philology. Linguistics https://omeka.ibu.edu.ba/files/original/b6ff61906b17009a0fd03b48082a86a4.pdf 04a11deb473b3e3fd497262baa386502 PDF Text Text Journal of Economic and Social Studies Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Nikola Dacev Law Faculty “Justinian the First”, Skopje Macedonia dacevn@yahoo.com Abstract: This paper presents an insurance market research of the markets in several Balkan countries that were part of former Yugoslavia and are still not members of EU. Being categorized as developing countries, they have far lower development degree in comparison with the European Insurance Federation member countries. By means of comparison between the basic insurance market development indicators in these countries, the law regulations, as well as through conducting surveys, based on questionnaires, which appoint the reasons for the underdevelopment in the sphere of life insurance, the paper gives a clearer perception, in terms of the conditions of the insurance markets, placed on the margins of the European insurance market. Its utmost objective is to point and argue several measures, which would improve the insurance market conditions in the already mentioned countries, i.e. would contribute to the development increase and the acceleration of these insurance markets. As a result, that would raise the protection measures and the safety, both to the citizens and their material goods. KEYWORDS: Insurance Markets, Developing Countries, Life Insurance ARTICLE HISTORY Submitted: 29 April 2012 Resubmitted: 30 September 2012 Resubmitted: 20 November 2012 Accepted: 24 December 2012 JEL codes: G22, K22, M31 151 �Nikola DACEV Introduction The insurance market role importance in the economy and the contemporary world in general increases rapidly, all the time. Today, there is hardly any economic sphere in which the insurance issue is not included. The possibility to relate the aforementioned issue with all economic spheres, as well as the individual’s existence, indicates its capacity to function in general. In terms of both law and economy, the notion insurance has been defined as one of the forms of risk management and governing, primarily used as protection from the risks that are likely to cause damage and loss. From individual point of view the insurance is an economic instrument used by the consumer to prevent himself from the possibility of a financial loss (a possible event that the individual is insured against) by investing (exchanging) a smaller sum of money (insurance premium), in advance. (Vaughan & Vaughan, 1995) All in all, the existence of insurance market is a must for providing appropriate conditions for insurance development. In this context, it appears to be a place where various insurance services, providing security in terms of the detrimental events, have an impact on the economy and as a result a lower risk protection is being offered. This market, as any other market includes supply and demand and has its separate laws and relations in various conditions of greater or lower freedom of movement. Participants in the insurance market are: the numerous insurers, the insured clientsthe insurance consumers, the insurance contractors, the mediators, the representatives etc. Taking as a point of departure the separate groups varieties-kinds of insurance specifics, there is a great variety of markets of this kind: motor insurance markets, life insurance market, real estate insurance market etc. The insurance market is quite specific and it differs from the other markets in many aspects. First of all, this market offers a great deal of insurance services, including various real estate and personal risks, which the insurer would not put into effect, neither at the given moment, nor in the future. There is no legal entity, nor a physical person that would consciously permit some of the previously mentioned risks to occur. This is the reason why the insurance and its “goods” and services are so specific. Journal of Economic and Social Studies 152 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries The Insurance market development is dependent upon several factors, mutually related, as the market size, i.e. the number of population. That means that the rise in the population number requires increase in the number of the market objects such as the insurance companies, as well as brokers insurance groups. Other factors are: the foreign capital investments, the business policy of the insurance companies, which determines the quality and the diversity of the goods offered on the insurance market, the prices of the insurance products, the manner of the risk management, i.e. the loss management, marketing activities, etc. These factors correlate with one of the perhaps most contributing factors that stimulates the development of the insurance market, the law regulation, i.e. the legal regulations, that govern the existing insurance market. This paper investigates the insurance markets in the former Yugoslav republics, which are not EU members, such as: Serbia, Bosnia and Herzegovina, Montenegro and Macedonia, although most of them have the status-candidates for accession to the EU. For the rest of them as Slovenia, which is an EU member already and Croatia, which is about to become an EU state this year, a great deal of the insurance policy reforms have already been implemented and successfully put into practice and the insurance markets have been sufficiently developed. The importance of the insurance market analysis in Serbia, Bosnia and Herzegovina, Montenegro and Macedonia grows due to the fact that they are still developing countries and the implementation of the law novelties in these countries falls behind those in the EU countries. This especially refers to the sphere of life insurance, which dominates in a great deal of the EU countries and is one of the less developed spheres in Serbia, Bosnia and Herzegovina, Montenegro and Macedonia. That is the reason that makes this issue more popular nowadays. It delves into the core of insurance market development, searching the essential reason for the underdevelopment of the insurance markets, with focus on the life insurance in these countries and at the same time it offers and examines the possible measures for the improvement of the situation in this area. 153 �Nikola DACEV The concept of the paper is structured in order to answer four relevant questions, formulated as basic goals and these are: 1. To identify the insurance market conditions and trends in the foreign Yugoslav republics, which are not EU-members (Serbia, Bosnia and Herzegovina, Montenegro and Macedonia) by means of comparison between the basic indicators of development, attributed to each insurance market separately. 2. Establishing the effects caused by latest law regulations influence, the modifications and the amendment of the laws, as well as some other measures, regarding the insurance issue in Serbia, Bosnia and Herzegovina, Montenegro and Macedonia. 3. Analysis of the life insurance markets in Serbia, Bosnia and Herzegovina, Montenegro and Macedonia and establishment the reasons for the current underdevelopment of these markets, as well as the establishment of the necessary measures, in order to stimulate the development of the life insurance market in a direction that would provide greater population security in these countries. 4. Defining the measures that would stimulate the insurance market development in Serbia, Bosnia and Herzegovina, Montenegro and Macedonia and would improve its efficiency and effectiveness in the aforementioned countries. The determination of the goals provides the possibility of creating a research which would yield the necessary information, later implemented in the phase of the determination of measures satisfying the contemporary standards for making policy and services that would meet the needs of the insured clients in the former Yugoslav republics, which are not EU-members. Journal of Economic and Social Studies 154 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Analysis of the Basic Development Indicators of the Insurance Markets in the Ex-Yugoslav Republics In this part of the paper it is presented a comparison between separate EU member countries and the non-EU countries, taking into consideration the most punctual and precise markers to examine and estimate the development of the insurance markets in the former Yugoslav republics and these are: the degree of density ( calculated as a pro between the gross written premiums and the number of country's population) and the degree of penetration ( calculated as a proportion between the gross written premiums and GDP), the number of insurance companies dealing with insurance activities and the overall gross insurance premiums per annum. The penetration degree is an indicator that measures the involvement of the gross written insurance premium (GWP further on) in the country’s GDP and it is one of the basic indicators for estimation of the conditions on the insurance market. In Montenegro the degree of penetration from 2004 on indicates growing trends, from 1.68% in 2002 to 2.18% in 2009. However, in 2010, due to the global crisis consequences the gross insurance premiums decreased, which reduced its value included in the GDP to 2.05%. In 2010 in Macedonia the total amount of GWP that was included in the GDP was 1.53% and generally these were the limits of the degree of penetration in the country (the highest value was noted in 2006, with value of 1.6%). There was a similar situation in Serbia, regarding the penetration degree. The value of GWP included in GDP varied from 1.8% in 2008, to 1.9 in 2010. The same goes for the degree of penetration in Bosnia, 1.9% in 2010. If we compare these statistical data with the value of GWP in GDP in Slovenia (an EU-member) and Croatia (which is about to become an EU-member by the end of this year), it is clear that in these countries, which were also former Yugoslav republics, the degree of penetration is relatively higher. For example, in Slovenia, in 2008, its value is 5.4% and 6% in 2009, 5.9% in 2010, whereas in Croatia it varies from 3.2% in 2008 to 2.8% in 2009, etc. The value of the indicators in the EU countries reaches approximately 8%, for the several previous years. Netherlands and Great Britain reaches the highest level of degree of penetration (13.2% and 12.2%), from all EU members. 155 �Nikola DACEV The same goes for the data for the degree of density. Despite of the fact that Serbia has continuous increase of the average premium per capita (from 38 EUR in 2004 to 76 EUR in 2009) compared to those in the EU countries, these values are rather low. In Bosnia the average premium per capita in 2010 was 64 EUR. Similarly, in Macedonia the GWP per capita increases from 50 to 55 EUR, the several last years and although the GWP has reached the highest value so far, that is still low in EU terms. In Montenegro the GWP per capita amounts 99 EUR in 2010 and the highest value was reached in 2009, that is 104 Euro, yet that value is lower than the average Europe value, by far (considering the fact that it amounts 1900 EUR per capita). When comparing the non-EU former Yugoslav republics and Slovenia and Croatia in terms of the density issue, there is also a large difference in the value. The average GWP per capita in Croatia is 300 EUR, whereas in Slovenia it reaches up to 1023 EUR in 2010. If we compare the condition in terms of the number of insurance companies in the former Yugoslav countries, non-EU members with the number in the EU countries, there is a clear correspondence between the area of the country and the number of insurance companies, yet what is noticeable is the fact that there is a rather low number of companies that deal with life insurance in the ex-Yugoslav countries. For instance, in the leading countries in the field of insurance, Great Britain and Germany, there are approximately 1300 i.e. something less than 600 insurance companies, great deal of which cover the class life insurance. Regarding the foreign Yugoslav countries, in Croatia there are 26 insurance companies (8 of which are only for life insurance and 10 have complex insurance system, i.e. life and non-life insurance) proportion of the life and non-life insurance companies which might be considered appropriate, in Slovenia there are 21 insurance companies on the insurance market, Serbia has 26 insurance companies (7 of which for life insurance only and 6 with life and non-life insurance), 13 insurance companies on the market function in Montenegro (5 of which for life insurance only and 2 practice complex insurance system). (http://www.hanfa.hr; http://www.nbs.rs; http://www.ano.me) In the Republic of Macedonia at the moment there are 14 insurance companies. Only 3 of them deal with life insurance. In Bosnia and Herzegovina there are 25 companies dealing with life insurance. Journal of Economic and Social Studies 156 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Table 1. Total European gross written premiums — 2001–2010 (€m) Member states of the EU Austria Belgium Bulgaria Cyprus Czech Rep. Germany Denmark Estonia Spain Finland France Greece Hungary Ireland Italy Luxembourg Latvia Malta Netherlands Poland Portugal Romania Sweden Slovenia Slovakia United Kingdom Candidate countries Croatia Macedonia Iceland Turkey Montenegro Serbia Other European countries Liechtenstein Norway Switzerland Bosnia and Herzegovina 2001 2002 2003 2004 2005 2006 2007 2008 2009 12470 20571 228 427 2010 135093 12271 114 41015 11819 128059 2642 1635 10518 76254 783 175 163 43860 6095 7989 n.a. 17751 1055 736 228546 12615 22304 319 454 2548 141008 13426 139 48061 12247 131998 2895 2036 11208 87708 916 179 183 44149 6006 8414 434 16964 1185 850 255172 13128 25774 342 526 2837 147729 15038 168 40630 12641 142028 3235 2206 11884 96993 891 195 208 46444 5646 9445 514 19264 1275 1008 236682 13974 28417 428 549 3332 152166 15890 203 45418 13191 158226 3624 2380 11998 101038 964 197 237 48710 6091 10472 614 19096 1457 1198 246071 15295 33832 555 594 3709 157984 16988 254 48779 14297 175884 3923 2767 13580 109780 1100 219 258 48519 7717 13444 890 22384 1547 1309 266491 15589 29489 643 646 4 099 161945 18 698 284 52 836 14 942 197092 4 371 3 142 16 150 106502 1 138 291 286 73 602 9 631 13 123 1 276 23 079 1 726 1 439 294270 15874 31193 772 714 4445 162923 19565 434 54297 15047 195732 5007 3071 18204 99095 1222 438 352 74980 11580 13751 2016 24887 1894 1714 366458 16214 29278 915 773 5196 164532 20622 372 59266 15812 183194 5085 3540 13431 92019 1899 476 275 78513 16825 15326 2440 25010 2019 2031 246988 16415 28439 850 815 5130 171416 20322 367 61194 16181 199640 5374 2963 12470 117802 1808 373 288 77683 11863 14516 1804 23488 2070 2027 203878 16748 29414 813 855 5824 178854 20917 425 57230 18656 206579 5236 3063 12713 125954 2033 323 321 77878 13559 16342 1988 28314 2094 2067 206906 682 753 801 884 269 2273 294 2527 23 294 2938 25 281 3725 26 203 993 82 344 4739 32 312 1 118 88 350 5 340 40 345 1235 99 403 6119 51 403 1341 104 279 6049 60 470 1282 100 236 5677 65 482 1268 105 263 7077 62 1 509 n.a. 7872 33603 91 n.a. 9172 36151 98 n.a. 9498 33907 99 1490 10381 32816 113 2713 11968 32658 124 4311 11945 31352 135 4203 12965 30132 151 3769 12711 33532 171 5948 11846 35508 173 6826 13784 39897 178 157 2010 �Nikola DACEV In this study, data is combined from five data sources: Statistical publications from the European Insurance and Reinsurance Federation, Annual insurance reports from the Insurance Supervision Agency of Republic of Macedonia , Annual insurance reports from the National Bank of Serbia, Annual insurance reports from the Insurance Supervision Agency of Montenegro, Annual insurance reports from the Insurance Agency of BiH. Table 1 presents the statistical data for the total insurance GWP values within the period of 10 years, in the European Insurance and Reinsurance Federation (CEA) in which all EU countries are members, as well as the GWP value data for Serbia, Montenegro, Macedonia (all having the status-candidates for accession to the EU) and Bosnia and Herzegovina. By making a simple comparison of the data of these two groups of countries, it is obvious that there is no data for Serbia, Montenegro and Macedonia at the beginning of the new millennium. The initial numbers denoting the GWP in these countries give an impression that the insurance process has been imposed in these countries. However, it is also clear that every following year these countries increase the total insurance premiums continuously (Table 2 presents the data of the annual increase of the total GWP value in a period of 5 years in these countries and the member countries of CEA), which is positive, however the trend of continuous increase develops at a slow pace, perhaps due to the fact that just after the promulgation of the new reforms in the insurance area in these countries, i.e. right after the implementation of the EU directives, the world faced a new financial crisis. Journal of Economic and Social Studies 158 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Table 2. Annual growth of total European gross written premiums for five years: Members states of the EU Austria Belgium Bulgaria Cyprus Czech Republic Germany Denmark Estonia Spain Finland France Greece Hungary Ireland Italy Luxembourg Latvia Malta Netherlands Poland Portugal Romania Sweden Slovenia Slovakia Great Britain Candidate countries Croatia Macedonia Iceland Turkey Montenegro Serbia Other European countries Liechtenstein Norway Switzerland Bosnia and ..Herzegovina 2005/06 2006/07 2007/08 2008/09 2009/10 1.9% -12.4% 3.1% 6.5% 3.2% 2.3% 9.6% -7.1% 7.8% 4.6% 12.7% 10.5% 21.0% 9.7% -2.9% 10.4% 29.7% 13.5% 36.8% 20.8% -2.4% 39.6% 2.4% 11.6% 6.3% 7.5% 1.8% 5.8% 34.8% 9.1% 11.1% 0.6% 4.6% 52.7% 3.0% 0.7% -0.7% 7.2% 17.8% 12.7% -7.0% 7.4% 49.5% 23.3% 2.1% 20.2% 4.8% 58.1% 8.4% 9.8% 19.1% 24.6% 2.1% -6.1% 18.5% 6.8% 16.6% 1.0% 6.3% -14.4% 10.7% 5.% -6.4% 1.1% -4.3% -26.2% -7.1% 55.4% 8.8% -22.0% 2.2% 45.3% 11.5% 21.1% -0.7% 6.6% 18.5% -32.6% 1.3% -3.0% -7.1% 6.0% 4.8% 4.1% -4.5% -1.3% 0.5% 2.4% 9.2% 4.4% -7.4% -9.9% 28.1% 1.9% -33.5% 4.9% -0.2% -13.4% -5.0% -14.4% 3.9% 2.7% -0.2% -7.7% 2.0% 3.4% -4.4% 5.0% 8.6% 4.3% 2.9% 16.0% -6.5% 15.3% 3.5% -2.6% 1.6% 1.9% 6.9% 12.5% -12.9% 11.3% 0.3% 5.5% 12.6% 9.4% 8.3% 1.2% 2.0% -2.3% 11.4% 7.3% 13.5% 21.6% 25% 11.8% 10.5% 12.5% 15.1% 14.6% 27.5% 16.8% 8.5% 5.0% -30.4% 1.0% 17.6% 16.6% -2.8% -3.8% 7.6% 4.3% 8.3% 2.5% -1.8% 5.0% 4.2% 15.1% -4.6% 5.6% 61.4% 0.3% -0.3% 8.8% -2.6% 8.5% -3.9% 11.8% -10.3% -2.0% 11.7% 13.2% 50.1% -1.2% -0.7% 1.1% 4.9% 6.7% 2.7% 2.8% 159 �Nikola DACEV In 2010, these countries, except for Montenegro, have reached their maximum amount of total GWPs, counting from the period they have become independent countries. Yet, if this values are compared to the ones reached in the other European countries it can be clearly seen that the insurance markets in Serbia, Montenegro, Macedonia and Bosnia and Herzegovina are far from the insurance markets in the EU members, in terms of the developing qualities, even though for some of them the results are stagnant, denote a decline or the insurance market is a buyer’s market, etc. In 2010, Montenegro was on the bottom of the list, in terms of the achieved insurance premium. The Gross written premium on the insurance market in Montenegro, in 2010 slightly declined due to unfavorable trends in the real and overall financial sector by 5.16% in comparison to the previous year and amounted to 62.186 million EUR), than Macedonia, which was one position upper on the list, with 105 million EUR GWP and it was preceded by Bosnia and Herzegovina, reaching 178 million EUR GWP. Serbia, whose area is much wider, in addition to the population, whose number is much higher reaches 509 million EUR GWP and succeeds to surpass just Latvia, Malta, Estonia and Island, countries whose territory occupy far less area and the insurance markets are rather small. Croatia and Slovenia, whose population number is lower than the Serbian population number has two times (the former) four times (the latter) higher GWP for 2010. Characteristics of the insurance markets in Serbia, Montenegro, Macedonia and Bosnia from insurance law regulative aspect The insurance markets in Serbia, Montenegro, Macedonia and Bosnia developed gradually, in a subsequent manner, following the latest laws. After The Insurance Law, The Law on Insurance Supervision and The Law on Obligatory Traffic Insurance have been passed, in addition to the already existing Law on Obligations and the foundation of the insurance companies, on the basis on the modified business conditions and the specification of the General Specific and Separate insurance conditions, as well as the other normative acts in the sphere of insurance, these countries have established new, insurance market system. According to the new law regulations in these countries, the insurance issue was placed in new, qualitative, law and organizational frame. Therefore, we may conclude that the insurance markets in these countries follow the contemporary world trends in this field and yield the following conclusions: Journal of Economic and Social Studies 160 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries “The world insurance market develops rapidly and in future it is expected development at a higher pace and spreading of the insurance activities, especially in the sphere of life insurance; the role of the financial mediators becomes more important as a result of the latest tendencies and the international climate in Europe, after the adoption of the EU directives regarding the freedom of trade and capital movement and their integration outside of their original country. After the new insurance laws have been passed, especially after the passing of The Law on Insurance Supervision (somewhere known as Insurance Law) and the law modification, there was a change of the insurance market conditions in Serbia, Montenegro, Macedonia and Bosnia. The Law on Insurance (Insurance Supervision) is the basic law frame, whereas the Law on Obligations and the Law on Trade Companies are the additional law frame. By the aforementioned laws passing, there has been performed significant adjustment of the domestic insurance regulations in these countries, in accordance with the entire EU law acts corps (acquits communautaire) from the insurance sphere. The great modifications in insurance law regulations in the former Yugoslav republics enabled continuous increase in the GWP on the insurance market, increase in the number of insurance companies and insurance broker’s groups possessing a license, providing and managing the resources from the National Insurance Office Guarantee Fund, increase in the employment number in the sector and further improvement of the primary law regulations. These facts raise the question: “Why these countries haven’t reached the EU countries development level in the field of insurance yet?” There are two possible answers to this question: the late implementation of the EU insurance directives, as well as the global economic crisis. The initial insurance directive in the EU countries and in the same time the initial auto liability insurance was passed in 1972. Its goal was to implement the EU laws on auto liability in a gradual manner. This directive was the first that assigned the implementation for obligatory auto liability insurance. In contrast, in Macedonia the Law on Obligatory Traffic Insurance was passed in 2005, the same year as the Law on Obligatory Liabilities Insurance in Bosnia and Herzegovina. In Montenegro the Law on Obligatory Traffic Insurance was passed in 2007, whereas in Serbia, in 2009. The conclusion is that the legal system in these countries has waited for more than 30 years to pass the Law on Obligatory Traffic Insurance. As for the principles and the standards of insurance of the International Association of Insurance Supervisors, as well as the insurance EU directives in these countries, they are being regulated by 161 �Nikola DACEV the Law on Insurance Supervision in the Republic of Macedonia, passed in 2002, Law on Insurance in Montenegro, passed in 2006, the Law on Insurance in Serbia, passed in 2004, etc. The process of passing this law was directed towards the implementation of certain rules for risk management of the insurance companies, as well as for the establishment of new, contemporary, analytical and professional approach. These laws also enabled that the work of the insurance companies in these countries becomes far more compatible with the work of the insurance companies in the EU countries. The dysfunction of the markets and the tension in the sphere of credits, created on the behalf of the banks in the recent years had a negative influence on the insurance industry increase , all over the world and these could be the source of the reasons for the slower development of the insurance companies in the ex-Yugoslav republics, non-EU members. Life Insurance Market Development, Marketing Strategy Building of the Insurance Companies as a Major Weakness of the Life Insurance Markets All the information exposed in the paper so far raises the question:”Which class of insurance has the greatest potential for development in these countries?” That is the life insurance class, undoubtedly and in addition this fact raises the issue of the low total insurance premium in Serbia, Montenegro, Macedonia and Bosnia. Journal of Economic and Social Studies 162 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Table 3: Total European Life gross written premiums – 2001-2010 (€m) Member states of the EU Austria Belgium Bulgaria Cyprus Czech Rep. Germany Denmark Estonia Spain Finland France 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 5831 13170 45 251 478 62565 8132 23 22864 9367 84635 5617 14431 76 260 708 65301 8891 29 