Banking Sector Systemic Risk in Selected Cenral European Countries; Review of: Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia

Abstract

The paper is an attempt at a comparative overview of banking sector systemic risk in six Central European countries as of the end of 1997 concluding with some policy recommendations. The countries covered by the paper (Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia) are specific by the fact that in the early 1990’s they moved from a socialist to a market economy and the legacy of a socialist economy still has an important influence in the shape of their banking sectors. All six countries underwent banking crisis in 1990s and spent significant budgetary resources to deal with them. Crises have been overcome without system destabilization only in Hungary and Poland. Now, the banking sectors in these two countries are relatively robust although small in relation to GDP. In Bulgaria a banking crisis ended with a major destabilization, dramatic downsizing of banking assets and a deep recession. Presently, the banking sector is reported to be liquid and solvent and the potential for assets quality deterioration is limited for some time. Romania, the Czech Republic and Slovakia have yet to deal with their continuing banking crises, which still constitute a danger for economic stability and development.

Keywords: banking sector, systemic risk, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia