In the countries with developed financial markets, unlike in Bosnia and Herzegovina (BiH) and other emerging market countries (EMCs) with the so called bank-centric financial systems, corporate bonds are a rather significant alternative to the usage of bank loans for financing the development needs of the real sector of the economy (corporate sector). The new architecture of world’s financial stability with Basel III as its integral part additionally emphasizes this importance for both banks and companies. Besides, in the countries with developed financial markets it is probably needless to mention the need for high quality debt securities. This is especially true due to the conditions of stronger institutional investors on the market, such as pension funds that can realistically be expected to become the leading financial institutions of the 21st century, and ever increasing need of institutional investors, funds in particular, for high quality forms of assets and portfolio diversification. In EMCs in which pension reforms have still not been completely implemented or completed, considering a drastic fall in the ratio of the insured based on contribution payment and the number of pensioners, the existing situation is almost non-sustainable. Therefore, the transformation of pension funds in accordance to the two or three pillar structure and the emergence of voluntary pension funds as financially powerful institutional investors have no alternative. Certainly, in terms of corporate bonds and their issue on the one hand, and investing in them on the other, in EMCs and thus also in BiH there are some important aspects to be observed when analyzing their influence on the decisions on financing or investing (liquidity, interest rate level, clarity and implementation of regulations, etc.).

Any banking activity involves a certain level of risk. Regardless of the fact that risk has always been present in banks, active risk management in conventional banking started only in the 1990s, specially after the collapse of Barings PLC, the bank with more than 200-year-old tradition, while such practice is still underdeveloped in Islamic (interest-free) banking whose practical implementation in the world started only in the 1970s. However, in the times of the recent sub-prime mortgage crisis and a large number of collapses and near collapses, multibillion losses and write-offs all banks, whether conventional or Islamic, saw the necessity for active risk management. Specific features of banks in Bosnia and Herzegovina and their way of managing risks are conditioned by a particular legal framework. This framework regulates primarily the conventional banks, but it indirectly affects the Islamic bank as well, since it does not allow the bank to offer all types of products and services which are generally present in Islamic banking. Since, to our knowledge, not a single specific comparative research into conventional and Islamic banks has been done in this part of the world, the aim of this paper is to provide an insight into risk management practiced by BiH banks, and to determine the dependence of their financial performance on the process of active risk management.