26531 9680 85500 5704 17524 38 265 842 68574 9676 37 17799 9982 92022 Greece Hungary Ireland Italy Luxembourg Latvia Malta Netherlands Poland Portugal Romania Sweden Slovenia Slovakia Great Britain 1292 682 7168 46329 277 7 75 25879 2522 4487 n.a. 13112 225 321 16684 4 1310 834 7253 55294 398 7 84 24052 2569 4562 111 11749 268 367 18657 0 1435 885 7644 62780 343 8 104 24838 2538 5402 122 12503 305 410 16637 5 6165 19891 52 266 1219 70343 10143 52 19530 10357 10534 1 1729 968 7930 65627 389 10 129 25136 2778 6250 137 12314 429 486 17656 0 7124 25177 77 274 1318 75244 11007 81 21004 11251 12066 8 1935 1218 9739 73471 490 16 142 24824 3809 9136 235 15059 465 571 19397 9 7183 20382 95 294 1457 78455 12471 84 23341 11806 14020 3 2311 1592 12327 69377 511 24 171 25730 5418 8762 252 15452 541 680 22291 8 7206 21658 117 322 1687 78967 13617 180 23241 11918 13708 0 2515 2024 14594 61439 549 37 228 26464 6743 9369 448 17508 609 853 29524 9 7362 19352 128 341 1964 79586 14540 127 27489 12548 12236 8 2489 1834 10097 54565 1194 27 181 26446 11100 11005 507 17723 642 1066 18573 4 7416 18371 103 353 2044 85248 14354 133 29131 12853 13792 3 2500 1466 9346 81116 1125 51 193 24401 6997 10384 229 18209 630 1062 14920 6 7552 19103 110 376 2600 90365 14938 182 27337 15222 14321 6 2307 1606 9671 90102 1288 61 224 21586 7866 12173 388 22203 656 1126 14571 8 124 155 178 209 21 418 26 466 28 608 0.1 29 689 0.5 256 2 33 741 1 29 297 2 31 766 2 36 338 3 34 745 6 44 352 4 21 827 7 57 339 5 15 835 8 71 336 6 18 1092 8 84 n.a. 4382 21944 n.a. 5209 23612 n.a. 5332 21154 1490 6283 19585 13 2596 7561 19229 15 4171 7442 17847 18 4030 8371 17477 25 3534 7973 18651 29 5596 7140 19483 31 6419 8382 21828 33 Candidate countries Croatia Macedonia Iceland Turkey Montenegro Serbia Other European countries Liechtenstein Norway Switzerland Bosnia and Herzegovina 163 �Nikola DACEV In Table 3 there is statistical data for the achieved life insurance premium in the above mentioned countries and in all member countries of CEA. The CEA members reach a proportion of 60%-40% between the life and the non-life insurance on average, where the life insurance has the advantage. In Serbia, Montenegro, Macedonia and Bosnia the proportion is 95%-5% on average and the non-life insurance have the advantage, and that is a serious problem, which increases the necessity of finding an appropriate solution for the development stimulation, especially in the life insurance class in the mentioned countries. When comparing Serbia, Montenegro, Macedonia and Bosnia with the CEA-countries, in terms of the acquired life insurance premiums, the large difference between the total insurance premiums is clearly noticeable. We will mention 2010, one more time as a year in which Serbia, Montenegro, Macedonia and Bosnia have reached the highest life insurance premiums, since they have declared independence. Macedonia was on the bottom of the list, with 6 million EUR GWP of life insurance, preceded by Montenegro with 8, then Bosnia with 33, Latvia reaches 61, while Serbia’s GWP exceeded to 84 EUR. On the contrary, the smaller area countries, Croatia and Slovenia acquired GWP of 336 (the former) and 656 (the latter), in 2010 which was far more than Serbia’s amount. In order to ascertain the reasons for the low number of citizens that have insured their life, a survey was conducted (by the means of social networking-Facebook) questioning citizens from Serbia, Montenegro, Macedonia and Bosnia. The survey consisted of 6 questions, 2 of which were not obligatory (4 and 5). The results are represented in table 4 (the final results), table 5 (separate results by country) and graphics-1 (the results are presented with numbers) and 2 (the results are presented in percent). Table 4. Tabular display of results derived from the questionnaire for life insurance: 1 2 3 Yes No Yes No Yes No 288 12 247 53 18 282 4 I don’t kno w 44 5 6 I don’t know where and how I don’t understan d what it is I do not trust I have no mon ey Yes No Yes No 43 32 58 105 0 18 229 71 Total of 300 respondents Journal of Economic and Social Studies 164 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Figure 1. Graphic display (results are expressed in numbers): No 6 71 Yes 229 No 5 18 Yes 0 I have no money 105 4 I do not trust 58 I don’t understand what it is 32 I don’t know where and how 43 I don’t know 44 No 3 282 Yes 18 No 2 53 Yes 247 No 1 12 Yes 288 0 50 100 150 200 250 300 350 165 �Nikola DACEV Figure 2. Graphic display (results are expressed in percentages): No 6 23,60% Yes 76,30% No 5 100% Yes 0% I have no money 37,20% 4 I do not trust 20,50% I don’t understand what it is 11,30% I don’t know where and how 15,20% I don’t know 15,60% No 3 94% Yes 6% No 2 17,60% Yes 82,30% No 1 4% Yes 96% 0% 20% 40% 60% 80% 100% 120% Journal of Economic and Social Studies 166 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Table 5. Tabular display of results derived from the questionnaire for life insurance by countries: 1 Bosnia and Herzegovina Macedonia Montenegro Serbia Total 2 3 Yes No Yes No Yes No I don’t know 69 3 65 7 5 67 14 I don’t know where and how 9 74 53 92 288 6 1 2 12 53 51 78 247 27 3 16 53 3 4 6 18 77 50 88 282 8 12 10 44 15 7 12 43 4 I don’t understand what it is I do not trust I have no money Yes 5 No Yes 6 No 12 7 28 0 2 58 14 7 10 3 32 10 4 37 58 34 16 27 105 0 0 0 0 6 5 5 18 63 38 70 229 17 16 24 71 There were 300 participants in the survey. On the first question, “Is there life insurance in your country?” 288 (96%) answered positively, whereas just 12 (4%) gave a negative answer. The second question, “Do you know some insurance company in your country, offering life insurance?” 247 (82.3%) answered “yes” and 53 (17.6%) answered “no.” Further, the third question, “Have you ever insured your life?” was positively answered by just18 (6%), whereas the rest 282 (94%) said “no.” When they were asked to indicate the reasons for not insuring their life, as a fourth question, 44 (15.6%) answered, “I don’t know”, 43 (15.2%) said that they didn’t know where and how, while 32 (11.3%) said, “I don’t understand what is that”; 50 (20.5%) said that it was due to the lack of confidence in the entire process, whereas 105 (37.2%) were not able to provide money to pay. The question number 5 referred to the insured clients, if they knew that the life insurance means saving of all the money and all 18 of them answered “no.” The last question, “if you have the possibility, would you insure your life?” was answered with 229 (76.3%) positive answers and 71 (23.6%) negative. Taking into consideration the fact that the participants in the survey were younger people, which were expected to be educated (or at least literate) and to use actively the contemporary network means of communication and information (and have access to the latest information), according to the results it is the opposite, the number of uninformed is high and that is ¼ from the interviewed. A high percent of the people also don’t know “where and how” and a great deal of them doesn’t know what that is. A lot of the interviewed didn’t know even why they would insure their life, which denotes that hadn’t even 167 �Nikola DACEV thought about it. The inability of some people to provide life insurance due to the money factor is a clear indicator of the economic situation in these countries, as well, in addition to the fact that there were people that hadn’t insured themselves due to the lack of confidence in the system. The most striking result is that even those that were informed in terms of the life insurance were not familiar with the fact that that involves saving money. That indicates that in these countries the life insurance is still an issue the people are not sufficiently acquainted with. Low is the number of people introduced to the idea that life policy is a kind of money saving or investment of the savings. Due to the possible non-objectiveness, lack of the motivation and seriousness while giving answers through the social networks, as well as the inability to group the interviewed in separate categories, according to their age, sex and education, there was a need to re-check the results, through a survey that would provide a direct contact with the survey participants. The survey was taken at several places: Bihac, Bosnia, Vranje, Serbia, Bjielo Pole, Montenegro and Skopje, Macedonia and the results are in table 6. Journal of Economic and Social Studies 168 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Table 6. Tabular display of results derived from the questionnaire for life insurance on field: m f 2030 years old 3040 years old 4050 years old Higher education Secondary education Primary education Do you have life insurance in your country? Would you buy life insurance? Bosnia and Herzegovina 16 4 11 5 4 10 8 2 Macedonia 11 9 8 6 6 9 8 3 Montenegro 17 3 11 8 1 8 10 2 Yes:5 No:7 I don’t know:8 Yes:7 No:6 I don’t know:7 Yes:4 No:8 I don’t know:8 Yes:2 No:9 I don’t know:9 Yes:3 No:8 I don’t know:9 Yes:5 No:9 I don’t know:6 Do you know where to buy life insurance products? Yes:2 No:18 I don’t know: 0 Yes:3 No:17 I don’t know: 0 Yes:3 No:17 I don’t know: 0 Serbia 18 2 9 5 6 8 11 1 Total 62 18 39 24 17 35 37 8 Yes:7 No:3 I don’t know:10 Yes:23 No:24 I don’t know:33 Yes:7 No:8 I don’t know:5 Yes:17 No:34 I don’t know:29 Yes:5 No:15 I don’t know: 0 Yes:13 No:67 I don’t know: 0 Again, a standard questionnaire was used, due to its greater objectiveness, the lower possibility for subjectivism, as opposed to the non-standard questionnaire and the fact that its structure enables easier comparison of the results; it is economical, precise, directed towards a certain goal, efficient and provides easier mathematical and statistical data analysis. A smaller group of people was chosen to participate in the questionnaire, in order to achieve punctual and precise data. There chosen 20 people of each place, 80 people total, more of which male, on the age of 20-40, higher or secondary education. The results were the following: the first question, “Is there life insurance in your country” mostly was answered with “no”, on the second, “Would you insure your life”, a great deal of them answered “no” or “I don’t know’ and on the third question, “Do you know where to buy a life insurance product, the dominant answer was “no”. According to the results, there is no great difference between the surveys in the capital city or some smaller places, far from the capital, because they are almost equal. What may be concluded from the survey directly 169 �Nikola DACEV conducted is that the citizens from these countries are uninformed in terms of life insurance, which implicates that the insurance agents’ terrain work is not properly arranged. Probably it is the already existing companies’ guilt, regarding their lack of activity in this field; however the supervision agencies are also involved, since in some countries, they are offering training for their agents, in addition to the trainings offered by the insurance companies. It is interesting that the outdoor survey gave contradictory results, in terms of the question, “Would you insure you life?” compared to the same question on the social networks. On the question, “Would you insure you life” most of the interviewee answered “no” or “I don’t know”, which clearly denotes the vital problem the most of the insurance companies have and that is the insufficient affirmation of the products from the life insurance, the low marketing strategy, as well as the insufficient education of the insurance agents, whose responsibility is to present the life insurance products to the people in an easy and comprehensible manner. From everything that was mentioned so far, the conclusion is that the reasons for the low life insurance development in these countries are the low living standard, the insufficient education regarding the life insurance products, the insufficient infrastructure of the regulations and the supervising activities on the insurance market,etc. The question is “Why is so low the number of people that are acquainted with this information? Why in the other countries the life insurance is a regular practice, but in the ex-Yugoslav republics it is considered to be a luxury, not being taken into consideration as necessary?” Because of this condition, the insurance companies should develop the marketing service which would inform the citizens about the meaning of life insurance, what it covers, what are the benefits, what is the difference in comparison with the other kinds of insurance, where the assets are irrevocable, unlike the life insurance, etc. Also, the insurance agents training programs are of vital importance. The tasks given to the marketing agents, to perform should be the following: giving information, comprehensible explanation during the direct contact with the possible insurance clients, motivation of those that haven’t ever thought about life insurance, presentation of the benefits, by the usage of special manners and techniques, taking into consideration the intellectual status of the client, as well. Because of that, the agent should posses intelligence, flexibility, adaptability, positive fluid, temperance, meekness, in other words, they should be a fully developed and mature person. Of course, the education of the future insurance client is especially important, as well, since that is something that they should deal with in the future. Journal of Economic and Social Studies 170 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Here, we have to emphasize the importance of the marketing that is crucial for the proper functioning of one insurance company on the market. The basic principles of the market are concluded from the following thoughts: By the means of the marketing instruments and tools it is necessary to search opportunities for satisfying the constant needs, as well as to reveal the effect of the numerous varieties in the surrounding on the constant needs and wishes and to discover a method, how they would be satisfied. (Avdalovic, Avdalovic, & Kalinic, 2004) Philip Kotler (2000) emphasizes the essence of the marketing, saying that marketing is a process, by which an organization links to the market in a creative, productive and profitable manner. Proposal Measures for the Development of the Insurance Markets in Serbia, Montenegro, Macedonia and Bosnia and Herzegovina After the detailed analysis of the data, regarding the implemented reforms on the insurance markets in Europe, the stimulation measures necessary for of the insurance market development in the former Yugoslav republics, non-EU members can be clearly established. I would recommend the following insurance politics to the creators: The Competition reinforcement would enable a possibility to implement new insurance products, with a better quality and lower prizes, offering a wider spectrum of insurance products that increase the possibility a greater number of citizens to provide insurance. For example, the unit-linked products, which are insurance products, linked with the investment funds. Also, the possibility for the citizens to open insurance funds should be mentioned as an alternative, where they would participate on their own, by investment of assets that will cover a part of the loss, in a case of damage. In fact, in the insurance industry in the world, there are two types of companies, shareholdings and mutual companies. (Kong & Singh, 2005) An insurance company being formed as a shareholding company is a company formed and governed by the shareholders and managed just for a profit, as in the case with the insurance companies in Serbia, Montenegro, Macedonia and Bosnia. A certain amount to the insurance premium is being installed and the owners of the business share the profit. The mutual insurance company is a company that has no basic assets and which is in a possession of the policy bearers. (Hancock, Huber & Koch, 2002) A committee of directors is being voted and they manage the company and run the business. All assets belong to the owners of the policies and they might be paid off to them in a form of dividends or reduced premiums. (Walker, 2006) The company that would like to insure its members according to the in common 171 �Nikola DACEV principles is probable to gain a license from a supervising, authoritative organ, in order to start working as a mutual insurance company, which is identical to the shareholdings insurance company. (Federal Insurance Supervisory Office, 2000) The mutual insurance companies appear to be a great solution for separate classes of insurance, as well as the agricultural insurance, one of the low developed classes in these countries, instead of the great need from insurance of the agricultural possessions, due to the frequent climate changes in these parts of the earth. The same goes for the increase in the activities of the already existing insurance companies, through a higher number of investments in the insurance, for its maintenance, as well as further development. Also it should be emphasized the development of the marketing strategies and of the companies, which according to the survey might be the main reason for the underdevelopment of the insurance market in these countries (the disinterestedness of the citizens, in terms of the insurance sphere, the lack of information about the insurance possibilities, etc.). (Lereah, 1985) Insurance companies are required to take a rather pro-active part in the development of distribution channels for insurance, by increasing the number and the quality of insurance intermediaries (brokers and agents), providing higher number of trainings for the employees in the insurance sale field (which would improve their sales skills), in addition to insurance sales through the internet, phone etc. (Franciskovic, 1986; Eckardt, 2007) Also, the role of the state is of a great importance, regarding insurance, through modifications adoption or passing of new laws, certain tax alleviation, insurance investment-e.g. monetary help to the insurance companies to cover the damages, etc. All in all, this is just a part of the measures that could be undertaken, in order to stimulate the insurance market development in the former Yugoslav countries, non-EU members. It is obvious that this is not an action which could be performed at once and it is quite logical that it requires a favorable climate, but the gradual implementation of the policy, similar to the insurance policy in the EU countries is of major importance, despite of the fact that the survey results demonstrate, that the insurance markets in the foreign Yugoslav countries have achieved positive increase in the recent years, due to the implementation of the latest law novelties, so it is still early to make conclusions. The results should be analyzed several years later, when crisis consequences won’t be felt anymore and the insurance market will be in a phase, in which there will be much more results in the insurance field. Journal of Economic and Social Studies 172 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries It is certain that the report results would have been rather different i.e. the insurance market in the foreign Yugoslav countries would have been much more developed, provided that the insurance markets had undertaken all these steps, with the exception of the economic factor that is the most realistic one in the entire study. Other Possibilities of Citizen Protection Observing from several aspects, the stimulation of the insurance markets in the former Yugoslav countries has a great importance, however, the most important is the protection of the citizens. Therefore, despite of the insurance buying, that provides money compensation in a case of damage, the citizens are supposed to think to another means of protection, as well, especially in those countries in which a small number of citizens are being insured. The expected loss might be decreased in two ways: the measures might reduce either the greatness of the damage, or the probability of damage, or even the both. The first alternative refers generally to the lowering of the loss whereas the second refers to the loss prevention. The loss prevention usually is called just protection, whereas the lowering of the loss, just insurance. For example, the spilling systems lower the loss in a case of fire; still they don’t reduce the possibility of causing fire. On the contrary, the theft-protection systems reduce the probability of stealing; however they don’t decrease the magnitude of the damage. The protection measures from the natural catastrophes also lower the graveness of the potential loss, while it is impossible to alter the probability of natural catastrophes. (Hofmann, 2009) Conclusion From the already examined analyses from several aspects, regarding the vast majority of insurance markets in Serbia, Montenegro and Bosnia, the final conclusion is that these insurance markets constantly make progress in the recent years, having into consideration the fact that there are even greater possibilities for development in the future. What is typical about these countries is that there is an impression that the market of insurance exists only in the last ten years, because that this the period when the new insurance supervision laws and the changes of the laws have been adopted. That provided entrance of the foreign capital, strengthening the competition on the insurance markets in these countries, as well as enrichment of the offers of insurance products and services, in addition to the agricultural production insurance, the latest product-Mini Casco launching, the liability insurance promotion, the establishment 173 �Nikola DACEV of control and supervision bodies, whose goal is to reinforce the supervising control over the insurance supermarkets (in most of the countries, that is the Supervision and Insurance Agency), etc. With the opening of these insurance markets and the growth of their attractiveness, there have been noticed a gradual increase in the GWP, mostly in terms of the non-life insurance. However, we talk about markets which are still relatively small and underdeveloped, compared to the insurance markets in the EU countries, especially in terms of the GWP involvement in the GDP of the country, the yearly premium per capita, the market contraception and the premium structure. The underdevelopment of the market refers to all insurance classes and subclasses. This is even more striking when we talk about life insurance, whose development mostly depends on the life standard in the country and the economic stability, the unemployment rate, the county fiscal policy, the money market, as well as the established systems, in terms of obligatory social and pension safety. In the paper it was presented a survey, giving the reasons for the underdevelopment of the life insurance and a comparative analysis of the life insurance premiums, in the former Yugoslav republics, non-EU members and the EU member countries and the conclusion is the following: the life insurance in Serbia, Bosnia, Montenegro and Macedonia is on a very low level, despite of its constant rise in the recent years and provided that certain measures are undertaken, its development will be stimulated and there will be a possibility for these countries to follow the insurance trends in the other European countries. In the near future the development and the widening of these markets are unavoidable and a rise in the citizens’ interest in terms of life insurance is expected. However, the insurance companies should also offer new, higher quality insurance products for their clients. Even though the insurance companies in the ex-Yugoslav countries, non-EU members are profitable, that cannot improve the impression that their insurance markets are being underdeveloped. All in all, my conclusion is that this condition is due to the following reasons: economic factor, the lack of information, the distrust, prejudices, etc and that could be improved by the already mentioned measures in the paper analysis. The insurance companies have the most important role in this process, in addition to the improvement of the overall economic situation in these countries. Journal of Economic and Social Studies 174 �Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries The accidents and the natural disasters cannot be avoided, but it is difficult to predict or imagine the damages, therefore the insurance is necessary. However, for me personally: The insurance process itself is of a vital importance, but it is more significant that the insured case, never takes place. References Avdalovic, S., Avdalovic, V., & Kalinic, V. (2004). Management-Marketing insurance. Subotica, Sr: Faculty for the utility business, 42-43 Eckardt, M. (2007). Insurance Intermediation, An Economic Analysis of the Information Services Market. Witten/Herdecke University, Physica-Verlag Heidelberg, 80-93. 