Foreign Banks in Central and Eastern Europe: Asset or Risk Factor?
Ralph de Haas
European Bank for Reconstruction and Development; Tilburg University - Department of Finance
Iman van Lelyveld
De Nederlandsche Bank; VU University Amsterdam - Department of Finance and Financial Sector Management
Maandschrift Economie, Vol. 67, No. 3, pp. 188-209, 2003
We analyse foreign bank penetration in Central and Eastern Europe (CEE) and its influence on private sector credit, taking into account both cross-border credit and credit by foreign bank subsidiaries. By combining BIS and BankScope data into a unique database we make a clear distinction between these credit categories. We show that the relative importance of foreign bank subsidiaries has increased considerably during recent years. However, in Hungary and Poland foreign banks were also important during the first transition years, as they provided substantial amounts of cross-border credit. We do not find evidence of foreign banks deserting CEE during financial crises or economic downturns. Although cross-border credit did decrease during some periods, foreign banks expanded the credit supply of their subsidiaries simultaneously. This may be an important consideration for (transition) countries that still have to decide whether to open up their markets to foreign bank subsidiaries.
Note: Downloadable paper is in Dutch.
Number of Pages in PDF File: 21
Keywords: transition countries, foreign banks, financial stability
JEL Classification: F36, G21
Date posted: February 29, 2004