Introduction

A crisis caused by a pandemic COVID -19, which appeared at the beginning of 2020, significantly affected not only people's health, but also economies and societies around the world. Lockdown, restrictions and bans on movement, changes in the way of work, reduction of overall social and economic activity have led to major changes in the consumption of the population. The most significant changes are observed in the reduction of consumption in the sectors of tourism, catering and transport, that is, in the increase of consumption in the sectors of the food industry and household goods.

Creating an economic and financial environment in which m will the financial and banking activities of a country take place, especially in conditions of a pandemic COVID -19 is not a simple task at all. Given that -economic relations are more complex in the conditions of a pandemic, the state must be more careful in defining and implementing all strategies that direct the state's economic activity.

In order to respond to difficult business conditions, it is necessary to undertake a series of measures in the banking sector. The banking sector in Republika Srpska consists of 8 banks, with total assets of 10.3 billion KM and about 3,000 employees. The state should make sure to create adequate regulation of the banking sector, which, in addition to other prerequisites for successful business, is one of the foundations of a stable economic system of the state. Supervision has a very significant role in the financial sector, because depending on the tools it applies and the influence it has, it determines the environment in which the business activity of each individual participant will be carried out, that is, the general stability of the financial sector.

Today, countries create their supervision mostly in imitation of more successful developed countries, trying to make maximum use of proven strategies. The supervision of banks creates a general environment that gives all banks equal opportunities, and it depends on the bank itself whether and to what extent it will take advantage of that opportunity.

In practice, regularities can be identified with regard to certain items in the bank's operations. That is, by analyzing a series of available indicators that show the level of development, the success of the bank's operations and the potential for its further development can be determined. Based on the analysis of business results, the position of the bank in the market can be predicted in comparison with competing banks.

Analysis of the interdependence of supervision and bank operations is very significant. It is important to determine regularities in the behavior of banks, as well as to examine the influence of external factors on the use of banks' internal advantages. In essence, the supervision of banks should enable a competitive environment, a market that will be regulated and directed to the growth and development of each of its participants. Given that even greater uncertainties in business and risks are expected in the years ahead, every country must as soon as possible create its own stable economic system, stable political and social environment that will provide incentives for further growth and development of the country.

The main goal of the work is to determine in the supervisor's log the preservation and strengthening of the banking sector in the territory of the Republic of Srpska.

Republika Srpska Banking Agency (hereinafter: ABRS) represents the supervisor in the functioning of the banking sector, that is, the general environment in which the financial sector in the Republic of Srpska is located. Status, organization, financing, competences and work of ABRS as well as dream goal - preserving and strengthening the stability of the banking system while improving its safe, quality and legal operations, are prescribed by the Law on the Banking Agency of the Republic of Srpska.

The subject of the paper is the impact of ABRS on the banking sector, with an emphasis on developments in the following areas: the amount of total deposits/savings on the one hand, and the impact on bank placements and asset quality from the point of view of credit losses in the period 06.30.2019- 06.30.2021. years, on the other.

The paper is structured in such a way as to include theoretical principles and concrete empirical research on the importance of supervision in strengthening the stability of the banking system. The aim of the work is to get a clearer picture and a better understanding of the stability of the banking sector, as well as trust in banks in the conditions of a pandemic. The final goal of the paper is to point out the advantages and disadvantages of supervision of the RS banking sector by AB RS, and its influence on the further development of the financial market in the Republic of Srpska.

Supervision of the banking sector

The essence of the supervision of the banking and financial system of a country is primarily the protection of depositors, investors and shareholders of financial institutions from various risks to which they are exposed. One of the more important goals of supervision is to reduce the consequences of bad practice and fraud, that is, to isolate the effects of any loss produced by a certain institution, thus preventing the emergence of a potential "domino effect ".

The role of the bank within the financial system is to provide loans, receive deposits and provide other financial services to clients, observing strict legal regulations that were prepared primarily to protect the interests of the public. In order for the function of bank supervision to be carried out effectively, it is necessary to have adequate resources and legal authorizations for the implementation of prudent supervision, the establishment of independent regulatory and supervisory authorities, as well as a clear definition of the supervisor's responsibilities in the process of performing supervisory activities.

