The Bosnian State Investigation and Protection Agency (SIPA) has reportedly launched a probe at Banka Srpske following media reports that the bank had stolen hundreds of millions of Bosnian marka worth of its clients' savings by investing them in fake companies.

This is the third recent police investigation into a bank headquartered in Republika Srpska, Bosnia & Herzegovina’s smaller entity. Police are also looking into events at two bankrupt banks, Bobar Bank and Pavlovic Banka. In a resolution adopted on April 14, members of the European Parliament condemned rampant corruption in Bosnia.

SIPA has requested information from the Republika Srpska’s Foreign Exchange Inspectorate on an inspection of Banka Srpske conducted in December 2013, Capital.ba reported on April 13, quoting an unnamed source.

Representatives of state institutions, including the head of Republika Srpska’s banking authority Slavinica Injac, reportedly took part in the scheme at Banka Srpske. Injac and nine others were arrested in March and accused of issuing illegal loans and guarantees on behalf of Bobar Bank.

In November last year, Republika Srpska’s banking agency, ABRS, fired the director of Banka Srpske, Zdravko Trivuncica, claiming that he had ignored a ban on accepting deposits. ABRS explained that Trivuncic violated several regulations, the most serious of which was that he allowed the bank to continue to accept deposits even though the agency explicitly prohibited this as the bank’s capital was significantly below the legal threshold of BAM15mn (€7.7mn). Before that, an audit at Banka Srpske found the bank ended 2014 with a loss of at least BAM17mn instead of the BAM298,000 profit it has claimed.

Following Trivunovic’s dismissal, ABRS appointed a receiver at Banka Srpske and the local government started looking for ways to save the bank from bankruptcy. According to Capital.ba, the solution that Republika Srpska’s government will propose to the International Monetary Fund (IMF) is to restructure the bank, which will only provide financial intermediation and will no longer operate as commercial bank.

However, according to Capital.ba’s sources, the restructuring has already been initiated without the IMF’s approval.

In January, Banka Srpske’s receiver said it had blocked all deposits until the bank was either restructured or privatised. However, the government has not yet decided to sell its 99.95% stake. In early February, Republika Srpska’s president Milorad Dodik said that the entity has many options for Banka Srpske and liquidation is not one of them.

Banka Srpske has been one of the main hurdles for Bosnia to get a new loan deal with the IMF. According to an earlier report from Capital.ba, the IMF has asked the Republika Srpska to declare the bank bankrupt if a new deal was to be agreed with the country.

Banka Srpske inherited the business from the Lithuania-based Balkan Investment Bank. The Lithuanian management abandoned the bank along with all the companies it owned in Republika Srpska, leaving them indebted and under investigation.

Meanwhile, Bobar Bank went bankrupt in 2014, as its shareholders failed to draft a recovery plan after major losses were uncovered.

Injac and others detained in the investigation are accused of granting multi-million marka loans and extending illegal guarantees for various activities, in violation of the procedures and guarantees stipulated by Republika Srpska’s banking law. The total value of the illegally issued loans and guarantees was estimated at BAM123mn (€62.9mn).

In a separate case, earlier this month Bosnia’s chief prosecutor Goran Salihovic confirmed that Dodik was under investigation in connection to Pavlovic Banka. In February, SIPA arrested the owner of the bank, Slobodan Pavlovic, along with three other bank employees, on accusations of money laundering, abuse of power and forgery of official documents.

Local media speculated that the arrests were connected to Dodik’s purchase of a €1.26mn villa in Serbia’s capital Belgrade in 2007. Dodik says he purchased the villa according to the law, using the bank loan. However, local media claim that he paid in full for the villa, and the loan was only extended in 2008, raising questions about the origin of the money.