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Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe

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  • Olena Havrylchyk
  • Emilia Jurzyk

Abstract

Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2008-16.

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Date of creation: Sep 2008
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Handle: RePEc:cii:cepidt:2008-16

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Keywords: Foreign banks; Foreign acquisition; Propensity score matching;

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Citations

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Cited by:
  1. Ralph De Haas & Yevgeniya Korniyenko & Elena Loukoianova & Alexander Pivovarsky, 2012. "Foreign banks and the Vienna Initiative: turning sinners into saints," Working Papers 143, European Bank for Reconstruction and Development, Office of the Chief Economist.
  2. George Anayiotos & Hovhannes Toroyan & Athanasios Vamvakidis, 2010. "The efficiency of emerging Europe’s banking sector before and after the recent economic crisis," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 247-267.
  3. Anders Aslund, 2011. "Lessons from the East European Financial Crisis, 2008-10," Policy Briefs PB11-9, Peterson Institute for International Economics.
  4. Jackowicz, Krzysztof & Kowalewski, Oskar & Kozłowski, Łukasz, 2013. "The influence of political factors on commercial banks in Central European countries," Journal of Financial Stability, Elsevier, vol. 9(4), pages 759-777.
  5. Böninghausen, Benjamin & Köhler, Matthias, 2012. "Diversification and determinants of international credit portfolios: Evidence from German banks," Discussion Papers 28/2012, Deutsche Bundesbank, Research Centre.
  6. Brown, M. & Haas, R. de, 2010. "Foreign Currency Lending in Emerging Europe: Bank Level Evidence," Discussion Paper 2010-135, Tilburg University, Center for Economic Research.
  7. Ralph De Haas, 2014. "The dark and bright sides of global banking: a (somewhat) cautionary tale from emerging Europe," Working Papers 170, European Bank for Reconstruction and Development, Office of the Chief Economist.
  8. Georgios Efthyvoulou & Canan Yildirim, 2013. "Market Power in CEE Banking Sectors and the Impact of the Global Financial Crisis," CASE Network Studies and Analyses 0452, CASE-Center for Social and Economic Research.
  9. Poghosyan, Tigran, 2010. "Re-examining the impact of foreign bank participation on interest margins in emerging markets," Emerging Markets Review, Elsevier, vol. 11(4), pages 390-403, December.
  10. repec:diw:diwfin:diwfin05010 is not listed on IDEAS
  11. Brown, Martin & de Haas, Ralph, 2012. "Foreign banks and foreign currency lending in emerging Europe," MPRA Paper 36323, University Library of Munich, Germany.
  12. Ralph De Haas & Yevgeniya Korniyenko & Alexander Pivovarsky & Elena Loukoianova, 2012. "Foreign Banks and the Vienna Initiative," IMF Working Papers 12/117, International Monetary Fund.

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