The Role of Foreign Banks in Five Central and Eastern European Countries
During the last decade the development of the banking sectors in CEC5 countries was greatly determined by increasing presence of foreign banks. Foreign banks played a significant role in privatising, re-capitalising and modernising the banking sectors in the region. In this sense they contributed to stability. However the exceptionally high level of foreign ownership also raised concerns whether foreign banks threaten stability by propagating shocks outside the host country, doing cherry-picking or putting too much pressure on already troubled domestic banks. This paper summarises the empirical evidence on those issues. Our major contribution is the presentation of CEC5 countries’ experiences based on the up-to-date and rich information provided by individual case studies of the involved central banks. We outline the motives behind the entry of foreign banks, compare their performance relative to their domestic peers. By summarising the latest development in EU countries, we also highlight the differences between them and the accession CEC5 countries.
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