Zlatko Bars, head of the Banking Agency of the country's Croat-Muslim entity, the Federation of Bosnia and Herzegovina, told Dnevni Avaz daily that the loss was mostly caused by a weak growth of lending, however, effective interest rates were falling steadily and such a trend is expected to continue as it is the only way to ensure minimum lending activity.

"The effective interest rate in December 2009 was 9.66 percent, and in late September 2010 it was 8.7 percent," Bars said, adding that the lowering of the interest rate had resulted in the issuing of an additional EUR 36 million of loans in the Federation entity alone.

The Bosnian Banking Association in late December published figures showing that in the first nine months of 2010 the banking sector had incurred losses of around 77 million convertible marks (approx. EUR 40 million).

In 2009, banks in the country earned a profit of 17.5 million convertible marks (approx. nine million euros).

Officials at the national banking association believe that the 2010 loss is primarily due to strict legislation on loan loss provisions.

Samir Lacevic of the Banking Association told Oslobodjenje daily that there was zero tolerance to delays in loan payment and that such loans were automatically treated as more risky loans, requiring higher loan loss provisions.

Croatia and Serbia have a more flexible approach to such cases, which is why banks in Croatia have reported a profit of close to EUR 500 million, said Lacevic.

Bosnia's Central Bank governor Kemal Kozaric said there was a growing number of problematic loans in the country.

"The problem here is not liquidity in the banking sector, but bad loans, which account for nine percent of all loans. One in ten loans is problematic and is not paid regularly," Kozaric told Nezavisne Novine daily.

According to the central bank's figures, bank loans in Bosnia and Herzegovina in 2010 amounted to EUR 7.3 billion, an increase of EUR 81.8 million from 2009.