The reform of the banking system is aimed at crisis prevention, more efficient supervision of the banking system, timely intervention of supervisors in the event of a deterioration in the financial position of banks, and determination of authorizations and instruments for managing the exit process of failed banks from the market, with minimal reliance on public funds.

Regulation and supervision business operations of banks are understood as market conditions and economic conditions.

and leadership functions, along with the existence of asymmetric information, leads to problems in the relationship between bank owners (principals) and bank managers (agents). Dissatisfied with the support they have from the owners, bank managers are often not interested in maximizing profits as much as the bank owners themselves and, in the desire to achieve personal benefits, they may decide to carry out certain "dubious" activities that the bank owners are not comfortable with. to meet.

Increased and stricter regulation of bank activities puts the competition of commercial banks and their active participation in the financial market in the foreground. Commercial banks emphasize profitability and placement, in conditions of variable interest rates and fluctuating exchange rates, while accepting greater risk in order to remain competitive on the financial market.

In order to reduce the influence of systemic risk on the operations of banks, it is necessary to establish a new form of control through the supervision of banks, and in order to preserve their systemic stability. With the supervision of banks, rules are adopted that create market discipline and motivate private monitoring of banks, which has proven to have an impact on the operations of banks, and thus on improving the impact of banking on the entire economy.

Through supervision and measures to eliminate established irregularities and weaknesses, ABRS aims to ensure a stable, solvent, liquid and profitable banking system of the Republic of Srpska. A complicating circumstance for the regulator in the implementation of business activities is that banks, that is, financial institutions in search of profit have a good motive for avoiding existing regulations and looking for "loopholes", finding a way to avoid regulations, which is why the regulator has to modify them. In a financial system in which changes are very frequent, regulatory authorities often face new challenges, because if they do not respond to changes quickly, they will not be able to prevent financial institutions from taking excessive risks. Also, aggravating circumstances for the regulator are "little things" that can be extremely important, because if even the smallest differences appear in the data, they can cause unfathomable consequences. However, although according to the legal framework ABRS has operational independence, the very context in which it operates is difficult due to the significant interdependence between the Government and the domestic banking sector, whose influence is not negligible.

With the decisions (year 2020) on the introduction of temporary measures in order to mitigate the negative consequences caused by the COVID-19 virus, ABRS undertook activities aimed at preserving the stability of the banking sector of the Republic of Srpska. The measures were related to the granting of relief to the bank's clients who were affected by the negative effects of the pandemic, in order to overcome the difficulties they are facing and to properly settle their obligations to the bank in the following period. Also, the measures related to certain rules for credit risk management and capital preservation of banks, etc.

Deposit insurance

The need to protect the deposits of commercial banks is caused by the unstable situation on the world financial market. The financial sector is one of the most strictly regulated sectors in the economy, and banks are the most regulated of all financial institutions. Regulatory processes do not always function as expected and as they should, as evidenced by the crises of banking systems.

A government deposit insurance program can reduce the influx of depositors into banks, protecting them and allowing them to reinvest funds in the banking system.

In addition to deposit insurance, governments have often helped domestic banks that get into trouble, even those that do not have insured deposits, most often in the form of the Central Bank approving loans to troubled banks - "the role of the lender of last resort". In other cases, troubled banks receive funding directly from the government or are taken over by the government.

The basic principles of the Basel Committee for Successful Banking Supervision confirmed that a carefully created deposit insurance system can significantly contribute to public confidence in the financial system and thus limit the "contagion" from banks in trouble, with the fact that it did not offer instructions for successful deposit insurance systems at the same time. The introduction or reform of the deposit insurance system is more successful if we have a healthy banking system and stable institutions in the environment. However, depositors are aware that they will not suffer any losses up to the amount of the insured deposit, if the bank fails, and they do not impose market discipline on banks, that is, they do not withdraw funds when they suspect that the bank has engaged in risky business. On the other hand, because of such security, banks are motivated to take greater risks. Since protected depositors do not have much reason to monitor the bank's activities, without the government's interference in the banking sector, fraudsters can also get into the banking sector and, for all the bad things they do, they can get a light sentence..

