The use of €50mn in funding wired to Investment and Development Bank (IRB) - the state development bank of Bosnia & Herzegovina’s smaller entity, Republika Srpska - from the European Investment Bank (EIB) is being investigated.

IRB is one of four banks in the entity that are under investigation. In late 2015, the national State Investigation and Protection Agency (SIPA) carried out a raid at Pavlovic Bank. Probes have followed at Bobar Bank and Banka Srpske.

According to news service Capital.ba, the investigation is focused on alleged frauds concerning projects worth €50mn. There are suspicions that funds extended for the projects have not been spent according to the agreements with the EIB.

According to Capital.ba, IRB has admitted that two private firms – Jasna and Konzos - have spent two loans provided from EIB funds, but not for the intended purposes. IRB claims it has sanctioned the two firms.

“The EIB is aware of the allegations of fraud allegedly relating to EIB-financed projects in BiH. We are not able to comment further on the ongoing investigation,” an EIB spokesperson told bne IntelliNews in an emailed statement.

Republika Srpska’s Prime Minister Zeljka Cvijanovic said that the EIB was carrying out a regular examination of the way the funds have been spent, Capital.ba reported.

Earlier this month, Capital.ba reported that the EIB had asked the Bosnian interior ministry to investigate.

In June, Republika Srpska initiated an investigation into loans and bonds provided and acquired by IRB. The police have also initiated investigations into firms that have taken loans from IRB, checking the documents and conditions under which the money was lent. According to Capital.ba’s unofficial sources, the focus of the investigation is on all loans provided without the participation of a financial intermediator. The biggest are those provided to Zvornik-based Energolinija, which has borrowed BAM19.4mn (€9.9mn) and milk company Farmland with a BAM14.8mn loan. The list includes another 10 companies that have borrowed more than BAM30.9mn.

The interior ministry is also probing securities acquired by IRB. The bank has acquired bonds issued by private companies worth more than BAM59mn.

If it is found that the agreement with the EIB has been violated, the bank could seek to terminate its agreement with Bosnia and recover all the funds it has provided.