Financial Integration, Banking Supervision and Sustainability of the Western Balkan Countries

Purpose: This paper examines the need of financial integration of Western Balkan countries as the main indicator of the region’s economic growth. Design/Methodology/Approach: We provide an overview in order to explain what the financial system in the region is. Primarily we concentrate in the banking sector and the non-performing loans in the region. They require attention and standardization of regulatory classification. By establishing a regional platform it would be of additional value and would help overcome the limited visibility in some of the countries. Findings: Currently the challenges for financial stability in the Western Balkan area comprise non-performing loans, low capital adequacy and moderate growth of credit in the economy. The banking sector is reducing the debt due to required financial stability measures of the European banking authorities. As these countries integrate their financial institutions and markets into the European financial system, on the path towards harmonization of national and European legislation, cooperation between financial entities in the Western Balkans becomes very important. The Western Balkan countries are in a different stage of development of banking sustainability and supervision and because of that there is a need for more integration with the European Banks and the respective regulators to ensure an adequate banking regime. Practical Implications: The article highlights the fact that Western Balkan countries need to intensify their reforms to build banking sustainability in order to meet the criteria for EU membership. Originality/Value: With this article we show that the Western Balkan countries in their integration processes must first align their local and European legislation and requirements.