"Too Big to Fail" explains that bank regulators are reluctant to allow a large bank to fail and cause large losses to its depositors, since the failure of a large bank leads to a major financial upheaval in the country.

In June 2020, a new Law on deposit insurance in banks of Bosnia and Herzegovina was adopted. The main goal of the Law is to ensure the protection of deposits of individuals and legal entities in banks that have received a license to operate from the competent banking agency and thus contribute to the preservation of overall financial stability. Also, the Deposit Insurance Agency of Bosnia and Herzegovina receives a new mandate - to participate in the process of bank restructuring with the funds of the Deposit Insurance Fund, in certain cases. The deadline for paying depositors due to the revocation of the bank's license to operate is shortened from 90 to 20 working days.

The maximum amount of the insured deposit that is currently paid out by the Deposit Insurance Agency of Bosnia and Herzegovina amounts to 50,000 KM (together with the calculated interest per depositor per member bank, less the depositor's legal or contractual debt to the bank).

The banking sector in the Republic of Srpska

The banking system of the Republika Srpska includes banks, microcredit organizations, savings and credit organizations, lessors and other financial organizations whose establishment and operations are regulated by a special law.

The banking sector in Republika Srpska has a high degree of legal and regulatory organization, and "conservative banking" prevails in character, with deposits as the main source of business and loans as the main product. Under the influence of economic and financial instability, the growth of the banking sector slowed down for a long period, and the exposure primarily to credit risk increased.

The banking sector of the Republic of Srpska as of June 30, 2019. year consists of eight banks (Table 1) with the majority of private capital, with the dominance of foreign equity capital at five banks, i.e. with the majority participation of domestic equity capital at two banks. Two banks have state share capital, and the share of state share capital in the total share capital of banks in Republika Srpska is about 0.7%.

The ownership structure of banks in the Republic of Srpska is given in the following table:

From the tabular overview, it can be seen that the total share capital in the banking sector (694 million KM) consists of private share capital (99.3%), state capital (0.7%) and a small share of cooperative capital.

Private foreign share capital constitutes 66% of the total private share capital of the banking sector of the Republic of Srpska as of June 30, 2021. years. The dominant position is held by shareholders from Austria with a share of over 30%, Italy with a share of 15%, and Slovenia, Serbia and other countries with a share in the total share capital of 20%.

Balance Sheet

Total assets of the banking sector at 3 0. 06.20 21. year is 10.3 billion KM, and it consists of net assets in the amount of 9. 2 billion KM and off-balance sheet assets in the amount of 1.2 billion KM. Gross loans of the banking sector at 3 0. 06.20 21. years are 5. 6 billion KM and make up 59 % of total assets. primary source of funding for the banking sector, and thus the volume of operations, planning and management of the business policy of each bank is directly dependent on the level, structure and maturity of deposits. Deposits of the banking sector at 3 0. 06.20 21. years are 7. 1 billion KM and make up 7-8 % of the total liabilities.

Structure of the balance sheet of the banking sector of the Republic of Srpska as of 30. 06.20 21. year is given in the following table:

The balance sheet of the banking sector of Republika Srpska is based on balance sheets of eight banks. The rate of change in off-balance sheet net assets is 6.1% and is 3.1% higher than at the end of 2020, which is an indicator of positive trends in the activities of banks in pandemic conditions

COVID-19.

Income statement

Total revenues of the banking sector from 3 0. 06.20 21. were 240 million KM. In the structure of total income, the most significant share is income from interest and similar income in the amount of 149 million KM, that is, they make up 6.2 % of total income. Operating revenues make up 3 8 % of total revenues.