130-149. Retrieved from http://www.springer.com European Insurance and Reinsurance Federation (2010, November). European Insurance in Figures, 42. Retrieved from http://www.insuranceeurope.eu/uploads/Modules/Publications/european-insurancein-figures2010.pdf European Insurance and Reinsurance Federation (2011, December). European Insurance in Figures, 44. Retrieved from http://www.insuranceeurope.eu/uploads/Modules/Publications/european-insurancein-figures-2011.pdf Federal Insurance Supervisory Office, (2000). Law on the Supervision of Insurance Undertakings, Versicherungsaufsichtsgesetz-VAGVer, 27-28. Franciskovic, I. (1986). Market Operations-Marketing Promotion of Insurance. Sibenik, Hr: Siro, Stampa, Sibenik, 40-67. Hancock, J., Huber, P., & Koch, P. (2002). Value Creation in the Insurance Industry, Risk Management and Insurance Review. Retrieved from http://www.onlinelibrary.wiley.com/doi/10.1111/1098-1616.00001 Hofmann, A. (2009). Imperfect Insurance Markets: An Economic Analysis of Externalities and Consumer Diversity, 5-8. Retrieved from http://www.books.google.com 175 �Nikola DACEV Kong, J., & Singh, M. (2005). Insurance Companies in Emerging Markets, International Capital Markets Department, International Monetary Fund, 3-16. Kotler, P. (2000). Marketing Management, Millenium Edition, Prentice-Hall, Inc. 418. Lereah, A. D. (1985). Insurance markets, information, problems and regulation. New York, NY: Praeger Publishers, 1-9. Vaughan, E., & Vaughan, T. (1995). Essentials of Insurance: A Risk Management Perspective, John Wiley & Sons, 15-16. Walker, S. (2006). The business of finance in the insurance industry, CPCU eJournal, 59(10). Retrieved from http://www.cpcusociety.org Journal of Economic and Social Studies 176 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1392 Title A name given to the resource Insurance Market Development in the Former Yugoslav Republics, Non-EU Countries Author Author Nikola, Dacev Abstract A summary of the resource. This paper presents an insurance market research of the markets in several Balkan countries that were part of former Yugoslavia and are still not members of EU. Being categorized as developing countries, they have far lower development degree in comparison with the European Insurance Federation member countries. By means of comparison between the basic insurance market development indicators in these countries, the law regulations, as well as through conducting surveys, based on questionnaires, which appoint the reasons for the underdevelopment in the sphere of life insurance, the paper gives a clearer perception, in terms of the conditions of the insurance markets, placed on the margins of the European insurance market. Its utmost objective is to point and argue several measures, which would improve the insurance market conditions in the already mentioned countries, i.e. would contribute to the development increase and the acceleration of these insurance markets. As a result, that would raise the protection measures and the safety, both to the citizens and their material goods. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Article PeerReviewed H Social Sciences (General),HB Economic Theory,HG Finance https://omeka.ibu.edu.ba/files/original/fd6483548df1a86a3a3ea6cf141b4f4a.pdf ef8dffc9cc7b0d9e85bfa54268ce0e99 PDF Text Text Journal of Economic and Social Studies Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Nađa Dreca Faculty of Business and Administration International University of Sarajevo, Bosnia and Herzegovina nadja_n88@hotmail.com Abstract: The objective of this study is to compare the financial performance of the banking sector in some ex- Yu countries: Bosnia and Herzegovina, Croatia,Slovenia and Serbia for period from 2005 to 2010. The banking sector of these countries experienced reforms after the separation from the Yugoslavia. The financial performance of banks is studied on the basis of some selected financial variables and ratios that are either obtained from different sources either calculated by author.During this period the banks become privatized and there is increase in the presence of the foreign owners on the Balkans.This is mostly descriptive research that explains and provides some insights about situation in banking of the selected countries. Financial performance in this study is measured by selected indicators, such as return on asset (ROA), return on equity (ROE), capital adequacy ratio (CAR), share of non-performing loans (NPL), participation of deposits, assets and loans in Gross Domestic Product (GDP) of the country.Data show that banking system of these countries suffers from problems in the banking sector, largely influenced by its huge debt to IMF, political situation, financial crisis, internal situation and other political factors KEYWORDS: Banks, Return on Assets (ROA), Return on Equity(ROE), Nonperforming loans (NPL),Reforms, Crisis ARTICLE HISTORY Submitted: 03 March 2012 Resubmitted: 07 July 2012 Resubmitted: 07 November 2012 Resubmitted: 08 December 2012 Accepted: 24 December 2012 JEL codes: G21 65 �Nađa DRECA Introduction The banking sector is considered to be an important source of financing for most businesses. Increase in the financial performance leads to more improved functions and activities of any organization. It has effect on total economy of the country, because banks are the sources of finance for better job opportunities, development of new ideas; research and overall prosperity. The factors that influence performance of banks are: bank size measured by its assets, profitability measured by returns on assets and equity, size of deposits and loans, as well as the percentage of non- performing loans in the total loans. This study is organized as follows: the next section following the introduction discusses the characteristics of banking sector. Methodology of study is described in third section. The forth section provides details of the results and analysis of the available data, and final section presents the main conclusion. Banking system The Socialist Federal Republic of Yugoslavia (SFRY) was very strong in each field, in economic and political meaning. It had great impact on its member republics. The banking system was different than the system of other planned economics. Banks had participation in all activities for enterprises, in commercial and financial activities. All banks were nationalized. The banking system of Yugoslavia in period from 1960 to 1980 was one of the most advanced banking systems in Central and Eastern Europe in that period. The system had social characteristics, introduced two-tier banking system in 60s when it left the Soviet style mono-banking system, and in 80s Yugoslavia was the most developed and the largest country in the region. The strong Yugoslavia represented a great base for development of the strong and healthy banking system. The National Bank of Yugoslavia controlled short-term loans, issued currency, performed general banking and agency services for government and served as a clearing house for the entire economy. The Bank through its branches had a monopoly of all commercial banking operations in the whole country. In 1985 in Yugoslavia there were 170 banks and in one decade from 70s to 80s there was no bank liquidation or bankruptcy. In 1980s the Yugoslavia experienced crisis that were caused by a high exchange rate, a high fiscal deficit, and low performance 66 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia in trade that were the consequences of the big recession and international crisis. During that period, national currency, Dinar, highly depreciated and it leads to the difficulties in repaying foreign loans that in previous century were taken. It negatively influenced the banks` portfolio and the growing debt of the country. Getting the agreement with Paris and London Club the debt was postponed. Failure of the reforms that were made in order to solve the crisis leads to the bringing new banking law in 1989. The government started to promote the Markovic`s antiinflation program to make faster economic stabilization. The plan allowed the establishment of private and mixed firms. These new reforms were interrupted by the weakness and collapse of the SFRY. The reforms of the banking system started in 1990s. Those reforms happened after the breaking the SFRY and separation of its republics. Separation started first in year 1991 with small military conflict in Slovenia, then Croatia (1991-1992) and Bosnia and Herzegovina (1992-1995). The military conflicts, hyperinflation, high unemployment rates and other reasons influence the flow of the political and the economic reforms. These negatively influence the position of all former republics and took away all advantages they had before as the part of the SFRY.(Radzic and Yuce, 2008) In order to perform better and to make system stronger there were introduced some measures such as implementation of solvency ratio, limiting the total amount of the assets to less than fifteen times the equity, also to decrease the risk exposure the ceilings on the foreign credits were imposed. National Bank of Yugoslavia had right to issue for bank licenses. It could initiate rehabilitation procedures if losses exceed permanent bank reserves. Yugoslav financial system was characterized by widespread substitution of dinars by hard currency such as German Mark (DM). Citizens started to use more foreign currency to keep their savings and for making transactions and dinar lost its role as a store of value. It leaded to loss of control by monetary authorities over the domestic money supply. (Simon, 2012) Reforms in each country are made in order to make transformation of the socialist banking system into a new organizational form. Reconstruction of the banking system in Bosnia and Herzegovina started after the Dayton Agreement, after which Bosnia is divided in two entities, Federation of Bosnia and Herzegovina (FBiH) and Republic of Srpska (RS). The entities got the authority over the privatization and supervision of the banks. The reforms started in 67 �Nađa DRECA 1997 in FBiH, and in RS in 1998. The reforms were faster in Federation B&H. The most important step toward the reforms was the establishment of the entities banking agencies, in the end of 1996 Federal Banking Agency, and Agency for Banking RS in 1998. Their main activities of agencies are to issue and to revoke license to banks and their supervision.In accordance with the concluded agreements, Central Bank of Bosnia and Herzegovina(CBBH) continued to act as the banking and fiscal agent of the Banking Agency of the Federation of Bosnia and Herzegovina (FBA) and the Banking Agency of the Republic of Srpska (BARS). Banking Agency functions are directed towards a strong and stable banking system, as marketoriented and based on the international standards of performance and supervision of banks. The main tasks of FBA include: issuance of banking license, adoption of regulations, supervision of banks, microcredit organizations and leasing companies and measures taken in accordance with the Law, including initiation of provisional administration and liquidation in banks, initiation of bankruptcy procedure over banks. The privatization of the banks was the most important element in the rehabilitation of the banking sector. Privatization was caused by the entrance of the foreign banks and increase in the capital shares. It was made to bring new capital and to help bank reconstruction. Western banks have the largest share. The foreign banks entered this market because of the new opportunities for business and good market conditions to offer their products. The foreign banks brought new way of business and new banking products on this market. Reforms in Slovenia stated in 1991 by establishing the Bank Rehabilitation Agency (BRA) to help the implementation of reforms. The largest Slovenian banks past through the rehabilitation process and they showed the positive results such as a decrease in non-performing loans, increase in profits, and institutional and organizational improvements. Also the privatization of the state –owned banks was key factor in reforms. Banks are governed by Bank of Slovenia. 68 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Reforms in Serbia started mostly in 2002 when Serbia decided to liquidate the four the largest banks because of highly unrecoverable losses, large decrease in the deposits, and people’s loss of the confidence in the banks. National Bank of Serbia is responsible for banks in Serbia. The banking reform in Croatia had three stages: financial reconstruction, writing off debts and transfer of bad loans to workout agency, changes in management and operational restructuring and the privatization by foreign owners. (Bonin, 2001) Also Croatian reforms included big bonds issued in response to problems with bank insolvency and bonds for old currency savings accounts. Reforms also include privatization of banks. National Bank of Croatia governs the banks in Croatia. In 1996, in Bosnia and Herzegovina there was 53 banks mainly private owned, 23 banks were state-owned. The decrease of the number of the banks was due to bankruptcy, consolidation and the merging the banks. In 2005 there were 33 banks. Most banks become in the foreign ownership. In 1998 the number of banks in Croatia was 96 mostly in private ownership. The decrease in the number of the banks was mainly caused by the bankruptcy and the mergers. In 2005 there were 34 banks. In 1997 the number of the Serbian banks was 106 and it decreased to 40 banks in 2005 due to privatization and merging. In 1995, 41 banks were licensed for operation in Slovenia. The main changes in banking system that reforms brought are: - The privatization of state owned banks and the closure of insolvent institutions - The writing- off of non-performing loans - The entry of foreign banks either by establishing an autonomous presence or by taking over local banks - The adoption of regulations according to international standards and practices - The implementation of tighter and more effective supervision exercised by the central banks and currency boards. (Stubos, G. and Tsikripis, 2004,2005) 69 �Nađa DRECA Methodology This research paper will use the cross-country comparison methodology and examine the following aspects: - Size and structure of the banking sector, measured by the number of the banks - Loans and Deposits as the percentage of Gross Domestic Product - Profitability of the banking sector, measured by return on assets (ROA), return on equity (ROE), total assets as percentage of GDP and capital adequacy ratio (CAR) Data has been analyzed and interpreted using the financial indicators, financial ratios, references and personal judgment. In order to find the trend of behavior of the ratios, the average value of ratios in period from 2005 to 2007, before crisis and for period during and after crisis, from 2008 to 2010 were calculated and compared. Data are obtained from the sites of Central Banks of selected countries and from their financial reports, annual reports for period 2005 to 2010, EBRD, IMF and WB. I also used some graph to analyze my findings. This is descriptive research because it describes information which is taken from annual reports and other reports. Also research is quantitative because there is analyze of numerical data. Analysis and Discussion This section represents the discussion about analysis of the banking sector. It analyzes the size of the sector, financial performance through number of banks, assets, loans and deposits, and profitability ratios such as Return on Assets (ROA), Return on Equity (ROE), Non-performing Loans (NPL) and Capital Adequacy Ratio (CAR) of the banking system of the selected countries. Whole economic situation in the country has impact on the banking sector. The period of crisis is marked by the worse condition in the economy. As the Table 1 presents each country experienced the decrease in these indicators in period of crisis. 70 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Table 1. Key Economic Figure Real GDP (%) Consumer prices (avg, %) Unemployment rate (avg, %) Budget balance (% of GDP) Current account balance ( % of GDP) Gross Foreign Debt (% of GDP) 2005 3.9 3.8 44.0 2.4 -17.3 25.7 Real GDP (%) Consumer prices (avg, %) Unemployment rate (avg, %) Budget balance (% of GDP) Current account balance ( % of GDP) 2005 5.6 16.5 20.8 0.3 B&H 2008 5.7 7.4 41.5 -2.2 -14.2 49 Serbia 2008 3.8 11.7 13.6 -2.6 Gross Foreign Debt (% of GDP) -8.7 64.2 -21.6 64.6 2010 0.7 2.1 43.2 -2.2 -5.3 58.3 2005 4.2 3.3 18.0 -4.0 -5.5 72.1 2010 1.0 6.5 20.0 -4.8 2005 4.1 2.5 10.1 -1.4 Croatia 2008 2.2 6.1 13.2 -1.4 -8.8 84.9 Slovenia 2008 3.7 5.7 6.7 -1.8 -7.4 84.5 -1.8 72.6 -6.7 105.2 2010 - 1.2 1.1 17.4 -4.9 -1.1 101.2 2010 1.2 1.8 10.7 -5.5 -1.1 111.9 Source: National Sources (period 2005 to 2010), Raiffeisen RESEARCH The real GDP growth of selected countries is declining and even reached negative sign. In each county in 2009 the growth was negative, and in 2010 only Croatia still has negative growth rate of GDP, while others show slightly positive change. The reason of the decrease in GDP is increase in unemployment, decrease in wages, decrease in production and consumption, as well as the trade deficit. The average consumer price indicator was high in period crisis, but in last year it is decreasing, but still there is so high influence of crisis on the well being of the citizens. Because of the crisis the prices of imports increases, especially because these countries are mostly import oriented. Serbia records the highest inflation rate of 6.5% As everywhere, also in these selected countries the crisis brought unemployment. The highest average unemployment rate has Bosnia and Herzegovina (43.2%) compared with other countries from sample. It is caused because most companies are closed, decrease in the number of working places, worsening working conditions. 71 �Nađa DRECA Each county recorded the negative budget balance. The reason for this might be the bad collection of the government income and high debt and expenditure. The worst budget balance in 2010 has Slovenia ( -5.5%) compared with Bosnia and Herzegovina that still has deficit, but it is lower than in other countries (-2.2%). The external debt of each country increased over the period, especially in Bosnia and Herzegovina because of the Stand-by-arrangement with IMF, and Slovenia as the EU country and suffers from European crisis. Number of Banks Number of the banks in the selected countries changed over the time. The number of banks in each country, in 2010 compared to 2005 decline mostly because many banks merge with each other or by some regulations some banks are closed. Most of the banks are in the foreign ownership. It is the result of the increasing competition and it increase strength and safety and soundness of banking institutions. Foreign banks have better position because of their access to the financial markets and they are able to obtain borrowings with the financial support of their parents` banks. The privatization of state owned banks was a critical element in the process of banking reforms. Foreign banks entrance was done either by acquisition of local banks or establishment of their own subsidiaries or branches. Banks are most in the ownership of Austria and other West countries. In 2010 the highest foreign share in Bosnian banks had Austria and it represents the dominant owner with a share of 64.4%, and it increased compared to 2005 (45%). Some studies say that foreign banks in developing countries generate more profits, have higher interest rates than domestic banks, the presence of these banks increase competition in the market and it can also increase the costs of the domestic banks. Also in the countries with higher level of foreign bank participation, firms easier access to the credits. Study shows that foreign banks are more efficient than domestic banks. Foreign banks brought more confidence and safety in the banking sector, so that assets and deposits increased. Entrance of the foreign owned bank helped the process of the reformation in these countries.. (Ilgun and Coskun, 2009) 72 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia In 2005 the market share of foreign owned banks ( % of total assets) in Slovenia was 38.6%, Serbia 69%, Croatia 91.3% and in Bosnia and Herzegovina 90.7% compared to 2010 with market share in Slovenia 37.1%, Serbia 72.5 % , Croatia 90.3 and Bosnia and Herzegovina with 96.6%. It can be concluded that the highest participation of foreign owned banks is in Bosnia and Herzegovina. Participation of the foreign banks in Bosnia and Herzegovina and Serbia increased compared to 2005, while in Croatia and Serbia there was slight decrease. Table 2. Number of Banks Year B&H Serbia Croatia Slovenia 2000 2005 55 33 96 40 43 34 25 20 2006 2007 2008 2009 2010 32 32 30 30 29 37 35 34 34 33 33 33 34 34 33 20 21 19 19 19 Source:CBBH,CNB,NBS,BSI(2005 -2010) Deposits Deposits represent the important part of the banking. By the size of the deposits in banking system the power of the system can be measured and it serves as good indicator of the health of system. The deposits represent the key factor in starting the business and health of banking system. Table 3. Total Deposits in % of GDP Year Bosnia and Herzegovina Serbia Croatia Slovenia 2005 2006 2007 2008 2009 2010 40.1 45.7 55.6 48.1 50.3 51.6 23.6 28.5 35.8 30.0 39.5 41.9 64.2 70.1 72.4 70.9 75.7 80.5 82.3 96.6 104.7 101.2 66.5 64.3 Source: CBBH, NBS, CNB, BSI,(2005 to 2010)Raiffeisen RESERCH, Author 73 �Nađa DRECA According to the table 3 it is seen that deposits as the percentage of GDP has positive growth rate, except in year 2008.In each country in 2008 there was decrease in the deposits, especially because of the global financial crisis that has effects on the finance in those countries. In the last years, deposits again grow in these countries, slightly because of some measures taken by governments to make financial situation better, but in Slovenia it did not recover and it has negative growth rate since 2008. During beginning years of the financial crisis most of the citizens withdraw their deposits from banks and it explains the decline in the deposits level in those countries. The European crisis has large impact on the deposits. In Bosnia and Herzegovina the deposits grew in period from 2005 to 2007, and average share of deposits in GDP in period from 2005 to 2007 was 47.1%, in period during and after crisis the participation of deposits in GDP on average was 50%. It shows that average deposit share in last three years is larger than in previous by 2.9 %.During the financial crisis in 2008 deposits fall from 55.6% to 48.1% or by 7.5%.The deposits are growing after the crisis, but not at the same rate as before and it has not reached the level of 2007. The deposit share in GDP in 2007 is higher than in 2005 by 15.5 %, while in 2010 it is lower than in 2007 by 4%. The highest deposit share was in 2007 due to privatization and increase in government deposits. Share of Deposits in GDP of Serbia increased in period before the crisis and average share was 29.3% before the crisis, and after crisis it is 37.1% and there is increase in the average share by 7.8%. Deposits in 2007 compared to 2005 increased from 23.6% to 35.8% or by 12.2%, while in 2010 compared to 2008 the deposits increased by 11.9%. The deposit share in year 2008,declines merely because of the withdrawal of savings. Deposits in 2010 have the highest value and it is higher than in 2007 by 6.1%.Increase of deposits in last two year was caused by increase in savings, or by restoration of savings and returns of confidence in banks. In Croatia the average deposit participation in GDP in period before crisis was 68.9% and deposits were growing until 2007 then in 2008 it decreased due to financial crisis. Compared to 2005, the share of deposit in GDP in 2007 increased by 8.2%, from 64.2% to 72.4%. In 2008 deposits decreased to 70.9% and again it started to grow in the next years. The average share of deposits in GDP of Croatia after crisis was 75.7% and compared to period before crisis it increased by 7.8%. The share of deposit in 2010 compared to 2008 increase by 9.6% and it has higher value than in 2007. 