UPDATE 1-Bosnia's economy set to grow 2.4 pct in 2014-c.bank governor

Mon Apr 7, 2014 10:01am EDT

Related Topics

* Growth forecast sees stronger exports, infrastructure projects

* Bad loans the biggest challenge, governor warns

* IMF loan still possible, Kozaric says

* Bosnia's Serb half does not want to continue IMF deal

By Maja Zuvela

SARAJEVO, April 7 (Reuters) - Bosnia's economy is likely to grow 2.4 percent this year on stronger exports and industrial output after expanding 1.5 percent in 2013, central bank governor Kemal Kozaric said on Monday.

Kozaric told an annual news conference that Bosnia recorded deflation of 1.2 percent in 2013, its first year of negative price changes.

He warned that bad loans stood at a record 15.1 percent of all loans outstanding at the end of 2013, although the banking sector had good liquidity and an average capital adequacy ratio of 17 percent.

Lenders in Bosnia, mainly made up of two branches of Austria's ailing bank Hypo Alpe Adria and three other banks, posted a combined net loss of 36 million Bosnian marka ($25.2 million) in 2013 compared with a profit of 127.3 million marka the previous year.

"Profitability and bad loans are the biggest problems and challenges facing the banking sector," Kozaric said.

He said the economy should grow thanks to stable exports of electricity, wood and food products and because of planned infrastructure projects, such as the construction of new sections of a north-to-south highway.

Industrial output in 2013 was up 6.4 percent on the previous year.

Bosnia could still meet the terms set by the International Monetary Fund for a continuation of its 385 million euro ($527 million) loan deal by April 25 when the lender's board is due to meet, Kozaric said.

The IMF in February froze its standby arrangement with the Balkan country over the governments' failure to implement agreed economic policies.

"The IMF arrangement is not broken, the door still remains open," Kozaric said. He warned, however, the deal would be off if one of Bosnia's two autonomous regions rejected it.

The country's Serb Republic has said it was unwilling to continue the IMF arrangement and has instead secured an alternative Russian loan to fill its budget gap. The terms of the Russian loan have not been disclosed.

The Serb Republic and the other autonomous region, the Federation dominated by Muslim Bosniaks and Croats, need IMF cash to plug their respective budget gaps. The Federation still counts on the lender's money. ($1 = 0.7303 Euros) ($1=1.425 Bosnian marka) (Reporting by Maja Zuvela, writing by Daria Sito-Sucic; Editing by Zoran Radosavljevic and Hugh Lawson)

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