Total expenditures of the banking sector in the same period amounted to 171 million KM. In the structure of total expenditures of the banking sector, the most significant share is operational expenditures in the amount of 116 million KM, that is, they make up 67.8 % of total expenditures. Interest expenses and similar expenses amounted to 30 million KM (17.3%), that is, business and direct expenses amounted to 26 million KM (1.5 % of total expenses).

Structure of the Income Statement of the banking sector of the Republika Srpska at 30. 06.20 21. year is shown in the following table:

According to ABRS data, in the first six months of 2021, there is a 9% increase in total revenues and a 5% decrease in total expenses compared to the same period in 2020. That is, all eight banks in the Republic of Srpska reported a net profit in the total amount of 64 million KM, which is 26 million (69%) higher than in the same period of 2020. The rate of return on capital is 12.1% and is higher by 4.8%, and the rate of return on assets is 1.5% and represents an increase of 0.6% compared to the first six months of 2020.

Financial safety net

The financial security network can limit the risk that banks take, reduce the chances of insolvency or illiquidity, as well as to stabilize the fear of the private sector due to events related to the collapse of certain banks (eg Bobar banka, Banka Srpske, etc.).

The importance of banks within every economy causes the need for strict regulation of the banking sector, as well as for the establishment of a financial security network, which in a country in the narrowest sense consists of:

Ø The central bank, which most often plays the role of "creditor of last resort",

Ø banking regulation and supervision i

Ø deposit insurance.

The safety net has four main objectives:

1.      Regulation and supervision are established to ensure that banks operate in a safe and sound manner. Regulation provides guidelines for acceptable risk-taking, and supervision ensures that regulations are followed.

2.      The banking sector must have access to a safe haven as a last resort. An unexpected lack of liquidity can cause a bank failure and collapse of the financial system.

3.      Mechanisms for resolving the failure of financial institutions ensure that failed banks are removed quickly, before financial difficulties spread to other institutions.

4.      The safety net ensures the protection of depositors, primarily small and relatively vulnerable depositors.

The level of coverage is certainly an important feature of the safety net that supports private depositors. If it is set too low, relatively small depositors may face uncertainty about the bank where they hold their deposits. If the level of coverage is too high, large sophisticated depositors will not impose market discipline and banks may expose themselves to business with a higher degree of risk. In both cases, strong supervision and an effective bank resolution framework can mitigate some of the negative consequences of an inadequately determined coverage level.

An efficient safety net system implies relief for depositors when fulfilling their obligations, including paying depositors quickly, accurately and on a fair basis, while reducing the costs of disruptions in the market, maximizing recovery from assets, and strengthening discipline through legal frameworks and actions in case of negligence or other wrongful activities. Participants in the safety net of the financial system should be empowered to establish flexible mechanisms to preserve the critical function of banking.

The currency board arrangement gives the CBBH limited room to maneuver in case of a banking crisis. The CBBH should increase its monitoring authority and effectively link with other agencies, especially the Banking Agencies.

The financial security network, therefore, consists of institutions that have the authority and responsibility to regulate and supervise the operations of banks, and to intervene when necessary to protect depositors and preserve financial stability.

In a situation where systemic crises occur, the government of the country is involved as support for the financial security network. The withdrawal of deposits during a banking panic, the reduction of credit activities due to the withdrawal of deposits, as well as the possibility of bank failure encourage every country to create an adequate network of financial security. For this reason, the financial safety net should be set up in a way that will ensure prudent regulatory policy and discourage unwanted withdrawal of deposits. The division of authority, power and responsibility between participants in the financial safety net is a matter of public policy choices and conditions in individual countries.

Trends in the movement of collected deposits

Bank deposits (78 % of total liabilities) are the primary source of funding for the banking sector of the Republic of Srpska. The planning, scope and management of the business policy of each bank is directly dependent on the level, structure and maturity of deposits. N a 30.06.2021. In 2019, the deposits collected in the banking sector of the Republika Srpska amount to 7 billion KM and are higher by 11 % compared to the same period in 2020, i.e. 15 % in 2019. Deposits in convertible marks (68%) recorded growth compared to deposits in foreign currency.