74 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Slovenia is the EU country that according to the data shows large decrease in participation of deposits in GDP. In period before crisis it has positive growth rate and in 2007 it accounted for 104.7% of GDP and it was higher by 22.4 %then in 2005. In period of crisis it started to decrease and in 2008 it had value of 101.2% of GDP while in 2010 it decreased by 40.4% of GDP. Average value of share of deposit before crisis in period from 2005 to 2007 was 94.5%, and in period after crisis average participation of deposits in GDP decreased to 77.3%. One of the reasons for this lies in the fact that is that Slovenia as the EU country was most hurt by global crisis As it is shown in Table 3 deposits of all countries grew, except in 2008 when it decreased due to first impact of financial crisis. Deposits of other three countries continue to grow after the crisis, but only Slovenia recorded negative deposit growth. The average deposits in Serbia and Croatia in period after crisis grow by 7.8% compared to pre crisis period, and in Bosnia and Herzegovina by 2.9%, while in Slovenia it fall by 17.2%. Due to return of confidence in banks and increase in savings also the deposits of banks increased in last year. Table 4. Deposits from Households in % of GDP Year Serbia Croatia Slovenia 2005 Bosnia and Herzegovina 18.6 12.3 36.8 35.9 2006 21.3 14.6 38.5 35.7 2007 23.7 18.4 38.3 34.1 2008 21.1 15.4 39.4 34.5 2009 23.6 22.7 42.1 38.1 2010 26.8 26.5 45.6 38.1 Source: CBBH, NBS, CNB, BSI,(2005 to 2010)Raiffeisen RESERCH, Author Deposits from households represent the key factor in the banking service. It provides funds for loans that are the main source of financing many needs, private and business needs. The global crisis influenced the households` deposits in the banks. In period of crisis because of the large risk, citizens mostly did withdrawal from their accounts or they tried to do diversification of the risk, so they left some portion of their deposits on the accounts and part withdraw. The year 2008 is the year in which the citizens mostly lost the confidence in their banks and remove their deposits. Table 4 represents the share of the deposits of households in GDP. Bosnia and Herzegovina and Serbia recorded small decrease in households` deposits, 2.6% and 75 �Nađa DRECA 3.0% respectively. The average deposit share in period before crisis in Bosnia and Herzegovina was 21.2% and in period after crisis it increased to 23.8%. Serbia has the highest change in deposits before and after crisis, there is increase by 6.4%, from 15.1 % in period from 2005 - 2007 to 21.5% in period after, from 2007 to 2010. Also Croatia recorded the high change in average deposits; it increased from 37.9% to 42.4%. Slovenia has the smallest increase in the average participation of the deposits from households in the GDP, it just increased by 1.7%. In 2009 the deposits increased due to reconstruction of confidence in banks, new policy of the banks to attract again back the depositors, so the deposits raised in year 2009 compared to 2008 as following: in Bosnia and Herzegovina by 2.5%, Serbia 7.3%, Croatia 2.7% and in Slovenia 3.6%. Increase in deposits from households was creates opportunities for the increase in the supplied loans and brings stimulants in the lending activity. Loans Clients for the needs of financial activities use the banking services as dominant source of finance. Table 5. Total Loans in % of GDP Year 2005 2006 2007 2008 2009 2010 Bosnia and Herzegovina 44.0 48.3 54.9 58.9 58.7 60.1 Serbia Croatia Slovenia 29.3 29.3 35.1 36.7 45.5 53.4 59.7 67.6 68.3 72.0 76.5 82.9 53.3 64.7 81.1 89.4 95.4 93.9 Source: CBBH, NBS, CNB, BSI, (2005 to 2010) Raiffeisen RESERCH, Author Table above shows that loans in Croatia, Slovenia and Serbia have positive growth over the time. Only in B&H during 2009 the loans slightly decline especially because most people lost the job, and they were afraid of financial crisis so they took fewer loans. Later in 2010 the loans start to increase and achieved level at 2008. Also banks started to implement more restrictive politics and it slowdown loans growth.The most significant factor that influence the limitation of the credit growth is the crisis that had impact on the entire economy and worse the condition in the real sector, then decrease in citizen`s spending, and more restrictive and prudent 76 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia lending policies of banks. The lending activity decreased in the course of 2008, as a continuation of the trend began in late 2008. Due to the global economic crisis, consumption was reduced, as well as the volume of activities of domestic firms, which led to decline on demand for new loans. At the same time, credit conditions worsened and interest rate rose.Irregularity of debt servicing by clients increased and the banks put more attention to the credit risk exposure. In Bosnia and Herzegovina the share of loans in GDP increased over the time. Total loans participation in GDP was lower only in 2009 by 0.2 percent point compared to 2008. Participation of loans in 2007 compared to 2005 was higher by 10.9%, while in 2010 compared to 2007 by 5.2%, and it is twice less. The highest increase was in 2007 or by 6.3% compared to 2006. Average participation of loans in period after crisis was 49.1% and after it, the share was 59.2 or there was 10.1% increase. Loans in pre crisis period has larger growth rate, then in period after. In order to make position of clients better, bank did reprograms of existing loans. The reason for this is more restrictive banks condition to obtain credit and increase in interest rates. Participation of loans in GDP of Serbia increases over time and in 2007 it had value of 35.1% and in 2010 it increased to 53.4% so there was increase by 18.3%. Average participation of loans in period before crisis was 31.2% and it increase by 14% in period after crisis. The reason for increase in total loans is better conditions to obtain credit and responds from banks, increase in the prices of real estates and increase in collaterals. The highest increase was in 2009 or by 8.8% compared to 2008. Lending of the banking sector slowed in response to increased investment risk in crisis conditions. Loans in Croatia grow over time and the highest increase was in 2010 by 6.4% compared to 2009. The average participation of loans before crisis was 65.2% and it in period after it increased to 77.1% or by 11.9%. Increase in loans participation in 2007 compared to 2005 was 8.6% while in 2010 compared to 2008 it increased from 72% to 82.9% or by 10.9%. Slovenia also experienced the growth in loans participation in GDP until 2010 when it decreased by 1.5% compared to 2009. Average participation of loans in pre crisis period was 66.4% and it increased to 92.9% in period after or by 26.5%. Total loans participation of loans in GDP in 2007 was 81.1% and it is higher by 27.8% than in 2005, while in 2010 compared to 2007 it increased by 12.8%, more than two times less than in first three years. The low growth in loans was result of low creditworthiness, rising cost of loan collateral. 77 �Nađa DRECA Among these four countries Slovenia experienced the largest growth of average participation of loans in GDP on the annually basis. The share of loans in GDP in period after crisis increases by 26.5%, in Serbia 14%, in Bosnia and Herzegovina it is 10.1%, and in Croatia 6.9%. All countries, except Slovenia recorded the growth in the selected period. Slovenia reports decrease in 2010 by 1.5% compared to previous year. Table 6. Loans to Households in % of GDP Year 2005 2006 2007 2008 2009 2010 Bosnia and Herzegovina 20.2 22.7 26.1 27.1 26.3 26.0 Serbia Croatia Slovenia 7.8 10.3 13.3 12.8 16.6 18.9 29.5 33.2 35.4 36.5 36.5 37.8 14.0 16.3 16.5 17.7 20.1 21.6 Source: CBBH, NBS, CNB, BSI, (2005 to 2010)Raiffeisen RESERCH, Author Today loans are the key factor of financing many activities, such as ordinary purchase or purchase of home, starting business or some other activities that need lots of funds. Due to high destruction in economy of ex-Yu countries, the citizens in order to obtain more in their life take many loans. Economic crisis influenced the demand for the loans. In the years when most people lost their jobs or salary decreased, their creditworthiness decrease and the banks impose more restrictive policy that leads to decrease in the growth of the loans. Serbia had decline in loans to households by 3.8% in 2008 compared to 2007.Bosnia and Herzegovina after 2008 has negative growth rate of loans to households, while other countries has slight increase in loans. Banks implemented more restrictive policies in approving new loans, which was one of the biggest limiting factors for the placement of new loans, in addition to reduced consumption and slowing economic activity. Average participation of loans in the period after crisis is higher than in period before. The average participation of loans of households in GDP in Bosnia and Herzegovina increased by 3.5%, in Serbia 5.6%, in Croatia by 4.3% and in Serbia it increased by 4.2%. Reason for increase is decrease in the reserve requirements ratio in Bosnia and Herzegovina. Growth rate in the loans to households is not high as it was before due to existence of risk on the financial markets, depreciation of currencyand other factors that influence the decline in the growth rate of loans. Even if there was increase in this ratio, it is not caused by the new loans but taking loans to refinance existing one. 78 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Table 7. Loans to Private Enterprises in % of GDP Year 2005 2006 2007 2008 2009 2010 Bosnia and Herzegovina 18.9 18.9 24.2 27.3 27.8 28.6 Serbia Croatia Slovenia 20.9 18.6 21.5 24.0 27.9 32.2 23.5 27.3 24.6 25.6 27.0 29.9 39.4 48.4 64.6 71.7 75.3 72.3 Source: CBBH, NBS, CNB, BSI,(2005 to 2010) Raiffeisen RESERCH, Author Loans to enterprises are very important factor for the entire economy of the country. It creates funds for establishing business, creating new job opportunities, support business and help the improvement in working condition. The global crisis also influence the credit to private enterprises, because some of the companies are closed due to severe conditions on the market, decrease in demands for their products, lower supply, while the input prices raised. Table 7 shows that the loans to enterprises had positive growth, but in some countries during the crisis period it was slow growth. The growth in credit provided to private enterprises was caused by the rise of the costs of performing business, increase in input prices and some other restrictive measures that crisis brought with itself. Banking sector of selected countries reported the growth of the average participation of the loans to private enterprises in GDP of countries. This increase in period after crisis compared to period before was in Bosnia and Herzegovina by 6.8%, in Serbia by 7.7%, in Croatia it is increase by 2.4% and among these countries Slovenia has the highest increased by 22.3%. Slovenia as the European country needed to inject large capital to support its private sector due to severe consequences of crisis in the Europe. In 2009 the banks in Bosnia and Herzegovina makes reprogram of the loans possible to households and corporate in order to continue with their activity. It influenced the increase in the loan supply. Serbia implements the policy of the subsiding loans. Increase in the loans to enterprises was mostly due to the needs of financing the working capital and refinance of the existing loans. 79 �Nađa DRECA Figure 1. Total Loans in % of GDP 123,9 122,4 102,8 105,8 96,5 109,7 93,0 98,0 98,7 94,3 122,6 101,6 143,4 146,1 115,2 116,7 127,5 116,4 101,0 103,0 88,3 2005 Slovenia 67,0 2006 2007 Croatia Serbia 77,5 64,8 Bosnia 2008 2009 2010 Source: CBBH, NBS, CNB, BSI, (2005 to 2010)Raiffeisen RESERCH, Author Main source of the financing the loans are the deposits. In most cases they are not enough to cover all loans so the banks find new sources to provide new loans. It is done either by borrowing from other sides, from their parents` banks or by some other policy that will increase loans` supply. In these selected countries in some periods the deposits could not be enough to satisfy the demand for loans. In the period from 2005 to 2008, in Croatia and Slovenia the deposits were enough to cover loans, but in next period as well as in other countries banks deposits were lower than demand for loans, so the banks used other funds to provide additional loans, and to cover the difference. In Bosnia and Herzegovina decrease in minimum reserve requirement ratio helps the supply of the loans so the banks had more available funds for loans. Bosnia and Herzegovina records the largest ratio of loans to deposits in 2008, and Serbia, Slovenia and Croatia in 2010. Average loans to deposit ratio in period after crisis is higher than in period before crisis. The highest change is in Slovenia. It increased from 69.8% to 125.9% or by 56% and it is really large changed compared to other selected countries. In Bosnia and Herzegovina it increased by 13.9%, in Serbia by 13.5% and in Croatia by 7.3%. 80 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia In period after crisis to correct for the consequences of the crisis, banks brought some measures in order to stimulate banking activities, lending and accumulation of deposits, change reserve requirements, make some exception on calculation of ratios, policy about currency,they fund these changes partly from the internal sources as well as lending from external sources etc. Assets Assets serve as a good measure of the size of the banking sector. They are key factor in determination of the banks value. Table 8. Total assets in % of GDP Year Serbia Croatia Slovenia 2005 2006 2007 2008 Bosnia and Herzegovina 69.3 76.3 89.6 85.2 54.3 64.9 73.6 64.7 98.7 106.5 108.4 107.5 99.1 108.6 122.1 127.3 2009 2010 87.2 86.9 84.4 91.6 113.0 117.1 145.4 137.6 Source: CBBH, NBS, CNB, BSI, (2005 to 2010)Raiffeisen RESERCH, Author Table 8 illustrated for the listed countries the total assets of the banking sector as percentage of GDP in the period of 2005 to 2010. It is seen that assets of Croatian Banks and Serbian has almost always the positive growth rate over the period, but in 2008 these three countries experienced the decrease in the total assets. Later it increased. The reason for negative growth is financial crisis, high participation of non-performing assets and it leads to the decrease in the total assets of the banking sector.Slowing lending activities of the commercial banks resulted in a decline of assets on 2009. The banks` asset quality deteriorated considerably as a result of weakening creditworthiness of borrowers. Bosnia and Herzegovina in period from 2005 to 2007 recorded the growth in assets, then in 2008 it decreased and again in later years it starts to increase. In 2007 the assets share was the highest because of the inflow of capital from the privatization of Telecom RS. Decrease in NPL had positive impact on the growth of assets, because the share of nonperforming assets in total assets decreaseduntil 2007. The share of assets in 2007 compared to 2005 was higher by 20.3%. In 2008 the share of NPL increased and it negatively influenced the total assets and it decreased by.3.6 81 �Nađa DRECA percentage points compared to 2007. Decrease in credit activity in leads to decrease in assets. The banking sector had a growth trend over the past years, but it was stopped due to economic crisis. The increase in balance sheet was partly due to bank recapitalization, the inflow of funds from Stand-By arrangement, and requalification of bad loans. Average asset participation in GDP in period after crisis was 86.4% and compared to period before it is higher by 8%. In 2010 assets again decreases because of high participation of non-performing loans and banks` loss. Serbia also experienced the increase in asset share in GDP. In period before crisis the average participation of assets in GDP was 64.3% and it period after it increased to 80.2%. In 2008 the assets decreased by 8.9% and later it continues to grow. The highest increase in asset participation was in 2009 by 19.7% compared to 2008. In 2010 the asset participation grew to 91.6% from 64.7% in 2008. Increase in assets was caused by the increase in loans in period 2009 and 2010. Increase in assets in Croatia was related to the increase in loans in period from 2005 to 2007. Increase in assets` share in GDP in 2007 compared to 2005 was 9.7% and in 2010 compared to 2008 it increased from 107.5% to 117.1% Average participation of assets in GDP in pre crisis period was 104.55 and it increase to 112.55 in period after Slovenia shows increase in the participation of assets in GDP over the time but in 2010 it reports decline in share of assets by 7.8%. Participation of assets in first three years was 109.9% and in after crisis period it is 136.8% or it increased by 26.9%. Asset share in 2007 compared to 2005 increased by 23%. The highest increase in asset participation was in 2009 and it is higher by 18.1% compared to the previous year. The main reasons for decline in total assets were the banks` continuing debt repayments to banks in the rest of the world, the repayment of funding obtained in Eurosystem and the withdrawal of government deposits. All countries experienced the growth of asset participation in the period before crisis. Assets share of Serbia and Croatia continues to grow after fall in 2008, while in Slovenia it decline only in 2010. Bosnia records positive growth in 2009 after crisis, but in 2010 it had slightly decreased. 82 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia ROA, ROE and NPL in Bosnia and Herzegovina, Croatia, Serbia and Slovenia The profitability indicators Return on Assets (ROA) and Return on Equity (ROE) are very important in order to measure how the system performed over the time. Many other variables have high impact on these ratios, not only profits or loss, but also the structure of assets, participation of non- performing loans (NPL), value of deposits, depreciation of currency, income from interest etc. The figure 2 represents the profitability indicators of banking sector in Bosnia and Herzegovina. As it is seen, there is increase in the non-performing loans and decrease in the profitability indicators over the time. Figure 2. Bosnia and Herzegovina: ROA, ROE and NPL (% of Total Loans) 16,00 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 -2,00 -4,00 -6,00 -8,00 13,90 10,50 8,40 6,20 5,30 0,70 2005 8,90 4,00 3,40 0,90 0,90 2006 2007 6,60 RoA 4,30 RoE 0,40 2008 0,80 0,10 2009 NPL -0,60 2010 -5,50 Source: CBBH, IMF( 2005 to 2010), Author The sign of growth of ROA always change. In B&H it has the highest in 2006 and 2007 then starts to diminish and in 2010 it reaches negative sign of 0.60 because the banking sector register the loss. The sign of the growth of ROE is changing over the time, in Bosnia it is almost always declining then in last year it shows negative sign 5.50% because the system report the loss and it is 6.30% less compared to 2009 or 14.4% less compared to 2007. The share of non-performing loans to total loans increased to 13.90 % in 2010, which was 3.4 percentage points more compared to the end of 2009. The banking sector in Bosnia was influenced by the economic crisis 83 �Nađa DRECA and recession, and one of the main characteristics of this sector in 2010 was a decrease in profitability of banks. In 2010 the banking sector recorded a negative financial results and banks reports the loss in business. The reduced value of ROE was caused by decrease in profits and losses of the business in the banking system. Return on Assets was -0.6% at the end of 2010 and there is decrease of 0.7 percentage points relative to the end of the 2009. The assets quality has the greatest impact on the profitability of banks.Increase in profitability ratios is caused by increase in the profits. Until the end of 2007 the NPL decreases by 1.9 percentage points compared to 2005 and this decrease in ratio of NPL to total loans can be explained by the increase in loans especially because most loans are long term and also it influence the assets quality can be visible more in the long run. Average increase in ROA in period after crisis was 0.83%, while in period after crisis it has negative sign and value of -0.03%. There is drop of average value ROA in period after crisis by 0.86% compared to period before. Same happened with average value of ROE. In pre crisis period it had value of 7.83% and in period after crisis it declines by 7.96% to -0.13%. Increase in NPL had greatest impact on profitability of banks. During period 2005 to 2007 NPL decreased, and average value was 2.93% and in period after crisis it is 10.33% so it increased by 7.4%. In 2010 the participation of NPL in total loans was 13.90% what is by 10.50% higher than in 2007 or four times more. 84 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Figure 3. Croatia: ROA, ROE and NPL (% of Total Loans) 20,00 15,00 15,10 12,40 10,00 5,00 0,00 10,90 9,90 6,20 5,20 4,80 4,90 1,70 1,50 1,60 1,60 2005 2006 2007 2008 11,20 7,80 6,40 6,50 1,10 1,10 2009 RoA RoE NPL 2010 Source: CNB, IMF, (2005 to 2010), Author The situation in Croatian Banking system is similar as in the other Balkan`s countries. The profitability of banking sector over the time decreased mostly because of the loss of the provision, high loans which payments are delayed, participation of non-performing loans, and decrease in deposits. Compared to 2005, ROE in 2010 more than two times declines, while percentage of non- performing loans in total loans almost doubled in 2010 compared to 2005. ROA declines over the time because of the participation of non-performing assets and decrease in deposits. Decrease in ROE was connected with recapitalization of the banks in 2007 from 12.4% to 10.90%. Average value of ROA in period from 2005 to 2007 was 1.6% and it decreased in last three years from 2008 to 2010 to 1.27% or by 0.33percentage points. ROA oscillates over the time, and in last two years it had value of 1.10% and it is less than 2008 by 0.5% Value of ROE on average for the period 2005 to 2007 was 12.8% and it decreased to 7.6% in period after crisis, so there was drop by 5.2%.ROE decreased over the time, and it shows slightly increase in 2010 of 0.1 % compared to 2009. But there is decrease in ROE in 2010 to 6.5% from 15.10% in 2005. Average participation of NPL in total loans in pre crisis period was 5.4% and in period after crisis it increased by 2.8% to 8% on average. In period before crisis NPL participation was decreasing and in 2007 it decreased by 1.4% compared to 2005. In crisis period the NPL started to increase and in 2010 it had value of 11.2% or 6.3% 85 �Nađa DRECA more than in 2008. This increase merely due to high loans level and delayed payments because of the problems in entire economy caused by the change in economic indicators. Figure 4. Serbia: ROA, ROE and NPL (% of Total Loans) 25,00 23,80 23,10 20,00 21,40 17,80 15,50 15,00 10,00 5,00 0,00 5,60 1,00 2005 7,00 1,30 2006 8,50 1,70 2007 RoA 11,30 9,30 2,10 2008 RoE NPL 4,60 5,40 1,00 1,10 2009 2010 Source: NBS, IMF, (2005 to 2010), Author The banking system of Serbia experienced the same situation as it is in other countries. Financial crisis has large impact on the financial performance. The profitability of banking sector increased until 2008 then again it reports negative growth. Until 2008 the percentage of non-performing loans decreased and it leaded to the increase in the profitability ratios, ROA and ROE. It increased the quality of assets and equity, as well as the profits in the sector, then again in the last years of financial crisis the system slowdown and reports lower ratios and decrease in financial performance because of the increase in the non-performing loans. The highest impact on increase in ROA and ROE was due to large collection of income from interest. ROA before the crisis on average had value of 1.33% and in period after crisis it increased to 1.4%. The highest ROA was recorded in 2008 and had value of 2.1% what is by 0.4% higher than ROA in 2007 and by 1.1% then in 2009. 86 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Return on Equity worsted from 9.30% in the 2008 to 4.6% in 2009. Average ROE in period 2005 to 2007 had value of 7.03% and in period after crisis it decreased to 6.4%. The highest value of ROA was in 2008 until when the ROE increased and had value of 9.30% that is 3.7% higher than in 2005, and in 2010 it decreased to 5.40 or by 3.9%. As the other countries suffer from losses in period crisis, also Serbia banking sector recorded losses and it influence its profitability indicators. NPL decreased until the 2008 and it had value of 11.3% compared to 23.8% in 2005. Under the impact of the crisis, the share of bad loans rose significantly. It start to grow again and in 2010 it reached value of 17.8% what is by 6.5% higher than in 2008. As it happened to the other three countries from this study, also it happens in Slovenia negative effects of the global financial crisis. From Figure 5 it can be seen that until 2008 the system reports positive changes, while under the effect of crisis it slowdown, and profitability decreased as the participation of bad loans increases. In last year the system reports loss and it leads to the negative profitability ratios in the banking system of Slovenia. In 2010 compared to 2005 the ROA decreased more than 5 times. ROE in 2008 had sharp decline compared to the previous year. It decreased twice. Figure 5. Slovenia: ROA, ROE and NPL (% of Total Loans) 20,00 15,10 15,00 16,30 12,60 ROA 10,00 8,10 5,00 0,00 2,50 1,00 2005 2,50 1,30 2006 1,80 1,40 2007 1,80 0,70 2008 ROE 3,90 2,30 0,30 2009 3,60 NPL -0,20 2010-2,30 -5,00 Source: BSI, IMF, (2005 to 2010), Author 87 �Nađa DRECA Slovenia also as the result of the global financial crisis experienced the decline in profitability ratios. Domestic demand and investment remain weak, unemployment remains high. Average value of ROA before the crisis was 1.23% and in period after it decreased to 0.27% or by 0.96% until 2007 ROA grew and then it starts to decline and in 2010 it had value of – 0.2% so there was decline of 1.6% compared to 2007. Increase in NPL had negative impact on ROA. Average value of ROE in pre crisis period was 14.7% and it decreased to 3.2% in period from 2008 to 2010 or by 11.5%. In pre crisis period ROE grew and it increased to 16.30% in 2007 what was 3.7% higher than in 2005. In 2008 the ROE decline more than twice from 16.3% to 8.10%, then again twice in 2009 from 8.10% to 3.9% and in 2010 it reached negative value of - 2.3% and there was decrease by 18.6%% compared to 2007. The average participation of NPL in total loans did not have large average change before and after crisis, the value of ratio before crisis was 2.27% and after 2.57%. In period until 2008 it decreased and again starts to decrease and in 2010 it had value of 3.6% twice than in 2008 and 2007. The reason for decrease in profitability was increase in loan loss provision, increase in loan delinquency, delay payments and downfall in interest and similar income. The profitability improvement is the result of reform and implementation of the adjustment of non-performing loans, introduction of modern banking techniques and increasing the rate of credit expansion. The percentage of NPL in the total loans in the mentioned countries increases over the time. The global financial crisis has large impact on this indicator. Most of the people lost the job, and the value of NPL increases over the time. During the financial crisis there was downfall of asset quality and increase of nonpayable claims, produced by difficulties in loan repayments. In 2010 banks did reclassification of the loans, and significant amount was moved from B- category (Bank`s classification of loans due to time of default) to nonperforming, that results in the increase of the loan losses and had negative impact on financial performance. 