Profitability of Foreign Banks in Central and Eastern Europe: Does the Entry Mode Matter?
42 Pages Posted: 27 Feb 2007
Date Written: April 25, 2006
Abstract
Using data for 265 banks in Central and Eastern European Countries for the period of 1995-2003, this paper analyses the differences in profitability between domestic and for-eign banks. We show that foreign banks, especially greenfield institutions, earn higher profits than domestic banks. However, this effect is acquired rather than inherited, since there is evidence that foreign banks tend to take over less profitable institutions. Profits of foreign banks in CEECs also exceed profits of their parent banks, explaining the reasons for their entry. Further, we study benefits and costs of foreign ownership by analyzing de-terminants of profitability for domestic, takeover, and greenfield banks. Profits of foreign banks are less affected by macroeconomic conditions in their host countries. However, greenfield banks are sensitive to the situation of their parent banks. Only domestic banks enjoy higher profits in more concentrated banking markets, whereas takeover banks suffer from diseconomies of scale due to the fact that they acquired large institutions.
Keywords: foreign banks, bank profits, multinational banking, transition economies
JEL Classification: G15, G21, F36
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Bank Performance, Efficiency and Ownership in Transitition Countries
By John Bonin, Paul Wachtel, ...
-
Bank Ownership and Performance
By Alejandro Micco, Ugo Panizza, ...
-
By Allen N. Berger, George R. G. Clarke, ...
-
By David Grigorian and Vlad Manole
-
Why Privatize? The Case of Argentina's Public Provincial Banks
By Robert Cull and George R. G. Clarke
-
Privatization Matters: Bank Efficiency in Transition Countries
By John Bonin, Paul Wachtel, ...
-
Privatization Matters: Bank Efficiency in Transition Countries
By John Bonin, Paul Wachtel, ...
-
Privatization Matters: Bank Efficiency in Transition Countries
By John Bonin, Iftekhar Hasan, ...