An overview of the sectoral structure of the total collected deposits of the banks of the Republic of Srpska in the observed period is given in the following table:

Table 4: Sector structure of total collected

deposits                                                                           (mil.

KM)

Source: www.abrs.ba

From the tabular review, it can be seen that the largest growth is in the deposits of the government and government institutions, amounting to KM 310.7 million (43%), citizens' deposits, amounting to KM 377.3 million (10%), and private companies and societies increasing by KM 188.1 million (22%), compared to the same period in 2020.

The drop in deposits was recorded only at banks and banking institutions, by 251.5 million KM (60%).

is mostly the result of trust in the deposit insurance institute and fear of any investment. In the earlier period, the period of insolvency and liquidation of banks, the Deposit Insurance Agency operated flawlessly, and if it were to fail, it would inevitably lead to the collapse of the banking system.

The deposit base, primarily of citizens (57.1%), is quite sufficient for the current level of credit activities of banks. However, the term structure of citizens' deposits is unfavorable from the point of view of the possibility of long-term lending.

An overview of the maturity structure of the total collected deposits of the banks of the Republic of Srpska is given in the following table:

Table 5: Due date structure in total collected deposit (mil. KM)

Source: www.abrs.ba

The overview shows that short-term deposits grew by 706 million KM (18%), and long-term deposits increased by 54 million (1%) compared to the same period in 2020. That is, short-term deposits recorded a growth of 21%, and long-term deposits 6% compared to the same period in 2019.

Short-term deposits recorded an increase in savings and demand deposits by 903 million KM (25%), a decrease in short-term savings up to 3 months by 37.2 million KM and up to 1 year by 161 million KM compared to the same period in 2020.

In terms of long-term deposits, deposits up to 3 years recorded an increase of 70 million KM (3.5%) compared to the same period in 2020, i.e. 145 million KM (8%) compared to the same period in 2019.

Deposits over 3 years are lower by 16 million KM (5%) compared to the same period in 2020, or by 5 million KM (2%) compared to the same period in 2019.

Given that the decision on the amount of the insured deposit is made at the level of the Board of Directors of the Deposit Insurance Agency of Bosnia and Herzegovina, the possibility of quick reaction is ensured in order to fulfill the goals of public policy, that is, the protection of savers and the maintenance of the stability of the financial system are ensured. However, on the other hand, there is a need for a detailed analysis that should support the decisions made, where elements such as the level of economic development of Bosnia and Herzegovina must be taken into account (one of the determinants can be the size of the gross social product per capita), the quality of the banking sector of Bosnia and Herzegovina, the level of the Deposit Insurance Fund, the level of deposit insurance coverage in neighboring countries, as well as the provisions of the European Union Directive on deposit insurance.

Trends in the movement of credit placements

The amount of loans placed is the most important indicator of the business volume of each bank and the sector as a whole, on the one hand, but at the same time, it is also the biggest potential risk generator in business, on the other. Gross loans on day 3 0. 06.20 21. years make 59 % of gross balance sheet assets.

An overview of the sectoral structure of loans from banks in the Republic of Srpska is given in the following table:

Table 6: Sectoral structure of total loans (mil. KM) 

Source: www.abrs.ba

The overview shows that the amount of total loans in the observed period is 174 million (3%) higher compared to the same period in 2020, i.e. 463 million (9%) higher compared to 2019.

Due to the emergence of an emergency situation caused by the COVID-19 pandemic, the ABRS, by decisions on temporary measures to mitigate negative economic consequences, enabled banks to offer clients who are affected by the negative effects, a moratorium on the repayment of incurred obligations, a grace period, etc. According to the ABRS report, loans for which the measures were approved make up 16% of the portfolio as of June 30, 2021. years. In accordance with the Decision on Credit Risk Management and Determination of Expected Credit Losses, in the first six months of 2021, the banks made an accounting write-off of credit claims in the amount of 24 million KM and a permanent write- off in the amount of 5 million KM.

