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Banking reform and development in transition economies

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Author Info

  • Steven Fries

    (European Bank of Reconstruction and Development)

  • Anita Taci

    ()
    (European Bank of Reconstruction and Development)

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    Abstract

    While development of sound, market-oriented banking systems is fundamental to the transition, bank intermediation remains stunted after a decade or more of reform. This paper examines the impact of banking and enterprise reforms and other factors on banking development in transition economies at both the aggregate level and that of individual banks. A unique contribution of the paper is the analysis of a new panel data set of 515 banks in 16 transition economies for the years 1994-99. The analyses show that progress in banking reform is the sine qua non of banking development. However, even where banking reforms have advanced, the real expansion of bank loans has failed to keep pace with output growth. There is significant evidence that privatised banks and those with higher capital-asset ratios are expanding more rapidly than state-owned banks and ab initio private banks. While foreignmajority ownership of a bank is associated with neither stronger nor weaker real growth in its customer loans, a greater presence of foreign banks in a banking system has a positive spillover effect in spurring the real expansion of loans. These results contrast with evidence from the transition economies of relatively strong growth performance by ab initio private and foreign-owned enterprises in the non-financial sectors. Taken together, the findings point to the need for policies that can strengthen supply response of banks to progress in banking and enterprise reforms. These measures include the more effective regulation of the entry and exit of banks, removal of obstacles to the expansion of foreign-owned banks and the transfer of technology and banking skills that expand access to finance, particularly by small and medium-sized enterprises.

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    Bibliographic Info

    Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 71.

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    Length: 24 pages
    Date of creation: Jun 2002
    Date of revision:
    Handle: RePEc:ebd:wpaper:71

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    Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml
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    Related research

    Keywords: Transition economies; banking reform; financial development;

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    Cited by:
    1. Anastasia Koutsomanoli-Filippaki & Emmanuel Mamatzakis, 2008. "Banking Inefficiency in Central and Eastern European countries under a Quadratic Loss Function," Discussion Paper Series 2008_11, Department of Economics, University of Macedonia, revised Sep 2008.
    2. Sándor Gardó, 2010. "Bank Governance and Financial Stability in CESEE: A Review of the Literature," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1.
    3. repec:onb:oenbwp:y::i:96:b:1 is not listed on IDEAS
    4. Julian Fennema, 2006. "An Alternative Estimation Framework for Firm-Level Capital Investment," CERT Discussion Papers 0602, Centre for Economic Reform and Transformation, Heriot Watt University.
    5. Panayiotis P. Athanasoglou & Matthaios D. Delis & Christos K. Staikouras, 2006. "Determinants of Bank Profitability in the South Eastern European Region," Working Papers 47, Bank of Greece.
    6. Michael Andrews, 2005. "State-Owned Banks, Stability, Privatization, and Growth: Practical Policy Decisions in a World Without Empirical Proof," IMF Working Papers 05/10, International Monetary Fund.
    7. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Bank performance, efficiency and ownership in transitition countries," BOFIT Discussion Papers 7/2004, Bank of Finland, Institute for Economies in Transition.
    8. Artashes Karapetyan & Bogdan Stacescu, 2009. "Information sharing and information acquisition in credit markets," IEW - Working Papers 454, Institute for Empirical Research in Economics - University of Zurich.
    9. Hainz, Christa, 2003. "Bank competition and credit markets in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 223-245, June.
    10. repec:onb:oenbwp:y:2010:i:1:b:1 is not listed on IDEAS
    11. Mamatzakis, Emmanuel & Staikouras, Christos & Koutsomanoli-Filippaki, Anastasia, 2008. "Bank efficiency in the new European Union member states: Is there convergence?," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 1156-1172, December.
    12. Stefania P.S. Rossi & Markus Schwaiger & Gerhard Winkler, 2004. "Banking Efficiency in Central and Eastern Europe," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 8.
    13. Thierno Amadou Barry & Santos José O. Dacanay & Laetitia Lepetit & Amine Tarazi, 2008. "Ownership Structure and Bank Efficiency in the asia pacific region," Working Papers hal-00915134, HAL.
    14. Michael C Bonello & Fabrizio Saccomanni & Claudia M Buch & Jörn Kleinert & Peter Zajc, 2003. "Securing Financial Stability: Problems and Prospects for New EU Members," SUERF Studies, SUERF - The European Money and Finance Forum, number 2003/4 edited by Morten Balling.
    15. repec:onb:oenbwp:y:2010:i:4:b:1 is not listed on IDEAS
    16. Abel, Istvan & Siklos, Pierre L., 2004. "Secrets to the successful Hungarian bank privatization: the benefits of foreign ownership through strategic partnerships," Economic Systems, Elsevier, vol. 28(2), pages 111-123, June.
    17. Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January.
    18. Judy Day & Peter Taylor, 2004. "Institutional Change and Debt-based Corporate Governance: A Comparative Analysis of Four Transition Economies," Journal of Management and Governance, Springer, vol. 8(1), pages 73-115, March.

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