88 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Due to poor performing receivables trend in delay in collecting the past due loan receivables from customers, there were activated some guarantees in a number of delinquent loans that had this type of insurance, so the burden of the loan repayment fall on the guarantors. Capital Adequacy Ratio Capital adequacy ratio is significant indicator of financial soundness. It represents net capital over total weighted risks. Figure 6shows Capital Adequacy ratio. As it is visible the ratio, all countries fluctuate over the time. In Bosnia it has diminished as well as in Serbia. Decrease in the capital adequacy ratio is caused by high participation of the risky asserts. It is always higher than minimum prescribed by law (Bosnia and Herzegovina and Serbia 12%, Croatia 10% and Slovenia 8%) and it represents satisfactory capitalization of the entire system and very strong basis and foundation to preserve its safety and stability. The restructure of state owned banks and the injection of capital by governments improved capitalization significantly. Capital adequacy ratio increased over period in Bosnia and it shows positive effects. The increase in the capital adequacy ratio during the observed period was due to growth in banks’ own funds, the change in methodology of exposure calculation. In Serbia the CAR reached 21.4% in 2009 and it was lower by 0.5% percentage points relative to 2008 due to faster growth in risky assets. Decrease in CAR was due mainly to the increase in risk-weighted assets and increase of credit risk of them. 89 �Nađa DRECA Figure 6. Capital Adequacy Ratio 32,00 28,00 24,00 20,00 16,00 12,00 8,00 27,90 25,00 24,70 21,90 17,80 14,70 10,50 17,70 14,00 11,10 17,10 16,40 11,20 16,30 15,20 11,70 21,40 16,40 16,10 Bosnia 19,90 18,80 16,20 Croatia 11,60 Serbia 11,30 Slovenia 4,00 0,00 2005 2006 2007 2008 2009 2010 Source: CBBH, CNB, NBS, IMF(2005 to 2010) Average value of CAR in Bosnia and Herzegovina before the crisis period was 17.53% and in period after it decreased to 16.20%. The highest CAR was in 2007 because of high capital inflow from privatization and in 2010 it decreased by 8% compared to 2007. Serbia CAR also decreased over time; in period from 2005 to 2007 it had value of 28.87% and it lower to 21.07 % in period 2008 to 2010. Croatia shows increase in average value of CAR. In period from 2008 to 2010 the average value of CAR was 16.8% and it is by 1.8% higher than in period 2005 to 2007. Slovenia also records increase in average value of CAR in period after crisis and it had value of 11.53% what is by 0.6% higher than in period before crisis. These countries record the decrease in CAR because most of the capital was withdrawn and the quality of assets is deteriorating, so the participation of risky assets decreases the ratio. But each country keeps ratio above the minimum prescribed. 90 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Conclusion This study provides analysis of banking sector performance measured by several indicators in the four countries that were part of ex – Yugoslavia, Bosnia and Herzegovina, Croatia, Slovenia and Serbia. Indicators show that banking sector is influenced by the global financial crisis. Bosnia and Herzegovina records the lowest indicators. Bosnian financial sector is influenced by many problems inside the country, not established government, large money outflow, huge loans by IMF, with entire situation in country. Croatia is better compared to the other countries. It has to make good steps in each sector because of its aim to become EU member. In Serbia situation is similar to the Bosnia. The financial sector is influenced by political situation. Banking sector in Slovenia is also influenced by the global crisis, but also effects of the European crisis are significant. The performance of the banking sector in last year was under the strong impact of the global economic crisis and recession. This crisis produces many bad consequences and the adverse effects in banking sector of those countries, such as stagnation of sector, decline in profitability, increase of the non-performing assets and loans, past due receivables, loan loss provision and deterioration of other key indicators of banks` performance what comes as the conclusion from the data and analysis presented above In 2010 banking sector recorded the first signs of slight recovery but still there is no satisfactory condition to grow faster, so the recovery will be slow and lengthy. In order to compete for customers and greater market share banks enter into acquisition and integration process through mergers. Each country records decrease in profitability ratios, merely due to decrease in profits, loss of provision, and increase in non-performing loans, slowing credit activity and worsening market conditions. In order to make financial situation countries took support from other sources, but in most cases it just increased debt level and makes conditions worse. In order to improve the situation in banking system better, banks should increase interest on deposits, decrease interest on loans especially for the less risky clients, to provide better banking products that help everyone in market, such as more credit cards with deferred payments on the markets; it helps everyone in way that everyone 91 �Nađa DRECA is better off, client pays without interest, it is on time payment, and bank tied client to the bank with issuing this product. More credits to small business should be provide, at the lower interest rate and economy should encourage investments domestic producers should be encouraged by more favorable conditions of borrowing also it will solve many economic problems, decline in unemployment rate by creating job opportunities, less domestic products, so it will decrease trade deficit, provide more income for domestic governments and decrease budget deficit, and country would be in better position to return the debt to IMF. 92 Journal of Economic and Social Studies �Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia References Bank of Slovenia.(BSI). (2005 – 2010). Annual Reports for years 2005 to 2010, Various issues,Retrieved 26th January 2012 fromwww.bsi.si. Bonin.J.P. (2001).Financial Intermediation in Southeast Europe: Banking On the Balkans , Working Paper 006, The wiw Balkan Observatory,Retrieved 26th January 2012from: http://balkan observatory.net/wp/2001%2010%20wiiw%20bo%20wp%20006.pdf Central Bank of Bosnia and Herzegovina.(CBBH)(2005 – 2010). Annual Reports for years 2005 to 2010, Various issues, Retrieved fromwww.cbbh.ba. Croatian National Bank. (CNB).(2005 – 2010). Annual Reports for years 2005 to 2010, Various issues, Retrieved fromwww.hnb.hr. Coskun, A. and Ilgun E.(2009). Reconstruction and Development in the Banking Sector of Bosnia and Herzegovina, 1. International Symposium on Sustainable Development, June 2009, Sarajevo pp.52-63 Retrieved 26th January 2012 from: http://www.alicoskun.net/Publications/Coskun-Ilgun-ISSD-2009.pdf International Monetary Fund .Financial Access Survey (FAS).Financial Soundness Indicators (FSIs). Retrieved 26th January 2012fromwww.imf.org National Bank of Serbia.(2005 – 2010). Annual Reports for years 2005 to 2010, various issuesRetrieved 26th January 2012 fromwww.nbs.rs Radzic, J. and Yuce, A. (2008). Banking Development In The Former Yugoslavian Republics, International Business & Economics Research Journal, Vol 7. No.9, pp.35-48 RaiffeisenResearh CEE Banking Sector Report (2009). Rough playing field......committed players. June 2009. Retrieved 30th January 2012http://www.rzb.at/eBusiness/services/resources/media/10263598849481026359885014_1026067924320_1026689962565-574060325146557957-1-38EN.pdf 93 �Nađa DRECA RaiffeisenResearh CEE Banking Sector Report. (2010). Gradually gaining momentum and leaving the storm behind, September 2010 Retrieved 30th January 2012 from http://www.rzb.at/eBusiness/services/resources/media/677012584775275435677012584775275436_677251119927032833_677257048341086064679588600387211306-1-9-DE.pdf RaiffeisenResearh CEE Banking Sector Report.(2011) Banking Sector Convergence2.0.October 2011Retrieved 30th January 2012 from http://www.rbinternational.com/eBusiness/services/resources/media/677012584775 275435-677012584775275436_677251119927032833-772104317120223179-19-DE.pdf Simon Jr, G. (2012). An Economic History of Socialist Yugoslvaia,Social Science Research Network, Rochester, New York, Retrieved 26th January 2012 from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1983907 Stubos, G. and Tsikripis, I.(2004). Banking Sector Developments in south –Eastern Europe, Working Paper No.44, ELIAMEP, WP4,Regional Cooperation, ELIAMEP, January 2012 fromhttp://balkanAthens, Retrieved 26th observatory.net/archive/stubos.pdf Stubos, G. and Tsikripis, I.(2005). Regional Integration Challenges in South East Europe: Banking Sector Trends ,Working Paper, Bank of Greece Retrieved 26th January 2012 fromhttp://www.bankofgreece.gr/BogEkdoseis/Paper200524.pdf 94 Journal of Economic and Social Studies � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1389 Title A name given to the resource Evaluation of Financial Performance of Banking Sector: Evidence from Bosnia and Herzegovina, Croatia, Serbia and Slovenia Author Author Nađa , Dreca Abstract A summary of the resource. The objective of this study is to compare the financial performance of the banking sector in some ex- Yu countries: Bosnia and Herzegovina, Croatia,Slovenia and Serbia for period from 2005 to 2010. The banking sector of these countries experienced reforms after the separation from the Yugoslavia. The financial performance of banks is studied on the basis of some selected financial variables and ratios that are either obtained from different sources either calculated by author.During this period the banks become privatized and there is increase in the presence of the foreign owners on the Balkans.This is mostly descriptive research that explains and provides some insights about situation in banking of the selected countries. Financial performance in this study is measured by selected indicators, such as return on asset (ROA), return on equity (ROE), capital adequacy ratio (CAR), share of non-performing loans (NPL), participation of deposits, assets and loans in Gross Domestic Product (GDP) of the country.Data show that banking system of these countries suffers from problems in the banking sector, largely influenced by its huge debt to IMF, political situation, financial crisis, internal situation and other political factors Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Article PeerReviewed H Social Sciences (General),HB Economic Theory,HG Finance Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 962 Title A name given to the resource Cultural Diplomacy in Foreign Language Teaching: Some Evidences from the Teaching of Portuguese as a Foreign Language Author Author Moutinho, Ricardo Carlos Paes de Almeida Filho, Jose Abstract A summary of the resource. In an increasingly multi-territorialized and interdependent world, where technology plays an important role through many mass media services, people are getting more in touch with one another than ever before. This provides the possibility to overcome geographical boarders in order to build new relationships that foster mutual interests in economical and socio-cultural aspects from different countries. However, not only official diplomats are in charge of this exchange. As many language instructors are hired to teach in partner countries, they can all be considered independent, public or cultural diplomats who mediate interaction between cultures (or countries) through the teaching of a target language. Therefore, instructors will have to provide the students with information about socio-cultural aspects, rather than only linguistic ones, related to the people who speak the target language. This means that the instructor’s task is not teaching language itself, but teaching beyond language, incorporating topics related to the students’ interests. Besides that, as any good diplomat, instructors also have to know how to act in the culture they are in. For this reason, they must also be determined to learn about the other culture and language so that they can promote a fair positioning of the language sought. This study focuses on this topic illustrating real life situations experienced by how instructors of Portuguese as a Foreign Language (PFL) act as cultural diplomats of their language in an international setting. Considering that Portuguese has been growing in China due to bilateral agreements this country has with some Portuguese speaking nations (specially Brazil, Angola, Mozambique and Portugal), we intend to discuss which actions the PFL instructors (native and non-native ones) must perform to be considered cultural diplomats of this language in a setting like Macau, where Portuguese is starting to be seen as a global rather than a local language. Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Conference or Workshop Item PeerReviewed P Philology. Linguistics Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 981 Title A name given to the resource Modal Particles as a Translation Problem. Contrastive Analysis of German Modal Particle ja Author Author Mesic, Sanela Abstract A summary of the resource. Modal particles are considered as a translating problem, especially when it comes to translation in a language whit a lesser extent of modal particles. The most important thing in the process of translation is to transfer the meaning of an utterance using the adequate language resources of the language being translated into. There are few absolute equivalents in two different languages. I presume that two utterances in two different languages are equivalent if they have the same semantic-pragmatic function without having the same formal-syntactic structure. It is unnecessary to translate each modal particle. Such a translation could be considered as an unnatural one. In order to transfer such a subtle distinction from the German language into some other language we often have to use the method of paraphrasing. The issues observed in this paper are related to the transfer of modality in general, as well as to the translation of the modal particles. Modal particles express an epistemic modality. My intention in this paper is to expose, on the examples of the German particle ja, in what extent the epistemic modality remains within the Bosnian translation. The observed examples are excerpted from five German literary works and their equivalent Bosnian translations. Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Conference or Workshop Item PeerReviewed P Philology. Linguistics https://omeka.ibu.edu.ba/files/original/7cc10b38582f2d18d615d94cb20f246c.pdf a8f2229d2706b36221ed788c3fb815fc PDF Text Text Journal of Economic and Social Studies Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia Merima AVDAGIĆ Innova Management Consulting avdagic.merima@gmail.com Faruk HUJIĆ Innova Management Consulting faruk.hujic@innova.ba Abstract: This paper addresses a comparative analysis of two different KEYWORDS: frameworks for inclusion of gender in fiscal economics through gender responsive budgeting(GRB) initiatives that took place over one decade from 2000 till 2010 in two former Yugoslavian republics: Bosnia and Herzegovina (BiH) and Republic of Macedonia (Macedonia). Namely the comparison of two countries with two different methods for GRB is depicted: a) Case of BiH where GRB was introduced through overall public finance management (PFM) reform within the realm of program based budgeting, versus b) Case of Macedonia where GRB was introduced through specific program level initiatives and interventions without an overall integration with budgetary system and performance budgeting as a baseline concept. The paper analyzes these two approaches, and provides an argument and evidence for concluding that the introduction of gender sensitive budgeting through an overarching PFM reforms a more practical and comprehensive mechanism. It suggests that GRB can be used as a tool for more efficient and equitable policy and budget making decisions, and that the capacity level directly affects the absorption capacity, level of implementation and overall sustainability. Furthermore, due to the transition from social regime toward open market parliamentary democracies that Balkan countries are experiencing, integration of GRB practices within the PFM reforms is an attractive model given that those reforms are already taking place. Gender equality through GRB mainstreamed through PFM reforms supports contributes to overall socio-economic prosperity. Gender Responsive Budgeting, Public Finance, Development JEL code: G 31 ARTICLE HISTORY Submitted: 18 April 2012 Resubmitted: 15 September 2012 Resubmitted: 22 October 2012 Resubmitted: 7 November 2012 Accepted: 24 December 2012 197 �Merima AVDAGIĆ & Faruk HUJIĆ Introduction and context “Forget China, India and the internet: Economic growth is driven by women” (Anonymous, 2006, p.3). When it comes to acknowledging the importance of gender equality and the significant role it plays within economic development, there is quite a consensus at the official level. Gender equality plays a crucial part in stimulating growth, generating employment, and contributing to capital generation and poverty alleviation. In order to integrate gender perspective in the policy, gender mainstreaming is applied. The Council of Europe defined gender mainstreaming as “the (re)organization, improvement, development and evaluation of policy processes, so that a gender equality perspective is incorporated in all policies at all levels and at all stages, by the actors normally involved in policymaking”(Quinn & Council of Europe, 2009, p.3). Thus, this is a preventive approach, with an objective of strengthening equality between men and women. In societies where significant gender gaps exist, disparities persist in men’s and women’s access to and control of human, economic, and social assets, and gender based inequality limits economic growth and diminishes the effectiveness of poverty reduction efforts. Namely, many development strategies rely on, among other things, raising household and individual income. “To achieve the economic expansion we all seek, we need to unlock a vital source of growth that can power our economies in the decades to come… By increasing women’s participation in the economy and enhancing their efficiency and productivity, we can have a dramatic impact on the competitiveness and growth of our economies,” said the United States Secretary of State, Hilary Clinton (2011) at the Asia-Pacific Economic Cooperation Summit (p. 1). However, to achieve gender equality, gender mainstreaming is not enough as practice often demonstrated. Degraef (2002) found that in spite of the clear commitment on the application of gender equality to all policy areas and programs, policy fields that relate to finance, capital markets and technical fields are still predominantly male occupied. Nevertheless, the acceptance of gender notion within the economy heavily picked up over the past decade. Recently, Prime Minister of Britain, David Cameron (2012) promoted the increase of the number of women in 198 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia roles of responsibility in industry by saying that “It’s about quality, not just equality…if we fail to unlock the potential of women in the labor market through equal access to resources, we’re not only failing those individuals, we’re failing our whole economy” (p.2). Therefore, in order to bridge the concepts of gender equality and budget, and introduce women as both contributors and users of public budgets, the notion of GRB was introduced as a way to close the gap between gender responsive policy making introduced through gender mainstreaming and budget planning and allocation processes. The integration of gender perspective into public policies implies that it requires financial resources, which in fact is GRB concept. Thus, GRB requires a more transparent, effective and targeted use of public resources – i.e. being responsible for outputs achieved with public resources, without which, the gender mainstreaming could remain only a tool expressed on the paper. Research objective Although principles of gender equality and GRB are quite universal declaratively, practice demonstrated different approaches in South Eastern Europe (SEE) region. This paper explores two different frameworks for inclusion of GRB through a comparative case study analysis of BiH and Macedonia. Specifically, BiH introduced GRB through overall PFM reform within the realm of program based budgeting, while Macedonia introduced GRB through specific program analysis (policy and budget analysis) and interventions without an overall integration with budgetary system and performance budgeting as a baseline concept. These two countries pose for an interesting comparative case analysis given that they were both part of the socialist regime within the former Socialist Federal Republic of Yugoslavia (SFRY), and share similar demographic, social, economic and cultural background. Although they both realized the importance of gender equality for the overall growth and prosperity, different implementation approaches were taken in this transition process toward market oriented parliamentary democracy. This comparative research analysis will contribute to defining ‘best practice’ framework for implementation of GRB within the developing countries and countries in transition – as is the case with Balkan countries and SEE region in general. 199 �Merima AVDAGIĆ & Faruk HUJIĆ Literature review As Elson, Budlender, Hewitt and Mukhopadhyay (2002) highlighted in their research, over the past 25 years, the movement toward gender equity has gained momentum in countries throughout the world. The international community has publicly committed itself to promoting gender equity, reflecting the realization that the equality of men and women is essential for sustainable economic growth and full social development (Hewitt and Mukhopadhyay, 2002; Klase, 1999). However, gender responsive budgets are neither referenced in the public budgeting and finance literature (Orosz, 2001), nor in the emerging literature on feminist approaches to public administration (Public Administration Review, 2005, Vol. 65, No. 3). The literature outside public administration is more extensive in its work on GRB. However, GRB is still a relatively new topic, reliant on relatively few researchers. Debbie Budlender, Diane Elson, and Rhonda Sharp are three prominent contributors to the gender budgeting concept, both in terms of policy and practice, and they are cited extensively throughout the gender budgeting literature. In 1997, the UN General Assembly adopted the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), often referred to as ‘international bill of rights for women', while in 1995, representatives of 171 governments at the 4th UN World Conference on Women held in Beijing, identified the equal treatment of women and men in government budgets as central to the achievement of gender parity. The Beijing platform called for incorporating gender perspective into the design, development, adoption and execution of all budgetary processes in order to promote equitable, effective and appropriate source allocation and establish adequate budgetary allocations to support gender equality. Although several terms since then have been used to describe inclusion of gender perspective into public budget processes, including engendered budgets, gender sensitive and gender responsive budgets, they all have the same idea: planning and implementing development having in mind needs of both men and women, and making sure that the development benefits and gender equitable. Almost all of the research related to gender-responsive budgeting has taken a normative approach, promoting its use as a way to advance gender equality. Cagatay et al. (2000) convey that the ultimate goal of these various gender budget initiatives 200 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia is to come up with reprioritization of both expenditures and revenue raising methods in order to promote social justice. Traditionally, budget has been viewed as a simple collection of revenues and expenditure, serving as a technical instrument of PFM. Over the course of past three decades, many countries experienced a movement toward a performance and program oriented budgeting, motivated by transparency, efficiency and accountability for public resources. This shift is based on integration of performance indicators in the budget process, as a way to measure outputs and thus base the budget decisions according to expected results. The notion of GRB fits well with performance and program based budgeting as it promotes the notion that budget resources are evaluated per final results in accordance with specific policy, meaning that if the policy is gender sensitive due to the process of gender mainstreaming, budgets should be gender responsive simply by implementing those policies that result in specific outcomes. In order to bring the discussion of GRB into the mainstream of debate in the public finance community and in the community of public administration scholars and practitioners, Marilyn M. Rubin and John Bartle (2005) described gender responsive budget as a “government budget that explicitly integrates gender into any or all parts of the decision-making process regarding resource allocation and revenue generation” (p.259). Combined with the different roles in the economy, gender becomes relevant for income-earning at the household level. Gender inequality limits growth and decreases both household and individual income, if the women are not participating in the paid economy. Since the household and the market economies co-exist and are interdependent, trade-offs and linkages may be very significant, especially when it comes to assets and labor constraints faced by poor individuals and households. The interdependence of the market and household economies brings to light: (i) shortterm inter-sectoral and inter-generational trade-offs within poor asset and labor constrained households; and (ii) positive linkages/externalities, whereby investment in the household economy will benefit the market economy in terms of improved efficiency, productivity, and, hence, growth. The trade-offs are compounded by intra-household inequality and the complexities of intra-household relations. This relationship between the household and economy, as well as impact on the well being of society is well represented in the following image (Alvarez, 2010, p.16). 