Banking reforms in eastern European countries

Abstract

This paper investigates the present state of reforms in the banking sector of the central European countries, with occasional comparisons with other eastern European countries. Progress is variable across the countries of the region, but in all countries banking reforms generally lag reforms in other areas and much remains to be done. Regulation generally takes the European Union's regulatory framework as a model. Progress on paper is much more advanced than implementation and, as a result, all banking systems in the region are fragile and prey to instability. The paper also looks at basic performance indicators and arrives at the conclusion that even basic intermediation has remained rudimentary and quite inefficient. This analysis suggests the urgency of the following measures: (I) the further opening-up of the sector to foreign penetration; (ii) the withdrawal of the state from bank ownership; (iii) the speeding-up of implementation of existing regulations; and (iv) the completion of the regulatory framework, adding specific measures dealing with local problems that are not reflected in the 'imported' regulatory map.

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