When we look at the sectoral structure of loans placed by the banks of the Republic of Srpska, the most represented are loans placed to citizens (48%) and private companies and societies (35%), to the Government and government institutions (12%) and others. An 8% increase was recorded in loans placed to citizens, and a 2% increase in loans granted to private companies and societies compared to the same period in 2020, while a decline in lending activities was recorded in all other sectors. Loans given to the government and government institutions are lower by 4%, that is, to public and state enterprises by 1% compared to the same period in 2020.

Measures of the Government of the Republic of Srpska to mitigate the negative effects of the pandemic, restrictive measures aimed at suppressing it, support for the economy, etc. they influenced the growth of economic activity in the Republic of Srpska. For example. in the first quarter of 2021, economic activity grew by 2.3% compared to the same period in 2020.

However, the stagnation of loans in the banking sector indicates the absence of support for the real sector in. The problems of the banking and real sectors are mutually conditioned, that is, the banking sector requires high interest rates on loans, but the real sector cannot accept loans with high interest rates. The problem of inconsistency in lowering active and passive interest rates, that is, a significant drop in passive and stagnant active interest rates contributes to current profitability, but also to "sacrificing the future". Lowering active interest rates is a prerequisite for the real sector to show greater interest in loans and thus provide banks with a way out of stagnation and a more significant contribution to the economic development of the Republic of Srpska.

Looking at the maturity structure of the loan as of June 30, 2021. year, it is observed that short-term loans are higher by 15 million KM (2%), that is, long- term loans by 196 million KM (4%) compared to the same period in 2020. Due receivables recorded a decrease of 36 million KM (15%) compared to the same period in 2020.

An overview of the maturity structure of loans from the banks of the Republic of Srpska is given in the following table:

Table 7: Maturity structure of total loans  (mil. KM) 

Source:

www.abrs.ba

In the maturity structure of loans, long-term lending prevails, and also in the observed period, there is a growing trend.

With 3 0. 06.20 21. In 2008, long- term placements amounted to 4.6 billion KM and accounted for 82% of the total credit placement.

The largest share in the structure of long-term loans is held by loans to citizens in the amount of 2. 4 billion KM (5 3 %) and the same shows a growth trend in the observed period.

Long-term loans to private companies and companies in the amount of 1. 2 billion KM, participate with 27 % in total long-term loans at the end of June 2021 and are higher by 5 % compared to the same period in 2020.

In the structure of short-term loans, loans to private companies and companies have the most significant share, in the amount of 592.4 million KM (75%) with a growing trend in the observed period.

Short-term loans to citizens account for 22% of total short-term loans and show a slight growth trend in the observed period.

Due receivables from loans to private companies and companies and due receivables from loans given to citizens as of June 30, 2021. make up 98% of the total due receivables. The rate of overdue loans in relation to total loans is 3.5% and is lower compared to the same period in 2020 (4.3%), i.e. the same period in 2019 (7%). The reduction of overdue receivables was influenced by the application of the new ABRS Decision on credit risk management and determination of expected credit losses, which prescribes the accounting write-off of overdue loans, better credit risk management, etc.

The rate of overdue loans to private companies and companies in relation to total loans given to private companies and companies is 6%, and the rate of overdue loans to citizens in relation to total loans to citizens is 2.7%.

Total collected deposits and placed loans in Republika Srpska

Total deposits in the territory of Republika Srpska in the observed period recorded an increase of 11% compared to the same period in 2020, i.e. 2019, and the amount of loans placed was 4% higher compared to June 30, 2020. year, i.e. by 10% compared to the same period in 2019.

A comparative overview of collected deposits and placed loans in the territory of the Republic of Srpska is given in the following table:

Table 8: Deposits collected and loans placed (mil. KM)

Organizational units of banks based in the Republic of Srpska, which perform activities on the territory of the Federation of Bosnia and Herzegovina, recorded an increase in deposits of 30% and a decrease in loans of 2% as of June 30, 2021. compared to the same period in 2020, i.e. a 30% increase in deposits and a 10% increase in loans compared to the same period in 2019.

