Banking Transformation (1989 - 2006) in Central and Eastern Europe - with Special Reference to Balkans

Abstract

This paper provides an overview of the history of banking transition (1989-2006) in 13 CEE countries – with particular emphasis on four relatively large Balkan countries (Bulgaria, Croatia, Romania, Serbia and Montenegro). Two “banking reform waves” are distinguished, salient features of which all countries (need to) run through in order to mature. The first reform wave focuses on liberalization measures; the second wave mostly consists of restructuring/institutional adjustment. Western European FDI has come to dominate banking in most countries, including those of the Balkans. Recently, credit booms have unfolded, which, while constituting structural catchingup phenomena, are not without risks. Insufficient rule of law remains widespread.

Keywords: Banking crisis; Banking transformation; Credit boom; FDI; Institutional reforms; Liberalization; Privatization; Structural reforms

JEL Classification: G21; G28; P34