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

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  • Emilia Magdalena Jurzyk
  • Olena Havrylchyk

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 International Monetary Fund in its series IMF Working Papers with number 10/4.

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Length: 41
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/4

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Keywords: Bank restructuring; Banking sector; Central and Eastern Europe; Economic models; Foreign investment; Profits; Risk management; foreign investors; foreign ownership; foreign acquisitions; bank ownership; fdi; national bank; bank entry; bank performance; interest expense; foreign direct investment; bank size; net interest margin; host country; return on assets; bank mergers; bank profits; recapitalization; banking sectors; bank credit; host countries; market structure; banking industry; banking system; banking markets; bank lending; banking sector efficiency; bank lending rates; investment bank; bank behavior; foreign participation; bank equity capital; municipal bank; bank credit allocation; bank acquisition; foreign assets; bank capitalization; bank reports; income statement; bank manager; foreign institutions; bankers; bank acquisitions; bank recapitalization; bank profitability; bank spreads; bank privatization; state bank; banking crisis; bank of latvia; market size; bank subsidiaries; banking assets; bank assets;

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References

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Citations

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Cited by:
  1. Brown, Martin & de Haas, Ralph, 2012. "Foreign banks and foreign currency lending in emerging Europe," MPRA Paper 36323, University Library of Munich, Germany.
  2. Ralph De Haas & Yevgeniya Korniyenko & Elena Loukoianova & Alexander Pivovarsky, 2012. "Foreign Banks and the Vienna Initiative: Turning Sinners into Saints?," Mo.Fi.R. Working Papers 62, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  3. 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.
  4. 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.
  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. 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.
  7. Efthyvoulou, Georgios & Yildirim, Canan, 2014. "Market power in CEE banking sectors and the impact of the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 11-27.
  8. Ralph De Haas & Yevgeniya Korniyenko & Alexander Pivovarsky & Elena Loukoianova, 2012. "Foreign Banks and the Vienna Initiative," IMF Working Papers 12/117, International Monetary Fund.
  9. Anders Aslund, 2011. "Lessons from the East European Financial Crisis, 2008-10," Policy Briefs PB11-9, Peterson Institute for International Economics.
  10. repec:diw:diwfin:diwfin05010 is not listed on IDEAS
  11. 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.

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