201 �Merima AVDAGIĆ & Faruk HUJIĆ Figure 1. Gender equality in the context of economic performance Gender Equality in rights, resources, and voice Household Household resources and task allocations, fertility decisions Economy & Markets Society Access to land, financial services, labor markets Civic and political participation Aggregate economic performance (poverty reduction & growth) Stephanie Seguino (2009), a Professor at Department of Economics, University of Vermont, conducted significant work in the field of connecting gender and economics, with the most recent paper addressing the global economic crisis, its gender implications and policy responses. Specific attention was given to potential approaches to address the global economic crisis via transformational fiscal policies, where a system in which growth is compatible with equality is a key goal, rather than approaches that are dependent on inequality for growth – as this has proven to be an unsustainable strategy (Seguino, 2009). 202 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia The implementation of GRB: Case Studies of BiH and Macedonia Implementation of GRB as part of the PFM reform: Case of BiH Overview Bosnia and Herzegovina is a country with very complex and turbulent past that continues to evolve. Throughout its recent history, BiH went from its position within the federal system of the SFRY, through the devastating impact of the 199295 war, post-war state of independency, rebuilding and stabilization, to its current state which can perhaps best be described as transitional. As the result of war and due to slow reconstruction and development after the war, BiH is a disintegrated community, and this is evident in its political, social and economic structures. Reforms resulting from Dayton Peace Agreement placed Bosnia and Herzegovina in economically and politically disintegrated administrative system of municipalities, cantons, two entities, one district and a distant central government. This is evident in country’s key lawmaking and executive mechanisms, and PFM structures are no exception. Serious fiscal problems continue to challenge the development of BiH, exacerbated by uncontrolled spending as well as the current global economic crisis. The economic environment of BiH is at present characterized by a small, underdeveloped market that is regulated through a partially reformed legislature, a slow privatization process, a negative trade deficit and persistently high rates of unemployment. The overall business environment remains unfavorable and unattractive to investors due to the red-tape of restrictive regulations and inefficient administration, which results in reduced investment and, subsequently, leads to reduced job creation and labor opportunities. Labor market policies are not significantly developed despite the fact that the rate of unemployment remains alarmingly high, 27.6% in 2011 (BiH Agency for Statistics, 2011, p.6). Given these alarming poverty indicators, BiH addressed the issue of poverty reduction in its first Poverty Reduction Strategy Paper in 2003, followed by Country Development Strategy in 2010. At the same time, the issue of gender equality emerged on the agenda of BiH institutions, invigorated by politicians, civil society and European Union (EU) community. As is the case throughout the Western Balkans, BiH has started its EU integration process and is on the path toward accession. This, among other factors, is leading to public sector reforms, one of its key dimensions being the strengthening of the PFM towards a more complete, accountable and transparent financial 203 �Merima AVDAGIĆ & Faruk HUJIĆ resources planning, management, auditing and reporting that respond the governments’ development initiatives, and gender responsive PFM mechanisms. In 2007, National Human Development Report published by United Nations Development Program estimated that over 50% of the population was socially and/or economically excluded (health, education, employment and/or participation in society), with gender adding a transversal and intrinsically related layer of vulnerability (Papic, 2007, p.1). Women with disabilities, single mothers and girls suffer severe social exclusion in an environment where scarcity of resources is combined with a patriarchal belief system. This results in women becoming secondclass members of communities. These remarks, along with the fact that BiH has the lowest percentage of women participating in the labor market in SEE region, only 35% (Papic & Fetahagic, 2010, p.3), signaled a growing problem that needs to addressed systematically, one of the ways being equitable distribution of public finances aimed at progressive, gender sensitive development. Case study Bearing in mind that the public budget is largely made up tax payers' money, it is necessary that the budget, in a simple manner, represents the results of the allocation and budget consumption through easily identifiable and measurable outputs. Based on the output, the quality and effectiveness of specific government initiatives is measure, helping determine whether the government's decision to invest in certain program reflects an adequate value for consumed money. Accordingly, the basic principles of effective mid-term budgeting include i) establishing affordable budgets - fiscally and economically responsible, ii) the allocation of scarce resources on the most important priorities of economic and social policy - setting priorities for resource allocation, and iii) focusing on the results of the allocated budget monitoring the efficiency and effectiveness of results and measuring of the value received for money invested. In order to prepare a responsible budget, a medium-term budget planning system, based on principles of transparency, participation and accountability is necessary. The medium-term budget planning system is supported by mid-term budget framework paper, which includes clearly defined schedule of budgetary responsibilities, affordable fiscal strategy, the budget priorities based on the most 204 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia important objectives of economic and social policies, predictability of budget policies and budget cycle which encourages more effective and efficient use of public funds while improving transparency and accountability of government policies, programs and decision-making process. The medium term budget planning process has a key role in linking the government priority policies with outputs, which can be clearly seen from the following diagram: Figure 2. The concept of medium term budget planning The best practice in medium-term budget planning process uses program budgeting or results budgeting as a basis for decision making regarding budget policy and the allocation of budgetary resources in line with government's strategic priorities. Program budgeting is budgeting by performance results i.e. submission of information on the results through the budget process, which should streamline the decision making and resource allocation processes. Program budgeting presents budget information in a manner that clearly connects the budgetary resources with the ultimate results of government policies, and promotes accountability for resources used, services rendered, and end results achieved. Over the past decade, there has been a worldwide trend towards performance and results oriented budgeting, and SEE is no exception. Although BiH is hindered by state of ineffective and complicated four-level federation, significant PFM reform progress based on program budgeting has been made. With an understanding that the planning and distribution of public finances strengthens good intentions of 205 �Merima AVDAGIĆ & Faruk HUJIĆ government to responsibly manage the assets of public spending, serve citizens, and promote equitable development no matter what is their racial, religious, sex, etc. orientation, and that it is a serious task for any public administration authority, starting in 2005 BiH engaged in a PFM reform. The PFM reform involved State institutions of BiH, as well as the entity, cantonal and Brcko District level governments’ institutions, engaging them on the path of series of reforms in the budget process in order to strengthen the planning and management of public funds. The overall purpose of these reforms is to build a strategic basis for the allocation of funds reflecting priority policies, objectives and planned results which will be achieved through public spending, ensuring that public finances are increasingly effective at delivering the national priorities of the governments in BiH. The reform institutionalized the principles of effective planning, allocation and monitoring of the budget, and as part of these reforms, the government adopted a medium-term approach to planning and budgeting based on performance (i.e. program budgeting), which links budget to implementation of government policy priorities. BiH adopted the 'Program budgeting process in 10 steps' that includes planning and budgeting timeframe that is aligned at State, entity and cantonal levels of government. As such, budget became an instrument of government policy and the means by which government policies are converted into programs and services for the benefit of its citizens. Program budgeting in BiH is yet to be introduced at the local level, although some progressive gender responsive, program budgeting initiatives are taking place within local communities and work of municipalities. The most significant shift in the establishment of gender mechanisms in BiH happened when Centers for Gender Equality in both entities were established (in 2000 and 2001 respectively). Adoption of the Law on Gender Equality at the State level in 2003 consolidated gender equality policy measures, which was followed by establishment of Central Agency for Gender Equality as an umbrella institution for the harmonization of initiatives for gender equality in public and private life throughout the country. In addition to national policy framework, BiH ratified CEDAW in 1993. Despite the establishment of relatively progressive legal and institutional framework in the field of gender equality in BiH, in reality the situation 206 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia was worrisome. Gender gaps continued to exist and are particularly notable in the areas of political representation and participation of women in decision making process, employment and social protection. Therefore, it is evident that the commitments to women’s rights and gender equality often remain on paper and do not properly translate into action and equitable development. Since budget reflects the values, the notion of power and political, economic and social priorities in the community, advocacy of gender equality through the budget is an attractive model for GRB implementation. “There seems to be a direct and logical link between performance based budgeting and GRB as both focus on results and a broader cycle of policy planning, implementation and evaluation” (Klatyer, 2008, p. 12-13). Klatyer further comments that enhanced accountability is an issue for both approaches, and that equally, better governance structures, transparency, enhanced participation and democracy are elements in both. With the help of international donors, namely Department for International Development (DFID) that supported the PFM reform and United Nations Development Fund for Women (UNIFEM) that supported the GRB implementation, a partnership was formed with key gender mechanisms, Ministries of Finance and several line ministries at entity level who were eager to link program and gender budgeting and address the needs of all citizens equitably. The consensus was reached that the best gender equality will be achieved through concrete programs, which means that they need to be combined with budget allocations, and thus be part of the systematic PFM reforms. Consequently, UNIFEM, DFID and local counterparts combined their efforts toward amending the standard budget templates and introducing a more gender responsive approach. Specifically, Budget Framework Paper now includes a section on GRB, which means that the gender equality issues and participation of women is considered in the process of long term economic planning. “Framing gender issues in terms of an economic disclosure, gender budgeting ‘liberates’ gender and gender mainstreaming from the ‘soft’ social issues arena and raises it to the level of macroeconomics, which is often thought of as technical, value-free and gender neutral” (Holvoet & Universitaire Instelling Antwerpen, 2003, p. 68). Furthermore, budget instruction documentation, in which budget users define their initial budget requests was modified to require from users to undertake the gender analysis in order to demonstrate the impact of any new spending on men and women (although this 207 �Merima AVDAGIĆ & Faruk HUJIĆ is still poorly developed due to lack of local capacities). Capacity building assistance aimed at increasing knowledge and skills related to GRB, in particular gender analysis, were provided to Ministries of Finance and budget users by local and international consultants. The training emphasized (Varbanova, 2010, p.7): • • • The need to consider gender needs and priorities that are provided annually to all budget users by the Gender Agency and Gender Centers; That sex disaggregated statistics released by the statistical institutes should be examined when developing policy priorities, and gender related performance indicators used for each specific sector; That existing and new policies and programs should be examined to identify gender aspects. Discussion and corresponding recommendations BiH used budget reform processes as an instrument to advance gender equality. The GRB was initiated as part of the regular budget planning and distribution practice, which implies that the process has been mainstreamed and GRB can be used as an instrument of analysis and control. Nevertheless, certain challenges and complexities continue to exist. Below is a list of key challenges that need to be addressed when choosing this approach for GRB implementation. • • 208 The experience suggests that it takes a number of years to fully achieve all the benefits of performance budgeting, and therefore, require long-term commitment of governments, ministries of finance, local levels of government and all users of budgetary resources. Capacities need to be build in order to link the budget cycle and gender equality properly, with heavy focus on Ministry of Finance staff, line ministries as well as all budget users in order to analyze gender impacts of proposed programs. Capacity gaps continue to exist for a long time after the GRB initiation through the budget process commenced. These capacity gaps need to be addressed systematically and through continuous technical assistance efforts in order to ensure program budgeting is practiced in way that addresses the needs of both men and women. This is often a problem if the local institutional mechanisms are not strong enough to carry out this mission, and donor assistance which is most often project based, ends at some point in time. Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia • Complexities of governance structure, as is the case in BiH poses challenges to the implementation of PFM reforms, and thus GRB practices through PFM reforms. PFM reforms are implemented faster and more effectively in an efficient administrative governance set up, where there is no duplication of responsibilities within different levels of government (for example, BiH has 14 Ministries of Finance, and all of them along with their budget users need to be trained on program budgeting and GRB). Implementation of GRB as part of program intervention: Case of Macedonia Overview When Macedonia declared its independence in 1991 from SFRY, it was the least developed of the Yugoslav republics, producing a mere 5% of the total federal output of goods and services (Central Intelligence Agency, 2012, p.1). An overall poor development, an absence of infrastructure, UN sanctions on the downsized Yugoslavia, and a Greek economic embargo over a dispute about the country's constitutional name, heavily hindered economic growth until 1996. In 2001, during a civil conflict, the economy shrank again, but from 2003 to 2008 growth that averaged about 4.5% per year was recorded (Central Intelligence Agency, 2012, p.1). Currently, Macedonian economy is marked by small, open economy which makes the country vulnerable to economic developments in Europe and dependent on regional integration and progress toward EU membership for continued economic growth. Macedonia has maintained its macroeconomic stability with low inflation, but it has so far lagged the region in attracting foreign investment and creating jobs, despite making extensive fiscal and business sector reforms. Official unemployment remains high, which in the wake of the global economic crisis marked by decreased investment, low capital flow, and a large trade deficit, posed quite a problem. From the public administration viewpoint, Macedonia functions with State level government and municipalities as the local government. A formal EU candidate status was granted in 2005 and the accession negotiations are underway. Implementing a responsible and disciplined budget policy, as the main principle for responsible treatment of public finances and regular and adequate use of the funds, is a priority for Macedonia government in the mid-term period for year 2011 – 2015. 209 �Merima AVDAGIĆ & Faruk HUJIĆ Although some significant reforms happened for example, audit, financial system, budgeting, Public Internal Financial Control and internal audit, Macedonia still needs further improvements in relation to adequate mid-term budget framework which links development strategy with budget, formulation of performance indicators or some other way of tracking the value received for usage of public resources (Macedonia is still in most instances doing a traditional line budget), internal and external audit, internal financial control, as well as overall improvements of the oversight and scrutiny of budget and financial information by the parliament (i.e. what is the value for money invested in certain activities financed by public budget). The GRB activities have been initiated both on central and local level as part of the National Action Plan for Gender Equality (NAPGE) 2007 – 2012, but have not been integrated with the overall PFM system. Case study Just like BiH, Macedonia ratified CEDAW convention in 1991, and the right to non-discrimination is upheld in the country’s Constitution. As an accession country, the gender mainstreaming represented one important segment of EU policy and conditionality set up by the EU Treaty of Amsterdam. Through the signing of the Beijing Platform for Action, Macedonia recognized the need and committed to the implementation of an overall gender mainstreaming policy. On the national side, specific gender equality policies represent a significant step toward ensuring equal opportunities, including Law on Equal Opportunities adopted in 2006 (Stojanoska, 2008). Nevertheless, the situation on the ground was still ruled by social stereotypes and was far from equitable, and concerns regarding equitable access to resources increased. „Despite equal rights and liberties, though, citizens' are diverse in their physical, material, social and cultural traits and consequently have different opportunities to convert their formal rights in substantial freedoms” (Stojanoska, 2008, p.34). Although the gender neutral citizenship formula entitled women and men to same rights and liberties, inequalities were registered in Macedonia not only between both genders but also within these social categories in the exercise of their political, civil and social rights. The low presence of women in the structures of decision-making, their increased unemployment and economic inactivity in a period 210 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia of economic recession, their progressive lagging behind in the level of education or in vocational training were not considered as a causal combination of circumstances or a free expression of choices. Although roots of these problems often went back to examination of social and cultural factors, concern with disparate opportunities was evident, and it was to be addressed through making sure that resources are shared equitably between men and women. Coupled with strong advocacy at all levels of government, a NAPGE 2007 – 2012 was adopted, which specifically entails the „inclusion of methods of gender budgeting at national and local level” (Trajanov et al., 2007, p. 4). Thus, GRB is to be carried out as a cross-sectoral approach, while the Ministry of Labor and Social Policy (MLSP) is the key institution responsible for the implementation, with specific focus on employment, social protection and equal opportunities. These responsibilities of the LMSP are also stipulated in the Law on Equal Opportunities „...promoting the equal status of women and men in all areas of society and gender mainstreaming in government policies, programs and strategies” (Trajanov et al., 2007, p.3). Rather than placing the norms of gender quality within the budget structure, although they clearly require resources, more focused analysis of specific policy areas of intervention was conducted. Simultaneously, capacity building efforts were carried out, as the MLSP expressed interest in doing GRB within its own Ministry. Supported by UNIFEM, in 2009 the MLSP identified key interventions that were needed, namely i) establishing a GRB task group and developing its capacities, and raising awareness of the gender equality coordinators as the focal points in the line ministries on the need to introduce GRB, ii) developing methodology and conducting analysis of selected MLSP programs, and iii) developing advocacy strategy for more sustainable integration of gender into policy making and budgetary processes (Varbanova, 2010). It is evident that even at this stage, the Ministry realized the potential challenges with not including the PFM structure in this initiative, and moving the gender concepts within the budget making framework. Specific activities were carried out aimed at analyzing six programs identified by the MLSP which were acknowledged as programs for addressing high unemployment rate and country's dependence on social assistance. They were seen as particularly relevant from a gender perspective given high level of economic inactivity among 211 �Merima AVDAGIĆ & Faruk HUJIĆ women (Varbanova, 2010). The programs were analyzed from the policy and resource level perspective, assessing the extent to which these policies and measures contribute toward gender equality. Although this analysis exercise, combined with capacity building for the task group, generated substantive results, key challenge in this process was noted – gender needs to be considered within budget making decisions since that is where the resources are divided. Based on these findings, the MLSP put substantive efforts in raising awareness among high level government officials and MPs about GRB and placing it within the realm of budget framework rather than just the program analysis level. In 2010, an official communication was sent out to the Government, detailing that the involvement of Ministry of Finance officials is necessary in order to understand the logic and usefulness of GRB as an instrument for equitable and effective public resource planning and spending (Varbanova, 2010). Since then, various advocacy efforts were carried out in order to bring gender concepts closer to the budgetary process, pointing to concrete examples of GRB success, and presenting examples from other countries in the region as well as EU member states. Nevertheless, enhancing the budget call circular by including specific gender related requirements for budget users still remains just a goal on paper. Discussion and corresponding recommendations Macedonia introduced gender equality and GRB concepts as separate initiative as part of the NAPGE. While setting up the initial implementing structures, they focused on the MLSP as the key institution charged for implementing the Law on Equal Opportunities, without involving the budget making structures in this process. Although significant conclusions were made from the program based analysis approach, they were difficult to carry out without direct interference with the Ministry of Finance and budget making institutions. Below is a list of key challenges that need to be addressed when choosing this approach for GRB implementation. 