Mergers and Acquisitions in Banking Sector: The Case of Western Balkan Countries

The reform process that took place in the Western Balkan countries attracted the penetration of the international banks. European banks entered the markets predominately through acquisitions of the local state-owned and private banks. The M&A activities triggered by the European banks played an important part in changing of the banking sectors in the Balkan countries in terms of consolidation, market concentration and competition in banking sector, financial intermediation development and landing allocation. As a result of international banks penetration, banking sectors of the Western Balkan countries encountered with significant changes. In particular, M&A transactions have been the direct cause for the overall decrease in the number of financial institutions and for the substantial growth in foreign banks proportion in the total assets. Although the decline in interest rate spreads, as an indication of increase of competition in all observed countries, is noticeable during the past decade, the interest rate spreads are still much higher than on the European markets. The expansion of lending activity in three western Balkan countries was mainly due to an increase in credits to private households rather than to the companies, which is unproductive use of the financial sources.