Foreign Bank Penetration and Bank Credit Stability in Central and Eastern Europe
We analyse the development of foreign bank penetration in Central and Eastern Europe (CEE) and its influence on the stability of bank credit. We measure both cross-border credit and activities of foreign bank subsidiaries within CEE. By combining BIS statistics and BankScope data into a unique database we are able to make a clear distinction between these two kinds of activities. Our analysis shows that the relative importance of foreign bank subsidiaries in CEE has increased considerably during recent years. However, in Estonia, Hungary and Poland foreign banks were also important during the first transition years, as they provided substantial amounts of cross-border credit. We do not find evidence of foreign banks deserting CEE, e.g. during adverse economic times. Although cross-border credit did decrease during some periods, our results show that foreign banks acquired new local subsidiaries or expanded the credit supply of existing subsidiaries at the same time.
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