Strengthening capital markets in Bosnia and Herzegovina

Executive summary

Creating conditions for businesses to use capital markets is crucial for Bosnia and Herzegovina, where the bank-dominated financial system does not adequately meet the financing needs of the private sector. Banks account for more than 90% of total financial sector assets, while 57% of firms identify access to finance as a key barrier to scaling up. Domestic credit to the private sector has declined as a share of GDP, from around 60% in 2014 to 48% in 2024, well below the EU average of 76%. This reflects an economy growing faster than with which its financial system can keep pace. Household deposits, meanwhile, are reaching record levels, pointing to a substantial pool of domestic savings that a more active capital market could channel toward productive investment.

Against this backdrop, developing deeper and more dynamic capital markets is not only a financial sector objective but a prerequisite for the private sector, and small and medium-sized enterprises (SMEs) in particular, to invest, grow and compete effectively. As Bosnia and Herzegovina advances its EU integration ambitions, the development of capital markets also carries broader strategic significance: deeper, better-regulated markets will be essential for the economy to integrate effectively into the EU Single Market, meet the standards expected of acceding economies, and attract the investment needed to sustain long-term competitiveness.

Capital markets in Bosnia and Herzegovina remain underdeveloped, shaped by a split institutional architecture that constrains market depth and integration.

Public equity markets are split across two entity-level stock exchanges, each characterised by low capitalisation, limited liquidity and a shrinking active issuer base. Market capitalisation stood at around 22% of GDP in FBiH and 30.6% in RS in 2024, with 565 total listings that largely reflect the legacy of mass privatisation rather than active capital-raising activity. Delistings continue to outpace new listings, and a substantial proportion of listed firms are not actively traded. The planned establishment of a third exchange in Brčko District risks further fragmenting an already small and illiquid market unless accompanied by robust co-ordination and harmonisation measures.

Corporate bond markets are similarly shallow and concentrated, while the institutional investor base remains minimal.

Issuance is largely confined to repeat issuers, primarily non-bank financial institutions, with relatively small transaction sizes. Structural barriers, including prospectus obligations, minimum subscription thresholds and a narrow broker base, limit market access. The absence of a developed institutional investor base, particularly voluntary pension funds, limits the development of domestic bond markets. In fact, voluntary pension frameworks have existed since 2017 in both entities, but development has been highly uneven: while RS has recorded consistent growth, reaching nearly 38 000 members and BAM 53 million (EUR 27.1 million) in assets by 2025, no voluntary pension fund has yet become operational in FBiH.

Household participation is held back by a legacy of mistrust, limited financial literacy and income pressures.

Public mistrust in the financial sector among citizens also contributes to low participation in and liquidity of capital markets. As part of post-war privatisation programmes, citizens received shares in former state-owned enterprises, but many experienced losses or saw little tangible benefit from ownership. Significant allegations and ongoing investigations concerning capital market manipulation in the FBiH have further eroded trust. Both entities offer various fiscal incentives to foster citizens’ participation, but limited financial literacy and low disposable income—driven in part by high social security contributions (17% of gross salary in the FBiH and 18.5% in RS, compared to an OECD average of 7.2%)—reduce voluntary investment, including in pension schemes.

Private equity and early-stage financing ecosystems are virtually non-existent, leaving high-growth firms without access to the risk capital they need.

Venture capital investment amounted to just EUR 2.6 million in 2024, well below peer economies, with no investments recorded in 2025. Angel investing has yet to emerge, while the legal frameworks governing private equity remain fragmented across entities and underdeveloped in the FBiH. Bosnia and Herzegovina’s large diaspora—over 1.6 million people abroad, representing around 34% of the population—remains an underutilised source of investment capital, particularly for private equity and venture financing.

Addressing these structural weaknesses requires co-ordinated reform across regulatory, institutional and market dimensions.

Priority actions include:

• Harmonise stock exchange frameworks and ensure structured co-ordination around new market infrastructure, including the planned Brčko District exchange, to consolidate liquidity and improve conditions for issuers and investors across entities.

• Simplify corporate bond issuance procedures, especially for SMEs, and expand structured advisory and capacity-building services to improve firm-level readiness to access market-based financing.

• Develop the institutional investor base by resolving regulatory barriers preventing voluntary pension funds from becoming operational in the FBiH, and reviewing and strengthening existing incentives in RS, including broadening auto-enrolment beyond the public sector.

• Broaden retail participation through tax-advantaged investment products, expanded sovereign retail debt programmes building on RS's 2025 savings bond experience, and sustained efforts to restore investor confidence and improve financial literacy.

• Develop the private equity ecosystem through regulatory reform, market-compatible financial incentives for angel investment, and partnerships with international donors to address the significant gap in early-stage and growth financing.