Original scientific paper
Autor: Dragan Jović, PhD
JEL: E44, G21, G33

Summary: The paper examines the dilemma concerning the implementation of variable deposit insurance premium in the banking sector of Bosnia and Herzegovina/B&H. The variable rate/premium is an alternative to the fixed rate, which has in B&H for six years already amounted to 0.3%. The results of our research are not uniform. Out of the four used models, two suggest a reduction of the premium, whereas the other two suggest an increase. According to the “Merton 1977” model, the premium is not even required, given that the market value of the banks’ assets is on average higher than the banks’ debts. The results received through the implementation of hypergeometric distribution have also been interpreted as a suggestion of the premium reduction. However, another discrete distribution - binomial distribution, suggests the insurance premium to be increased. The motive for the premium increase is the growth of non-performing loans, which has caused higher probability of banks’ default, and, in turn, led to the binomial distribution being skewed to the right. The linear approach to examining the justifiability of fixed premium has also asked for an increased premium, i.e. a variable premium. The research, however, has not provided a final and unambiguous conclusion concerning the dilemma of whether the deposit insurance premium rate in the banking sector of B&H should be variable or fixed. The models considerably differ as to the direction, but also the size of the proposed variability. Therefore, based on the applied models, our interpretation is not that the variability of the premium from our research suggests that the premium should be variable, but rather that we have not fully proved that the premium should not be fixed. Without any new surveys, it is impossible to prove the hypothesis about the necessity of introducing a variable insurance premium rate. Given that the hypothesis has not been proven, i.e. that it has only been partially confirmed, there remains the position that the deposit insurance premium rate in B&H should be fixed.

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