Banking in Transition Countries

Abstract

Modern banking institutions were virtually non-existent in the planned economies of central Europe and the former Soviet Union. In the early transition period, banking sectors began to develop during several years of macroeconomic decline and turbulence accompanied by repeated bank crises. However, governments in many transition countries learned from these tumultuous experiences and eventually dealt successfully with the accumulated bad loans and lack of strong bank regulation. In addition, rapid progress in bank privatization and consolidation took place in the late 1990s and early 2000s, usually with the participation of foreign banks. By 2005, the banking sectors in many transition countries had developed sufficiently to provide a wide range of services with solid bank performance. Recently, banks have switched their focus from lending to enterprises in a somewhat underdeveloped institutional environment to new collateralized lending to households, which accounts for much of the recent growth of credit in many transition countries.

Keywords: transition banking, bank privatization, foreign banks, bank regulation, credit growth

JEL Classification: G21, P30, P34, P52