Business units of banks that have their headquarters in the Federation of BiH and perform activities in the Republika Srpska recorded an increase in deposits of 12% and an increase in loans of 6% compared to the same period in 2020, i.e. an increase in deposits of 18% and loans of 11% compared to for the same period in 2019.

Supervision of banks in Europe and the world

The banking system in the USA is linked to the establishment of the Federal Reserve System (in 1913) which represents the central bank and which includes twelve federal reserve banks. The Federal Reserve System, in addition to supervising and controlling the operations of member banks, proposes and implements monetary policy, performs transactions for member banks of the system, business for the US government, and issues banknotes and coins.

The banking system of England dates back to 1694 with the establishment of the Bank of England, whose task is primarily the concentration of capital and the specialization of banking operations. The Central Bank of England consists of the banking department (Banking Department), which deals with active and passive banking operations, and the issue department (Issue Department), which deals with issuing banknotes.

The German banking system was institutionalized by the passing of the Law in 1885. The Central Bank of Germany represents a bank of the first degree, whose tasks are issuing money, determining discount policy, monetary policy reserves, credit policy, financial and treasury operations for the central government. The German banking system has as many federal units as there are districts.

It is one of the most developed banking systems in the world the Ankara system of Switzerland, in which the Central Bank of Switzerland is not a state institution, but a mixed economic institution with majority ownership by the cantons. Cantonal banks (28 banks), mainly engaged in mortgage business, represent state institutions that are distributed across the cantons.

The banking system of Japan is characterized primarily by a large number of banking institutions (about 9,000), with mutually developed financial relations and a firmly established connection with the financial authorities. The Bank of Japan represents the Central Bank of Japan, which performs credit control, issuance and monetary policy activities, and is organized as a single institution with thirty branches in Japan and with branches in London and New York. With 55% of the capital, the state is the majority owner of the capital, that is, private capital is present with 45%. The Bank of Japan is characterized by narrow autonomy as its decisions can be limited or suspended by the Japanese government.

The role of the central bank in Serbia is performed by the National Bank of Serbia, which is responsible for its work to the National Assembly of the Republic of Serbia. Some of the responsibilities of the National Bank are: determining the monetary policy, regulating the amount of money in circulation, regulating the liquidity of banks and other financial organizations, regulating activities in foreign payments, issuing banknotes and coins, etc. The National Bank of Serbia is autonomous and independent in carrying out its activities.

Supervision of banks in the European Union

The concept of the European Banking Union implies that central and joint responsibility for financial supervision, deposit insurance and rehabilitation and settlement of credit institutes is established within the European Union. This concept should enable the countries of the Eurozone, as well as the countries that want to join the Eurozone, to unite three interconnected and complementary subsystems:

ü  a single supervisory mechanism,

ü  j unique restructuring mechanism i

ü  e European deposit insurance system.

The unique and binding rules for all members of the European Union represent a comprehensive regulatory framework for the functioning of the European market of financial services in order to regulate the banking system.

In order to increase the efficiency, effectiveness, market discipline and transparency of banks, the following common rules were established:

Ø  rules related to capital requirements,

Ø  o queer for intervention in a bank facing difficulties and liquidation i

Ø  rules.

Given that Bosnia and Herzegovina's goal is to apply for membership in the European Union, ABRS is determined to focus its activities on harmonizing the regulatory framework with that of the European Union during the transition period. The consequences of the global financial crisis revealed significant deficiencies in the supervisory and regulatory frameworks applied in BiH, including the lack of supervisory control over excessive and impaired lending activities by banks.

The European Banking Union project was designed as one of the key factors for restoring confidence in the financial sector after the global financial crisis and preventing future financial upheavals, which implies the centralization of decision-making at the level of the European Union. With the strategy for the introduction of Basel III, ABRS envisaged changes related to improvement in the field of corporate governance in banks and the introduction of new minimum standards for risk management, introduction of new capital standards, improvement of capital quality, strengthening of capital requirements, introduction of protective layers of capital and financial leverage, etc. Also, a careful, gradual transition to the new regulatory framework is foreseen, among other things, in order to ensure that ABRS develops its own supervisory capacities for the creation and implementation of the new regulatory framework, in cooperation with all relevant domestic and foreign institutions (ABRS, 2016)..

