Non-Financial Corporate Vulnerabilities and Bank Linkages in Bosnia and Herzegovina

This paper examines vulnerabilities in Bosnia and Herzegovina’s nonfinancial corporate (NFC) sector and their implications for banking sector capital adequacy. Using aggregate business statistics and firm-level balance-sheet data, it assesses that corporate financial health has improved significantly over the past decade, based on favorable evolution of leverage, liquidity, profitability, and debt-servicing capacity. The main finding is that, in a context of strong bank-corporate linkages, a plausible adverse macro-financial shock would unevenly increase vulnerabilities across economic sectors, but the stronger corporate fundamentals, especially lower stock of debt-at-risk, and high bank capital buffers would limit its impact on the banking system.