The International Monetary Fund has requested from Bosnia’s smaller entity, Republika Srpska, to declare bankrupt the state-owned Banka Srpske in order to agree on new deal with the country, Capital.ba reported, quoting unnamed sources.

Bosnia hopes to strike a deal with the IMF in May and get much needed funds for the budget spending of the two entities’ local governments. However, the deal depends mainly on Banka Srpske’s bankruptcy, according to Capital.ba.

In November last year, Republika Srpska’s banking agency, ABRS, fired the director of Banka Srpske, Zdravko Trivuncica, claiming that he has ignored a ban on accepting deposits. ABRS explained that Trivuncic has violated several regulations, but the most serious of all was that he has 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 receiver at Banka Srpske and the local government started seeking ways to save the bank from bankruptcy. According to Capital.ba, the solution that Republika Srpska’s government will propose to IMF, is to restructure the bank, which will only provide financial intermediation and will no longer operate as commercial bank.

Furthermore, according to Capital.ba’s sources, the restructuring has already been initiated without IMF’s approval. It provided no further details.

In January, Banka Srpske’s receiver blocked all deposits until the bank is restructured or privatized. However, the government has not 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.