212 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia • The experience suggests that it is important to involve Ministry of Finance and/or other PFM mechanisms into the GRB game, since that is where the resource distribution decisions are made. The involvement of Ministry of Finance, perhaps first as an observer and then as an active participator, can help deepen the understanding of the usefulness of GRB as an instrument for more efficient, effective and equitable public spending. This is especially important because once the gender program analysis is well underway, it is difficult to involve the budget institutions at this later stage due to lack of capacities and already heavy workloads. • Despite training and capacity building assignments, capacity gaps continue to exist, and GRB is often seen as an additional requirement to already extensive workload. This is even more visible when introducing GRB as separate initiative for specific programs, as opposed to introducing it systematically through already established PFM processes. The experience of Macedonia suggests that capacity building needs to be carried out simultaneously within all stakeholders – line ministries to conduct substantive policy analysis and mainstream gender in their budget requests, MLSP high level commitment to GRB as a crucial method for implementing gender equality, and Ministry of Finance commitment to GRB analysis as one the key decision makers for resource planning and distribution. Without placing GRB within the budgetary framework, the process is not sustainable, and each time the new gender analysis on the program level is carried out, it is seen as a new/additional activity. • 213 �Merima AVDAGIĆ & Faruk HUJIĆ Conclusion Perhaps the best way to summarize the role of women in economy is by quoting Robert B. Zoellick (2007), President of the World Bank Group “Gender equality is smart economics”. Therefore, the question is not whether women play a role in the economy, but what is the best way to do so. It is necessary to design a strategy and unlock internal resources in order to enhance growth and stability – and one of the inevitable strategies is the implementation of GRB. With women being acknowledged worldwide as a powerful economic entity that can contribute to enhanced economic growth, decreases unemployment, and elevated poverty, GRB is an excellent way to ensure that gender is considered when it comes to generation, control and utilization of public resources, and that all these processes are carried out in an equitable manner that pertains to the needs of men and women. Due to the economic, political and social environment in transition countries that are moving from social regime toward open market parliamentary democracies, as is the case with most countries within SEE region, integration of GRB practices within the PFM reforms is an attractive model for contributing to gender equality and overall socio-economic prosperity. Since various reform processes are already taking place in most of these countries, and many of them are moving toward performance based fiscal planning, it is beneficial to tie GRB to these ongoing trends as opposed to new intervention initiatives and programs. The reform environment offers perfect opportunities for systematically addressing gender equitable resource planning and allocation through linking the gender equality principles and policies with the budgetary processes. This will ensure systematic approach and application of GRB across all areas that dictate public funds allocations, as well as enable sustainability of GRB concept, since it will be carried out on an annual basis with well established budge cycle schedule. Thus, GRB can be established as a tool for more efficient and equitable policy and budget making decisions. This model is demonstrated in the case of BiH although capacity gaps continue to pose problems (however capacity gaps pose challenges for both approaches – in BiH and Macedonia). It is important to keep in mind that this process requires donor 214 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia involvement, national partners’ commitment, and advocacy groups’ efforts including CSOs in order to bring the change. It takes public policy leadership, commitment through budget expenditure management, extensive monitoring, and above all, continuous coordination and commitment of different stakeholders involved. Without adequate cooperation between government and non government sector, often including the donor community, scarce resources available are spent in less efficient manner, often without gender balance. The synchronization of all stakeholders involved, i) strong, focused and committed government with adequate capacities, ii) well developed and action oriented CSO sector with strong government ties and effective partnerships, and iii) donor community with commitment to GRB within the PFM process, since donor community often drives the public administration reform processes within transition countries. All these stakeholders need to develop simultaneously, interacting and reinforcing each other toward common goal of gender equitable development. Once GRB is initiated through PFM system, it needs to be regulated within gender and budget policy frameworks, contributing to public administration structure that properly addresses concerns about welfare, equity and equality between the gender and macroeconomic policy, reducing the gender gaps on many levels. Finally, gender equality must be situated as an overlaying factor to political and economic progress that is based on the platform of common interests –providing a country wide approach to political stability and socio-economic prosperity, responding not only to the most impelling problems causing the inequalities between men and women but also for marginalized categories within these groups. If successful, countries of SEE will steer toward democratic, economically prosperous, stable, safe and contributing nation of EU and NATO. 215 �Merima AVDAGIĆ & Faruk HUJIĆ References Alvarez, P. (2010). Gender equality concepts and key terms: Introduction to gender responsive budgeting. Department for International Development, 16. BiH Agency for Statistics (2011). Statistics agency’s labor force survey, 6. Cagatay, N., Keklik, M., Lal, R., Lang, J., & UNDP. Social Development and Poverty Elimination Division. (2000). Budgets as if people mattered: Democratizing macroeconomic policies (p. 22-33). New York: UNDP. Cameron, D. (2012). Britain’s economic recovery is being held back by a lack of women in the boardroom. The Observer, 8(8), 2. Central Intelligence Agency (2012). The world factbook. Central Intelligence Agency, 1. Clinton, H. (2011). Asia-Pacific Economic Cooperation Summit. Asia-Pacific Economic Cooperation Summit, 2. Degraef, V. (2002). Is gender budgeting an inclusive part of gender mainstreaming strategy in EU Policies? Conference on Gender Budgets, Financial Markets and Financing for Development, 2. Elson, D., Budlender, D., Hewitt, G., & Mukhopadhyay, T. (2002). Integrating Gender into Government Budgets in the Context of Economic Reform. Commonwealth Secretariat Special Report, 259. Holvoet, N., & Universitaire Instelling Antwerpen. (2003). In Household matters: On the usefulness of an economic institutional approach for understanding intrahousehold allocation (1st ed., p. 68). Antwerp, Belgium: University of Antwerp, Institute of Development Policy and Management. Klase, S. (1999). Does gender inequality reduce growth and development? Evidence from cross-country regressions. Gender and Development Working Paper, 7. Klatyer, E. (2008). The integration of gender budgeting in performance based budgeting. Public budget responses to gender inequality, Conference, 1(1). 216 Journal of Economic and Social Studies �Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia Orosz, J. F. (2001). The truth is out there: Is postmodern budgeting the real deal? (1st ed., p. 24). New York, New York: JAI. Papic, Z., & Fetahagic, M. (2010). Progress toward realization of Millennium Development Goals in Bosnia and Herzegovina. United Nations Development Program, 14. Papic, Z. (2007). National human development report. United Nations Development Program, 8. Quinn, S., & Council of Europe. (2009). In Gender budgeting: practical implementation: Handbook (p. 3). Strassbourg: Conseil de l'Europe. Rubin, M. M., & Bartle, J. R. (2005). Integrating gender into government budgets: A new perspective. American Society of Public Administration, 63(3), 259. Seguino, S. (2009). The global economic crisis, its gender implications and policy responses. Gender Perspectives on the Financial Crisis Panel, Commission on the Status of Women, United Nations, 1-11. Stojanoska, D. (2008). In Gender equality and human development in Macedonia during transition (1991-2006), 3-35. Alma Mater Studiorum - Università di Bologna. The importance of sex. (2006). The Economist, 378(8473), 3. Trajanov, S., Kamberi, M., Grozdanova, E., Trencevska, J., Kikerekova, T., Zafirovska, K., ... Sulejmani, N. (2007). National action plan for gender equality 2007-2012. 4. Varbanova, A. (2010). Gender responsive budgeting in South Eastern Europe: UNIFEM experiences. United Nations Development Fund on Women, 7. 217 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1394 Title A name given to the resource Gender Responsive Budgeting as Smart Economics: A Comparative Analysis between Bosnia and Herzegovina and Republic of Macedonia Author Author Merima, Avdagić Faruk, HUJIĆ Abstract A summary of the resource. This paper addresses a comparative analysis of two different frameworks for inclusion of gender in fiscal economics through gender responsive budgeting(GRB) initiatives that took place over one decade - from 2000 till 2010 in two former Yugoslavian republics: Bosnia and Herzegovina (BiH) and Republic of Macedonia (Macedonia). Namely the comparison of two countries with two different methods for GRB is depicted: a) Case of BiH where GRB was introduced through overall public finance management (PFM) reform within the realm of program based budgeting, versus b) Case of Macedonia where GRB was introduced through specific program level initiatives and interventions without an overall integration with budgetary system and performance budgeting as a baseline concept. The paper analyzes these two approaches, and provides an argument and evidence for concluding that the introduction of gender sensitive budgeting through an overarching PFM reforms a more practical and comprehensive mechanism. It suggests that GRB can be used as a tool for more efficient and equitable policy and budget making decisions, and that the capacity level directly affects the absorption capacity, level of implementation and overall sustainability. Furthermore, due to the transition from social regime toward open market parliamentary democracies that Balkan countries are experiencing, integration of GRB practices within the PFM reforms is an attractive model given that those reforms are already taking place. Gender equality through GRB mainstreamed through PFM reforms supports contributes to overall socio-economic prosperity. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Article PeerReviewed H Social Sciences (General),HB Economic Theory,HG Finance https://omeka.ibu.edu.ba/files/original/98cdb67370137bf2745cf6b9ecae8fd5.pdf 0fb56c4783644cb07e9d6509d046a92a PDF Text Text Journal of Economic and Social Studies The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis Mehmed Ganić Faculty of Economic and Business Administration International University of Sarajevo Sarajevo, Bosnia and Herzegovina mganic@iues.edu.ba Abstract: The aim of this paper is to examine the extent and impact of the global financial crises on position of the banking sector of Western Balkans covering both pre-crisis and crisis period as well as to provide an explanation for these trends.This paper deals with cross-country comparison analysis of banking in Western Balkans before and during crises. Altough, depth of the crisis in the banking sector of Western Balkans is not yet fully evident, selected indicators in this paper point to its direction. The research alone has determined the paper’s structure which consist an analysis of the impact of the global financial crisis on recent occurrences in the banking of the region. KEYWORDS: financial crisis, profitability, credit growth, asset quality, liquidity ARTICLE HISTORY Submitted: 20 March 2012 Resubmitted: 21 May 2012 Resubmitted: 05 December 2012 Accepted: 24 December 2012 Impact of global financial crises has been transmitted on the position banking sector selected countries through several sources, especially through: impact profitability, credit growth has dropped significantly and asset quality has deteriorated markedly. Altough the economies of Western Balkan countries in crisis period performed differently the results of the comparison show that theglobal financial crisis has a substantial impact on the banking sector of the region. JEL code: G 21 177 �Mehmed GANIĆ Introduction In the last 15 years, banking of Western Balkans has come a long way from stumbling, radical reforms to healing. Among other things, a high degree of vitality and ability was demonstrated to strengthen the deposit potential of banks and restore lost public confidence. Overall, the continued growth rates in the Western Balkans over last ten years were converged mostly due to similar policies of economic stabilisation and a period of relative political stability.No matter what are the ways of institutional and administrative changes for each country, they are visible almost identical areas in which they made the necessary structural reforms, as in the case of banking markets. This position of the banking sector in Western Balkansis the result of the process of structural reforms implemented in most banks of these countries in 1990s signaling the begining of transformation from socialist ownership to private ownership and market economy. Significant progress has been made in the area of the privatisation of banking sector which is almost completed in most of the selected countries in during 1990s.With its comprehensiveness reforms have changed the whole structure of the banks in terms of the ownership, organizational and business. They emphasized creation of favorable conditions for entry of private capital and eliminating barriers to entry foreign (western) banks. In addition, the low credibility of the Western Balkans, the absence of additional credit ratings was greater complexity for the situation by forcing banks to borrow abroad at much less favorable conditions. The adoption of new laws created a framework dealing with the instruments and institutions of the banking market. Changes that were later made to existing laws by their character were editing market-oriented concept of development and functioning of the banking market in order to strengthen the financial system of Western Balkans with the appropriate parties and different offerings of banking products and services. More or less in all transition countries facing the reality of market economy and risks were something new and they all had to adapt to it quickly. Price paid for getting used to the new reality was not small, given the loss of public confidence. The issue of major reforms in the field of banking imposed an imperative. The implementation of these measures led to significant changes and improvements in almost all transition economies. 178 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis The reforms introduced have not only put the countries of the Western Balkanson the path to growth but also made its economy strong to sustain positive trends in coming years. After the credit boom years between 2003 and 2007, which were characterised by strong credit growth the economy of Western Balkans saw a downward trend in economic growth in the period between 2008-2010 on the back of the unfolding global financial turmoil.A recent survey, conducted by Jiménez and Saurina (2006) was pointed out that there is positive, although quite lagged, relationship between rapid credit growth and future nonperforming loans of banks. In according their finding during lending booms riskier borrowers obtain funds, and collateral requirements are significantly decreased. The same turned out to be time for the Western Balkans. The spill overs from the global crisis fully hit the economies of Western Balkan and led in 2009 to the deepest recession since early transition.The countries of the Western Balkans have faced significant challenges since the latest financial crises began in 2008. However, 2009 has proved to be a difficult year for all economies of the Western Balkan countries. The credit expansion of Western banks caused instability in many transition economies where these banks had operations. Especially if we know that many transition economies are dependent on remittances or on revenues from natural resources, all of which sharply decreased with the downturn. The paper begins by giving an overview of the banking sector in Western Balkans in pre - crisis by describing the development structure of the banking sector. Then, the consequences of the global crisis will be explained and its implications will be highlighted. Objective and Methodology The main objective of the study is to analyze the certain banking variables in order to have a bigger picture about effects of the latest financial crisis on stability and efficiency of banking sector of Western Balkan.This study uses a cross-country comparison methodology and examines the following aspects: Capital adequacy, liquidity position and efficiency of the banking sector of the Western Balkan in pre crisis and crisis period. In our analysis we use annually data series which are sourced from the following IMF databases: International Financial Statistics (IFS), and Global Financial Stability Report (GFSR), The United States Agency for International Development (USAID) Partners for Financial Stability Program (PFS), from the national central banks, their 179 �Mehmed GANIĆ annual reports. The data covers the period between 2003 - 2010 and included 6 countries of Western Balkan: Albania, Bosnia and Herzegovina, Croatia, Macedonia FYR, Montenegro and Serbia. How the crisis started? Improving the institutional framework of the banking sector in the Western Balkans shows that it should be helpful for banks to reduce the credit risk there. The momentum of banking reform began in the 1990s in all transition economies was fully focused on strengthening the safety and soundness of the banking system, improving efficiency and eliminating all distortions expressed in non profit activities of banks in the area where they are concentrated and accumulated losses and outstanding debts from other sectors of the economy. In addition, income growth and growth in production is assumed to be largely stimulated by continued increase in demand for loans. Further, positive results in the economy especially after 2003 reinforced the positive expectations about future incomes and profits, which led to a further increase in demand for loans. Equally important is that in the pre crisis period (2003-2007) the economies of the Western Balkan had enjoyed solid economic growth mainly fuelled by large inflows of bank credits, enabling increased domestic borrowing. In some cases, notably Montenegro, average annual rates of credit growth exceeded 90percent. Over this period, in Bosnia and Herzegovina, Macedonia, Serbia, and Albania, average annual rates of credit growth were between 20percentand 30percent. On the other hand, Croatia managed to keep the rate of credit growth within reasonable bounds, averaging 15percentover the period. The latest financial crisis was transmitted to the region of Western Balkans with a delay, so that the first adverse effects are felt at the middle of 2008. Adverse effects of the global financial crisis were hit first by banksand mostly economies of this region began to face a crisis of confidence in the banking sector and a large reduction in inflows from abroad.The consequences of the global crisis were expressed primarily through the rationalization of credit, falling export demand and commodity prices, cut in foreign credit lines and low remittances. 180 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis Table 1. Selected Macroeconomic indicators Bosnia and Herzegovina GDP Growt h Rate CPI (period average ) Unemp loymen t rate (as % of total labor force) Externa l Debt (as % of GDP) Fiscal Balance (as % of GDP) Gross Reserve s (as % of GDP) 2 0 0 7 6. 1 4 1. 5 20 09 2 9 Albania 2 0 1 0 0. 0 1 2. 3 7 20 07 24 .1 4 2. 5 Croatia 2 0 0 9 3. 3 2 0 1 0 3. 5 2 0 0 7 5. 1 2 0 0 9 -6 2. 94 2. 2 2 3. 4 2. 9 2. 4 2 7. 2 13 .5 1 3. 1 1 2. 5 9. 6 46 .6 5 8. 3 14 .4 2 3. 4 2 5. 6 0. 3 4 5. 82 -5 3. 55 7. 4 2 8. 7 19 1 4. 2 19 .7 1 9. 1 -3 0. 4 5. 9 Macedonia FYR 2 0 1 0 1. 2 1 2 0 0 7 6. 1 2 0 0 9 0. 9 0. 8 2 0 1 0 1. 8 9. 1 1 1. 8 3 4. 7 3 3 7 7. 7 9 9. 1 1 0 1 5 2. 5 4. 1 1. 3 -1 3. 6 2 0. 7 2 1. 5 2 2. 7 2 3. 2 Montenegro Serbia 2 0 0 7 1 0. 7 4. 2 2 0 0 9 5. 7 3. 4 2 0 1 0 1. 0 4 0. 5 20 07 3 2 1 1. 9 1 1. 2 1 2. 2 5 8. 8 5 9. 4 7 5. 8 9 6. 9 0. 5 9 2. 6 2. 5 7. 8 2 6. 3 2 2. 2 2 2. 4 1 8. 8 2. 2 8 1. 8 6 2 0 0 9 3. 1 8. 1 1 20 10 18 .8 1 7. 4 18 .2 1 9 8. 9 64 .9 6 5. 5 80 .7 4. 4 2. 8 1. 92 4. 1 4. 76 1 4 1 3. 9 35 .3 3 5. 5 31 .4 8 6. 9 6. 5 1. 76 4. 65 Source:International Financial Statistics (IFS), and Global Financial Stability Report (GFSR), The United States Agency for International Development (USAID) Partners for Financial Stability Program (PFS) 181 �Mehmed GANIĆ Regardless of the consequences of financial crisis it should be noted that theeconomy of the region suffers from serious macroeconomic imbalances. This is the reason why they are reflected primarily in higher budget deficit that generally increase domestic demand for foreign goods causing foreign trade deficitto rise. In particularly, to make matters worse, this crisis has significantly reduced the flow of cash flows to finance these deficits. Another sharp contrast between pre -crisis and crisis period relates to output dynamics and due to lower growth in GDP and export revenues. In the period of crisis the average GDP growth rate of Western Balkan countries has fallen while external debt to GDP in Albania is almost doubled. A detailed breakdown is presented in table 1 to show the results for the change in output and demand growth are presented in Table 1. The economy’s development in selected countries was particularly successful in the period between 2003-2007 when was dynamic growth in all basic sectors. The summary statistics on selected macroeconomic indicators in selected economies suggestus that consequences of the global crises demonstrated the growing unemployment, raise the cost of financing external debt, as well as fall of gross foreign exchange reserves (with the exception ofAlbania). Despite several years of enviable economic performance with annual growth rates averaging 5.5 percent in pre-crisis period difficulties began to emerge in 2009 culminating in recession. In comparison to theperiod of pre crisis (2003-2007) lower growth ratesare mainly recordedin crisis period, rising food prices and energy as well as decline in growth rate of real GDP. The inflation remained low in single digits despite current account imbalance and fiscal deficit increased(the exception was Serbia where inflation in 2008 accountedover 12percent). Except for Albania,all selected countries are surprisingly below their pre-crisis growth path. In addition, the external position of these countries remains weak due to the large foreign trade deficit.Also, in 2009 with the exception of theAlbania all the rest countries of Western Balkan were facing with the recession and itsadverse effects.Althoughmany economieshave demonstrated moderate positive economic recovery and out of the crisis in 2010, something like that cannot be said for theeconomies of the Western Balkan countries.The weakening of economic activity is confirmedby foreign trade activities, reduction of foreign exchange reserves, rising unemployment and increasing fiscal deficit. In 2010, external debt in Croatia has risen since 2007 and exceeded 100percent of GDP. 182 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis Cross-country Comparison Analysis of Banking Systems Establishing a stable and healthy financial system in Western Balkans had fundamental importance for the transition to market-oriented economies. However, time has shown that such a transition was difficult and arduous with many challenges that region has faced. A sound macroeconomic environment is generally seen as a prerequisite for the dynamic development of a banking system in abovementioned region. In that sense, for many years the development of the banking sector in Western Balkans reflected the uncertain and fragile macroeconomic environment. Significant changes in the economic environment on a global scale have been observed in early 2008, particularly during 2009. The latest financial crises considerably altered external economic environment for all six countries. The implications of the global financial crisis have demonstrated specific effects on the economy of the Western Balkans. Due to the reduction of external capital inflows and low accumulative capacity of the domestic economy, there was a shortage of resources for lending by commercial banks. In the foreground are banksbecause they occupying the largest share of the financial system. Commercial banks' share of total financial assets is at over 80%, measured by total assets. In other words, this means that banks are the dominant channel of trade finance and the economy. This indicates the huge importance that banksmaintain a prevailing position in the financial sector’s structure in compared to other financial intermediaries that have on the overall economy of the region. The remaining market share was divided among the other financial intermediaries (investment fund, leasing companies, insurance companies, and pension funds) which market share is almost neglected. In other words, it confirms a fact that financial systems of the Western Balkan countries are bank-centric while the other financial markets in the Western Balkans, are still shallow, narrow and thin. This means that unless of banks there are only a few institutions that are able to adequately fulfill the role of financial intermediaries. The arguments that most important with aspect of this paper of course concerned banking efficiency in crisis period. The impact of the latest financial crises on banking of Western Balkan can be examined in the context of three key aspects: capital adequacy, asset quality and position of liquidity. 