ABRS is obliged to effectively assess the adequacy of risk and capital management by banks, and to continuously improve regulations in the field of bank supervision in order to preserve, control and strengthen the stability of the banking system of the Republika Srpska.

In October 2021, the European Commission published a Decision confirming the equivalence of the supervisory and regulatory framework in Bosnia and Herzegovina in relation to the regulations and directive of the European Parliament and the Council on prudential requirements for credit institutions and investment companies, i.e. on access to the activities of credit institutions and prudential supervision over credit institutions and investment companies. The European Commission's decision represents the achievement of the ABRS strategic goal and is of great importance for the Republika Srpska, Bosnia and Herzegovina, the banking system, the economy and citizens.

Conclusion

The purpose of supervision of the banking sector, i.e. the banking system, is primarily to protect depositors, investors and shareholders of financial institutions from various types of risks, and therefore to reduce their losses. Taking into account the results achieved in the operations of banks and other financial institutions as of the end of June 2021, it can be concluded that in the Republic of Srpska the banking system as a whole has maintained stability. Purchase, deposit and credit activities recorded growth at the end of the observed period, despite the challenges the banking sector faced due to the pandemic COVID -19. The continuous growth of deposits of the real sector speaks of its continuous strengthening, and the growth of household deposits is mostly the result of trust in the deposit insurance institute and fear of any kind of investment. The credit growth of the banking sector of the Republic of Srpska is most significantly related to the growth of citizens' loans, while the lending of private companies and companies that represent potentially significant carriers of economic and economic growth by the banks is very small, which indicates insufficient interest of the banking sector in investing in the economic activities of the Republic Republika Srpska. The trend of decreasing deposits of banking institutions from abroad indicates that foreign investors are not interested in investing in the Republic of Srpska. The deposit base of domestic persons, primarily citizens, is quite sufficient for the current level of credit activities of banks. However, the term structure of citizens' deposits does not support long-term lending, which significantly reduces the possibility of a significant contribution of banks to the economic development of the country.

The problem of mismatch in the level of active and passive interest rates, ie low passive and stagnant active interest rates contributes to current profitability, but also to "sacrifice the future". The reduction of active interest rates is a prerequisite for the real sector to show greater interest in loans and thus provide banks with a way out of stagnation and a more significant contribution to the economic and economic development of the Republic of Srpska.

ABRS should direct and activities and measures to increase overall credit activities, primarily through support to the economy, continuous supervision of banks - primarily banks of systemic importance because the most significant part of savings and other deposits are concentrated in them, capital strengthening primarily of banks that record above-average growth in assets and a reduction in the capital adequacy ratio. Also, it is necessary to improve the activities on the project "Stress tests" of banks, as well as strengthen the monitoring of credit risk, asset quality, etc.

Banking regulation should support bank operations based on safe and stable foundations.

Effective regulatory discipline requires the cooperation of all participants in the financial security network.

An efficient process of solving problem banks should ensure continuity in the performance of banking operations, protection of insured deposits, locating losses to shareholders and uninsured creditors, not relying on public money, minimizing the costs of solving problem banks, closing unsustainable banks, credibility of the resolution process, and strengthening market discipline.

Also, the effective process of solving problem banks implies that the process of solving problem banks should be such that a decision is made as soon as possible whether a bank is capable of continuing its own business or, if this is not the case, to be excluded from the system as soon as possible. in order to keep the value of the substance (asset) as high as possible.

Quick corrective supervisory measures include sending requests directly to banks, their managers and bank owners themselves, to prohibit the payment of bonuses to bank management, or request their removal from managerial positions. Supervisors are able to directly influence the bank itself through various measures and requirements, especially: maintaining a high rate of capital adequacy and liquidity position, the requirement to improve the internal control system, restrictive measures in the sense of not allowing excessive growth of bank balances, expansion of business networks, etc.