Foreign banks in transition countries. To whom do they lend and how are they financed?

We use focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States to analyse the small-business lending and internal capital markets of multinational financial institutions. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing important issues such as lending technologies and capital allocation. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, it is demonstrated that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank.foreign banks, transition economies, small-business lending, internal capital markets

Foreign Banks in Transition Economies: Small Business Lending and Internal Capital Markets

On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltics, we analyse foreign banks’ small business lending and internal capital markets. This allows us to complement the standard empirical literature, which has difficulty in measuring important variables such as lending technologies and capital allocation systems. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, we show that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank. The credit growth of subsidiaries therefore potentially depends on the financial health of the foreign based parent bank.foreign banks, transition economies, small business lending, internal capital markets

How Important are Foreign Banks in the Financial Development of European Transition Countries?

This paper analyzes the development of the banking sector in European transition countries. We find that, although bank assets increased during the 1990s, credit to the private sector remained relatively low. Foreign-owned banks have become major players in the financial system of these countries. However, foreign bank presence and financial development in general vary considerably among the transition economies. Foreign-owned banks have, in general, higher profitability levels than domestic banks. Furthermore, it appears that foreign and domestic bank performance tend to converge.financial development, financial institutions, foreign bank entry, transition economies, bank performance

A Comparative Study of Banks' balance sheets in the European Union and European Transition Countries, 1995-2003

Using data from bank balance sheets, we analyse the banking sectors of the former EU-15, the NMS and SEE/CIS in terms of size, operations and funding. In the former EU-15, the banking sector in relation to GDP is about twice the size of banking in the NMS (including those that will soon join). Although bank size still differs substantially between the regions, median growth has been similar between 1995 and 2002. The composition of assets and liabilities of banks in the three regions appears to be quite similar. This similarity vanishes, however, when we focus on the asset side of the balance sheet. Banks in the former EU-15 have more loans with longer maturities than bank in the NMS and SEE/CIS, and there is greater diversity of loans amongst the former EU-15 banks. From this perspective, therefore, the NMS banks are still underdeveloped. Further, when examining the banks' deposit base, liquidity is much higher for the clients of EU-15 banks than for those in transition countries. In combination with the maturity composition of the loan portfolios, we can conclude that banks in the former EU-15 are much more involved in maturity transformation than those in the transition countries. Contrary to the general trend, foreign bank size in the former EU-15 became smaller after 1998. Due to continued merger and acquisition activity in the NMS, foreign banks are on average three times larger than domestic banks. In all regions, foreign banks are more involved in leasing operations and in loans to the corporate sector than domestic banks. In addition, foreign banks tend to be funded more with deposits and have less well-diversified liabilities than domestic banks. Foreign banks in all regions also are better capitalised than their domestic counterparts. Whether this means that they incur more risk is a matter for future research. We conclude that in the course of their development, the NMS and transition countries are catching up. Banks in the former EU-15 are much more involved in credit and maturity risk transformation than those in the NMS and even more so than those in SEE/CIS. However, in the NMS we detect a trend towards more credit risk and maturity/liquidity risk transformation - a trend that is not apparent in banks operating in the SEE/CIS region.</p

Foreign bank entry and performance with a focus on Central and Eastern Europe

Since the Fall of the Wall in 1989, large international banks have been opening branches in former Eastern Bloc countries with high expectations. Ilko Naaborg investigated how these banks function in eleven different countries. In 1995, on average, foreign banks made up about 25 percent of the total number of banks. In 2002 that figure had increased to 61 percent. ‘Home advantage’ In the meantime, foreign banks have become the most important providers of financial products in these countries. They dominate the national banks, both in the number of banks and in the assets they manage: from 4% in 1995 to 84% in 2002. Naaborg investigated the financial performance of these banks and compared this with that of the local national banks. Against all expectations, the local national banks turned out to generate more profits – despite their higher overheads. With this conclusion, Naaborg has provided the first evidence of the so-called ‘home advantage’ of national banks. Corruption By 2001, the profitability of foreign banks in Central and Eastern Europe had decreased significantly when compared with the early transition period of the 1990s. In the second part of his thesis, Naaborg highlights the factors that may have influenced this, including political stability, quality of legislation and degree of corruption. Naaborg points out the importance of government policy directed towards improving the institutional environment, including better availability of data concerning local businesses, better legislation to protect both creditors and debtors and a reduction in the susceptibility of the judiciary to corruption.

A Comparative Study of Banks' balance sheets in the European Union and European Transition Countries, 1995-2003

Using data from bank balance sheets, we analyse the banking sectors of the former EU-15, the NMS and SEE/CIS in terms of size, operations and funding. In the former EU-15, the banking sector in relation to GDP is about twice the size of banking in the NMS (including those that will soon join). Although bank size still differs substantially between the regions, median growth has been similar between 1995 and 2002. The composition of assets and liabilities of banks in the three regions appears to be quite similar. This similarity vanishes, however, when we focus on the asset side of the balance sheet. Banks in the former EU-15 have more loans with longer maturities than bank in the NMS and SEE/CIS, and there is greater diversity of loans amongst the former EU-15 banks. From this perspective, therefore, the NMS banks are still underdeveloped. Further, when examining the banks' deposit base, liquidity is much higher for the clients of EU-15 banks than for those in transition countries. In combination with the maturity composition of the loan portfolios, we can conclude that banks in the former EU-15 are much more involved in maturity transformation than those in the transition countries. Contrary to the general trend, foreign bank size in the former EU-15 became smaller after 1998. Due to continued merger and acquisition activity in the NMS, foreign banks are on average three times larger than domestic banks. In all regions, foreign banks are more involved in leasing operations and in loans to the corporate sector than domestic banks. In addition, foreign banks tend to be funded more with deposits and have less well-diversified liabilities than domestic banks. Foreign banks in all regions also are better capitalised than their domestic counterparts. Whether this means that they incur more risk is a matter for future research. We conclude that in the course of their development, the NMS and transition countries are catching up. Banks in the former EU-15 are much more involved in credit and maturity risk transformation than those in the NMS and even more so than those in SEE/CIS. However, in the NMS we detect a trend towards more credit risk and maturity/liquidity risk transformation - a trend that is not apparent in banks operating in the SEE/CIS region.</p

Bank efficiency and foreign ownership: do good institutions matter?

info:eu-repo/semantics/publishe

Banking in transition economies: does foreign ownership enhance profitability?

info:eu-repo/semantics/publishe