183 �Mehmed GANIĆ Capital adequacy Despite the turbulence in financial markets the average capital adequacy ratio in the banking sectorof Western Balkans showed satisfactory results (figure 1). These relate primarily to the fact that the Capital to Risk Weighted Assets ratio during the entire reference period is higher than set by capital requirements. A cross-country comparison of some major capital adequacy indicators (Capital to Risk Weighted Assetsand Regulatory Tier 1 Capital to Risk-Weighted Assets) are presented in figure 1 and figure 2.As can be seem from figure 1 we can distinguish two groups of countries in terms of movement of capital adequacy indicators. Among group of analyzed countries Croatiais the only country showing progress in achieving increase the value of this indicator in the crisis period (2008 - 2010) than it was in late 2007. In the second group it can be included all the other Western Balkan countries that had relatively sharp declines in crises period relate to pre crisisperiod. Conservative prudential policy by the central bank and monetary authority ensured a wellcapitalized, resilient banking system displaying high capital adequacy ratios. It is worth noting that, banks in the Western Balkan countriesheld at the end of 2010 average ratio of capital to risk weighted assets(CAR) at almost 15.6percent (Figure 1), that is significantly higher than set by capital requirements. 1This capital adequacy indicator provided adequate protection against shocks originating in the domestic economy and the banking system. Equally notable, however, it was the fact that recent years have witnessed speed of credit growth was not accompanied by additional appropriations adequate capital from banks and strengthening their capital base.One explanation is that poor asset quality implies the need for a greater degree creation of reserves against potential losses. Nevertheless, poor asset quality has a direct impact on the management of capital and the need for connection of additional funds to cover potential lossesor actual losses.Indicators of capital adequacy continue to gain importancein today's time, since it seeks to improve the banking sector's ability to maintain enough capital in order to absorb sudden loss.At the same time,banks operating in the market of Western Balkan have been stimulated to increase capital, due to the increase in the size of their balance sheet. As a result, the average capital adequacy ratio of the banking sector stood at19.05 percent in pre crises period, and 16.25 percent in crises period (see figure 1). Minimum capital requirements: Albania (12%), Bosnia and Herzegovina (12%), Croatia (10%), Macedonia (8%), Montenegro (10%), Serbia (8%). 1 184 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis Figure 1. Annual change of regulatory Capital to Risk Weighted Assets, 2003-2010 average regulatory Capital to Risk Weighted Assets Risk (pre crises period) average annual Growth of Credit (pre crises period) average regulatory Capital to Risk Weighted Assets (crises period) 109,22 32,15 20,60 28,36 18,3216,18 16,73 12,42 6,8 18,46 15,48 16,8 6,5 Albania Bosnia and Herzegovina Croatia 23,55 21,0816,23 14,55 FYROM 35,95 24,38 15,56 1,66 Montenegro 30,86 25,9421,03 Serbia Source: The authors’ elaborations on data: Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. In the pre-crisis period, annual average growth rate of credit of Western Balkan countries expanded at 41.28 percent while their post-crisis credit growth slowed down to 12.3 percent. In the period of crisis creditgrowth slowed down sharply in Bosnia & Herzegovina, Croatia, and Montenegro.By contrast, Serbiais managed to maintain extremely high rates of credit growth in the crisis period (average rate of credit growth was 30.86percent). As shown in Figure 1, the ratio of average growth rate of creditand Regulatory Capital to Risk-Weighted Assets indicates that, in pre crisis period of high credit growth rates have not been adequately followed by increasing of capital ratios. Higher rates of credit growth should be followed and higher capital adequacy ratio, which was not the case in the Western Balkan.In particular, it was indicative at the end of the pre crisis period (2007), where average annual growth of credit was 52.24 percent. It was accompanied by a decrease of capital adequacy ratio (18.72 percent). The same explanation can be used to analyze trends in 2008, when the average growth rate was 23.74 percent (capital adequacy ratio of 17.1 percent), which ultimately increased the vulnerability of the banking sector. 185 �Mehmed GANIĆ Asset quality in the pre- crisis and crisis period One of the most important problems of developing banks in the Western Balkans, which dates from the late 1990's, is the poor quality of bank assets, (i.e. high credit risk). Due to lack the rapid developmentof new financial instruments, banks are relying more on the traditional banking activities. At the same time, the quality of assets as a whole depended on the degree of credit risk involved in their business. The latest financial global crisis has left an indelible mark on the banking of Western Balkans. As shown in Figure 3, the average ratio of NPL (non-performing loans) to totalloans for the 6 countries of Western Balkan increased from 7.23percent in 2007 to 14.5percent in 2010. This is the first significant increase in NPL ratio after more than ten years and period of banking reform began in the 1990s. In the pre-crisis period, the average rate of NPL in region of Western Balkan was significantly lower to 2001 with exception of the Serbia, which in over the period between 2003 to 2007 had NPL ratio of 22.92 percent. This means that in Serbia nearly of one fifth approved loans was uncollectible.These very high levels of NPLs have shown significant deterioration of loan quality. When we compare the results from figure 1 with the ones from figure 3 we see that in the years preceding the latest financial crisis were characterized by strong credit growth. In pre crisis period, NPLs ratios kept on falling substantially in all countries of Western Balkan. Recorded data on the movement of NPLs show that the banking system in the crisis period is facing major challenges in the process of preserving the stability of their banking system as a wholeand the stability of the entire economic system. Figure 2has shown how the ratio of NPLs in banks of region changed over time in comparison to pre crisis period. The important point to take away from Figure 2 is that at the end of2010average ratio of NPLs for all six countries reached 10.45 percent of total loans.How uncollectible loans typically with a delay indicates problems in the banking system, it is evident that there was a decline of capital adequacy and increase credit risk. In addition, strong growth in bank loans is limited by the ability of banks and banking supervisors to adequately assess the risks. This is particularly true for Serbia and Montenegro, and no less that there was no problem in Bosnia and Herzegovina Croatia and Albania. 186 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis Figure 2. Non-Performing Loans to Total Loans (in %) of banks in Western Balkan Countries, 2003-2010 Albania 24,1 22,1 Bosnia & Herzegovina 17 8,9 8,4 4,6 2003 23,8 22,2 23,1 Croatia 21,4 15 11,2 7,5 6,1 5,2 4,2 2004 6,2 5,3 5,3 2,3 2005 5,2 5,9 3,14 2006 7,5 4,9 3,4 3,02 3,2 2007 21 15,7 13,5 13,9 11,4 11,3 10,5 11,2 9 8,9 7,8 7,2 6,6 6,7 5,87 4,9 3,09 2008 2009 17,8 2010 Source:the authors’ elaborations on data:Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. There are several reasons that may explain these unfavorable trends. First, since the crisis began until the present lenders offered more loans to higher-risk borrowers, or customers with poor credit history.Secondly with a financial crisis there was a negative selection relation between asset allocation ability and selectivity of customers with poor credit history.Instead of quality projects, the funds are then channeled to the illiquid and even insolvent companies, making the economic crisis deepens and ultimately prevents the reduction of risks to financial stability. Since provisions are a deduction from profits, increases in loan-loss provisions appeared to have a substantial impact on banks’ profitability indicators (ROA and ROE). The increasing level of provisions reflects also the declining asset quality. Thanks to the increasing participation of NPLs and there was a significant increase in allocation of reserves to cover potential loan losses that had significant effect on earnings and regulatory capital. 187 �Mehmed GANIĆ Also from illustrateddata it can be noticed that pre crises period was mainly characterized by strong credit growth and low level of NPLs and specific provisions.However, with the change in general economic conditions ratio of Nonperforming Loans Net of Provisions to Capitalalso deteriorated over the crisis period, from increased very rapidly (figure 3). Namely, the average ratio of non-performing loans (net of provisions) to capital for all selected countries increased to 8.93 percent in pre crisis period to a level around 27.87percent in crisis period indicating that banking sector recognizes poor asset quality. Figure 3. Average value of Non-performing Loans Net of Provisions to Capital of banks in Western Balkan Countries, 2003-2010 Non-performing Loans Net of Provisions to Capital (pre crisis) ROA (pre crisis) 62,43 Non-performing Loans Net of Provisions to Capital (since the starts crisis) 29,97 23,20 18,6728,64 16,36 6,64 1,61 1,37 0,71 0,68 1,3 -0,01 Albania Bosnia & Croatia Herzegovina 2,281,2 0,93 -1,03 FYROM 5,28 0,78 -1,33 Montenegro 24,00 4,40,6 1,5 Serbia Source: the authors’ elaborations on data: Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. Efficiency of the banking sector of the Western Balkan Profitability of the bank is a key indicator of its business practices and efficiency. On the basis of profitability indicators it can be evaluated a significant improvement or deterioration in the efficiency of the banking sector. Larger share of net interest income in gross income of banks is an important indicator when evaluating the quality improvement and earnings stability. In the pre-crisis period, the rate of return on assets (ROA) and return on equity (ROE) in the Western Balkan countries recorded positive growth. As a confirmation it can be concluded in the pre-crisis period, the average rate of ROA was 1 percent and the rate of ROE of 9.67 percent.Figure 4 and 5 show that in Western Balkan countries earning indicators continue to weaken, as ROA and ROE worsened since the start crises. Thus, in the 188 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis crisis period the average rate of ROA in the banking sector of the Western Balkans was 0.51 percent and the average rate of ROE of 3.05 percent. Figure 4. Return on equity - of banks in Western Balkan Countries, 2003-2010 19,5 14,1 6,5 3,4 2,3 21,1 16,1 2003-1,4 5,8 3,1 22,24 20,74 20,17 12,5 15,2 15,11 12,3 14 4,6 7,3 12,41 11,35 10,9 8,1 10,64 9,7 11,64 9,3 7,81 7 6,82 6,4 6,17 4,58 4,16 7,58 5,9 0,8 5,6 8,5 5,22 6,5 -1,4 2004 -5,3 2005 2006 2007 2008 2009 -6,9 Albania -7,77 2010 -5,5 -27 Bosnia & Herzegovina Source: the authors’ elaborations on data: Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. Decline in the profitability of the banking sector in the Western Balkan countries could be explained first with worsening of asset quality and increased banks' exposure to credit risk as well as increasing the allocation of provisions for credit losses. A significant deterioration in the quality of assets and directly affect the profitability of the banking sector, because there has been a reduction in bearing assets to total assets. Figure 5. Return on assets of banks in Western Balkan Countries, 2003-2010 Albania Bosnia & Herzegovina 2,1 1,2 1,6 0,4 0,50 2003-0,3 1,3 1,7 0,7 0,6 -0,3 2004 -1,2 1,4 1,3 1,1 1,8 1,7 1,571,6 1,8 1,7 1,6 1,41,65 1,361,5 1,3 1,2 1,1 0,6 0,86 1,07 0,85 0,72 0,91 0,72 0,81 0,72 0,42 1,1 0,8 0,1 0,36 -0,62 -0,5 -0,68 2005 2006 2007 2008 2009 2010 -2,7 Source: the authors’ elaborations on data: Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. Excluding the banking sector of Bosnia and Herzegovina and Montenegro which in time of crisis remain unprofitable for other countries in the region a slight recovery 189 �Mehmed GANIĆ had occurred in 2010 where indicators of profitability has been rising since the beginning of the global financial crisis.This conclusion can be drawn observing the movement of profitability indicators in Figure 4 and 5. Net interest margin remains the main source of banks’ profits, and has been almost stable with respect to total loans. The share of interest margin to gross income in the period before the crisis was of over 50percent except Serbia where the value of this ratio was 32.68 percent (figure 6 and figure 7). The below trends also may indicate that thebanks are mainly engaged in credit transactions, as part of the off-balance sheet operations, while business from other services have becomeless profitable. Figure 6. Average Interest margin to gross income, 2003-2007Figure 7. Average Interest margin to gross income, 2008-2010 70 58,31 52,6 57,7852,7451,03 60 50 32,68 40 30 20 10 0 80 60,7359,33 61,1 71,17 61,9 60 37,37 40 20 0 Source: The authors’ elaborations on data: Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. Adecline of growth in interest-earning assets was mainly caused by absence of highquality resources of the banks. The adverse movement in interest rates in financial market contributed to the decline in profitability of the banking sector in the crisis period, while another reason lies in the fact of continued deterioration in the indicators of cost efficiency. In addition, a positive trend in profitability in the precrisis period and the movement of general business performance of the banking sector led to the reduction of risk and the attracting new capital into the banking sector.The sharp decline in key indicators of the profitability of the banking sector in the Western Balkan began since 2008 is the result of adverse recent trends: (i) a 190 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis slowdown in credit growth, (ii) deterioration in the quality of loans and (iii) increase the risk premium. As a result, banks found it difficult to raise funds in the interbank market at higher interest rate than in past. Position of Liquidity Position of liquidity is one of the most obvious signals in terms of possible financial disorder and (in) stability of the banking sector. Bank's liquidity policy is the direct result of the overall policy formation in the balance of the financial resources of the bank. As the transmission of signals from the global crisis on local financial markets first manifested through a crisis of liquidity, an important impression on the stability of the banking sector is its liquidity position. As it can be seen from Figure 8 the average share of liquid assets in total assets of banking sector in the Western Balkans in pre-crisis period was 32.64percent and in crisis period was 26.74percent. Although the banking sector experienced a drop in liquidity in crisis period things should not be generated. Thus, for example, the banking sector in Albania and Serbia is managed to maintain banking sector liquidity (average share of liquid assets to total assets is over 40percent), while banking sector in Croatia and Montenegro had very little participation share of liquid assets in total assets, 11.63percent and respectable 15.2percent (average). Under the influence of withdrawal deposits from banks and adverse effects from the financial markets, economy has become increasingly vulnerablein these two countries. 191 �Mehmed GANIĆ Figure 8. Liquid Assets to Total Assets of banks in Western Balkan Countries, 20032010 Albania Croatia 73,6 Bosnia & Herzegovina FYROM 71,1 62,62 57,61 49,8 38,7 35,1 35,737,8 36,1 38,4 37,67 43,341,44 30,01 24,2 21 18,7 35,94 35,8 46,7 42,83 19,8 16,1 15 11,5 2004 2005 18 12,6 22,9 43,54 40,7 30,94 20,9 18,1 11,1 16,9 11,711,2 20,6 15,3 11,7 2007 2008 2009 36,4 28,99 25,3 19,1 11,5 00 2003 2006 2010 Source: the authors’ elaborations on data: Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. Similar to the previous indicator, in the same reference period, a positive trend was recorded with coverage of short-term liabilities by liquid assets. The liquidity of the banking sectors of countries of the region remains good, with sufficient coverage of short-term liabilities by liquid assets (figure 9).Although, generally speaking, the average value of this indicator for selected countries in the region declined in the crisis period to 44.96 percent (in pre crisis period ratio of Liquid Assets to short term Liabilities was 50.6 percent) it could be concluded that banks are not excessively exposed to liquidity risk. The exception of this is Montenegro where is value of this indicatorin the crisis period almost halved compared to the end of 2007. Another notable exception is Albania, where is the ratio decreased in the same period, with 73.96 percent to 42.68 percent. 192 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis Figure 9. Liquid Assets to short term Liabilities of banks in Western Balkan Countries, 2003-2010 Albania 70,5 75,2 61,9 58,7 60,77 63 47 42,1 30,6 Bosnia & Herzegovina 73,96 21,7 25,2 2005 2006 38,8 73,7 61,28 43,9 28,232 2007 68,6 64,86 51,9 51,8 2420,9 2008 62,6 53,5 52,89 32,6 30,1 25,8 2009 57,4 58,1 49,71 38,5 32,9 30,6 2010 Source: the authors’ elaborations on data: Global Financial Stability Report (GFSR), Partners for Financial Stability Program (PFS), Central bank annual reports. It may be concluded from these results and developments of this ratio that in spite of a challenging environment prevailing during crisis period, the banking sector cannot be considered endangered. Conclusion At the end of this comparative analysis the question is: what such an analysis can provide? That was done several years ago it would show that the banking sector of the Western Balkans is stable and resistant to sudden disturbances. But done today it shows how the banking sector in the region is vulnerable. It also showed that the rate of credit growth accelerated wear a serious threat to macroeconomic and financial stability. The latest financial crisis although not in the same measure has affected all banking sectors in Western Balkans. This is proven by the fact that excluding the banking sector of Bosnia and Herzegovina and Montenegro which in time of crisis remain unprofitable for other countries in the region a slight recovery had occurred in 2010. 193 �Mehmed GANIĆ If we consider the trends manifested in times of crisis it may be noted the following: • It is noted the deterioration in asset quality of banks and rising NPLs as a result of an extremely high rate of credit expansion inpre-crisis period. Analyses made for 2010 show that average ratio of NPLs for all six countries reached 10.45 percent of total loans. • Despite the turbulence in financial markets the average capital adequacy ratio in the banking sector of Western Balkanis higher than set by capital requirements. Although speed of credit growth in previous years has not been accompanied by additional appropriations adequate capital from banks and strengthening their capital base where it is ultimately increased the vulnerability the banking sector of Western Balkan. Current changes in the transition process lay the foundation for the acceleration of reforms as well as in implementing key structural and governance reforms in the medium term. Significant presence and accumulation of bad loans in the bank's balance-sheets was the most striking example of the adverse effects of the global financial crisis. In recent years, the quality of loan portfolios has deteriorated significantly due to weak management's ability to control credit risk and collection of loans. It has also resulted in a deterioration of financial discipline and accountability to shareholders and the public.Since that implementation of Basel 2 has been already in the initial stage in these countries it should begin immediately with its implementation inthe near future. Looking at the conditions and operation of the banking sector in the Western Balkans it can be concluded that banks must continue to adapt stronger capital and other prudential standards, while it is expected from the government to create a better market environment. The most important features of such market environment that is necessary in the near future are: maintaining macroeconomic and financial stability, consistent with the protection of depositors, need for strengthen the capital base of banks in terms of capital adequacy requirements and establishing an effective system of supervision of management. In order to get a clear picture of the resistance of the banking of Western Balkans and asses its exposure to credit risk it would be useful in the future studies to make a simulation of profits and losses of selected banks in selected countries under stressful conditions.Regards to that I would recommend anyone who is interested in researching to prepare studies that included stressful conditions and adverse macroeconomic scenarios to indicate which particular bank can pose potential threats to the stability of the banking sector of Western Balkan 194 Journal of Economic and Social Studies �The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis References Annual reports of national central banks (2011).Bosnia and Herzegovina, Albania, Croatia, Macedonia FYR, Montenegro, Serbia. Boissay F.,O. and Calvo-Gonzalez, T. Kozluk (2005). Is Lending in Central and Eastern Europe developing too fast? Preliminary draft, European Central Bank European Central Bank, (2008). Challenges in Candidate Countries Managing the Transitions to Deeper and More Market-Oriented Financial systems, Occasional Paper Series N0 95/September 2008. European Economy (2009). The Western Balkans in Transition, Occasional Papers No 46, European Commission Directorate-General for Economic and Financial Affairs. Ganić, M., (2011). Institutional Aspects of Prudential Supervision of Banks in Bosnia And Herzegovina With Special Emphasis on Banking Risk Management, 9th International Conference On Knowledge, Economy & Management Proceedings, Jun 23-25, 2011 Sarajevo-Bosnia & Herzegovina Haselmann, R., Wachtel P., (2006).Institutions and bank behavior, New York University, Stern School of Business, Working Paper EC06-16, taken from: Berglof E. Institutions, Markets and Economic Performance What drives growth in the transition countries? EBRD Transition Report, London, (2006.), pp. 30-31. IMF (2011). Working Paper European Department Determinants of Bank Credit in Emerging Market Economies Prepared by Kai Guo and VahramStepanyan Authorized for distribution by Albert Jaeger, WP/11/51, March 2011 IMF, Global Financial Stability Report, different issues. JIMÉNEZ, G., & J. SAURINA (2006).Credit Cycles, Credit Risk, and Prudential Regulation, International Journal of Central Banking 2 (2).65-98. Stubos G., & Tsikripis T. (2005). Regional integration Chalanges in South East Europe-banking sector trends, Bank of Greece, Working Paper No. 24, pp. 14-16. 195 �Mehmed GANIĆ Sirtaine S. & Skamnelos I. (2007). Credit Growth in Emerging Europe A Cause for Stability Concerns? Policy Research Working Paper 4281, The World Bank Europe and Central Asia Region Finance and Private Sector Development Unit July 2007. Sorsa P., Bakker B., Duenwal C., Maecheler A., Tiffin D. (2007). Vulnerabilities in Emerging Southeastern Europe – How much cause for concern’, IMF Working Paper, 2007. Tang, H., Zoli E., Klytchmkova I. (2000).Banking Crises in Transition Economies – Fiscal Costs and Related Issues, Policy Research Working Paper 2484, The World Bank, Washington, November (2000.), p.23. The Western Balkans, (2010).Between the economic crisis and European perspective, Institute for Regional and International Studies, September 2010, SOFIA. USAID- Partners for Financial Stability Program, Financial Sector Benchmarking Studies Database, (more information: http://www.pfsprogram.org/fsbs-database) 196 Journal of Economic and Social Studies � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1393 Title A name given to the resource The Impact of the Global Financial Crisis on the Banking Sector of Western Balkans: Cross-country Comparison Analysis Author Author Mehmed, Ganić Abstract A summary of the resource. The aim of this paper is to examine the extent and impact of the global financial crises on position of the banking sector of Western Balkans covering both pre-crisis and crisis period as well as to provide an explanation for these trends.This paper deals with cross-country comparison analysis of banking in Western Balkans before and during crises. Altough, depth of the crisis in the banking sector of Western Balkans is not yet fully evident, selected indicators in this paper point to its direction. The research alone has determined the paper’s structure which consist an analysis of the impact of the global financial crisis on recent occurrences in the banking of the region. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2012 Keywords Keywords. Article PeerReviewed H Social Sciences (General),HB Economic Theory,HG Finance