From Reputation amidst Uncertainty to Commitment under Stress: More than a Decade of Foreign-Owned Banking in Transition Economies
The experience of transition economies (TEs) with foreign bank penetration has a time dimension and an organisational dimension that are intertwined. Before 1995, virtually all foreign bank entry in TEs took the form of greenfield subsidiaries set up by a foreign bank in the host country. From 1995 onward, foreign banks participated in government programmes to privatise large state-owned banks and eventually took control of these banks. Oftentimes, a foreign bank entered a TE initially as a greenfield subsidiary and, after acquiring a former state-owned bank, merged the two entities to create a large foreign-owned bank. This takeover and consolidation activity resembles financial mergers and acquisitions in many emerging market economies. What distinguishes the TE experience from foreign bank penetration in many other countries is the hybrid corporate culture of the resulting foreign-owned bank. Having a dominant market position, the foreign-owned bank is a blend of expertise in transaction-based banking from the parent and experience in relationship-based banking from the acquired bank. Thus, I characterise the resulting bank as a hybrid that combines the hard technical information and banking skills of the parent with the soft information about clients and expertise concerning the local business environment of the acquired bank.
KeywordsGross Domestic Product Host Country Banking Sector Global Financial Crisis Large Bank
Unable to display preview. Download preview PDF.
- Agoraki, M-EK, Delis, MD and Pasiouras, F. 2008: Regulations, competition and bank risk-taking in transition economies. University of Bath, School of Management Working Paper.Google Scholar
- Arvai, Z, Driessen, K and Otker-Robe, I. 2009: Regional financial interlinkages and financial contagion within Europe. IMF Working Paper: WP/09/6.Google Scholar
- Banai, A, Kiraly, J and Varhegyi, E. 2009: A special aspect of the twenty years: Dominance of foreign banks in emerging Europe with special regard to Hungary. Paper presented at Center for International Capital Markets Conference, London Metropolitan Business School.Google Scholar
- Barisitz, S. 2008: Banking in central and Eastern Europe: 1980–2006. Routledge (Taylor and Francis Group): London.Google Scholar
- Bonin, JP, Hasan, I and Wachtel, P. 2010: Banking in transition countries. In: Berger, AN, Molyneux, P and Wilson, JOS (eds). The Oxford Handbook of Banking. Oxford University Press: New York. pp. 844–867.Google Scholar
- Claeys, S and Hainz, C. 2006: Acquisition versus greenfield: The impact of the mode of foreign bank entry on information and bank lending rates. European Central Bank Working Paper #653.Google Scholar
- Degryse, H, Havrylchyk, O, Jurzyk, E and Kozak, S. 2008: The effect of foreign bank entry on the cost of credit in transition economies: Which borrowers benefit the most? CEPII Working Paper #15.Google Scholar
- De Haan, J and Poghosyan, T. 2008: Determinants of cross-border bank acquisitions in transition economies: A latent class analysis. CESifo Working Paper # 2372.Google Scholar
- De Haas, R and Naaborg, I. 2005: Foreign banks in transition economies: Small business lending and internal capital markets. DNB Working Paper.Google Scholar
- Delis, MD, Molyneux, P and Pasiouras, F. 2008: Regulations and productivity growth in banking. University of Bath, School of Management Working Paper.Google Scholar
- European Bank for Reconstruction and Development. 2008: Transition Report 2008: Growth in Transition. EBRD: London, UK.Google Scholar
- Giannetti, M and Ongena, S. 2008: Lending by example: Direct and indirect effects of foreign banks in emerging markets. ECGI Working Paper #221.Google Scholar
- Maechler, AM and Ong, LL. 2009: Foreign banks in the CESE countries: In for a Penny, in for a Pound? IMF Working Paper: WP/09/54.Google Scholar
- Popov, A and Udell, GF. 2010: Cross-border banking and the international transmission of financial distress during the financial crisis of 2007–2008. unpublished manuscript.Google Scholar
- Reuters. 2010: Goldman Sachs eyes Slovenian top bank: Report. 30 July 2010 available at http://www.publicbroadcasting.net/kbc/news.newsmain/article/0/0/1682262/Business/Goldman.Sachs.eyes.Slovenian.top.bank.report.
- RZB, Raiffeisen Research Group. 2009: Rough playing field: Committed players. CEE Banking Sector Report.Google Scholar
- Sanfey, P. 2010: South-eastern Europe: Lessons from the global crisis. EBRD Working Paper No. 113.Google Scholar
- UniCredit. 2010: UniCredit CEE quarterly 2Q 2010, ECONOMICS & FI/FX RESEARCH, unicredit bank AG. April 2010 available at http://www.unicreditgroup.eu/ucg-static/downloads/CEE_Quarterly_ENG.pdf.