The Banking Sector in New EU Member Countries: A Sectoral Financial Flows Analysis *

Abstract

We analyze financial-system development in the so-called Visegrad Four countries (Hungary, the Czech Republic, Poland, and Slovakia) during 1993–2005. We conceptualize the Visegrad Group economy as a set of sectors that interchange financial assets to measure financial-system development. In particular, we analyze financial flows between the commercial banking sector and other sectors of the economy. We show that households and non-financial companies are the largest creditors. In terms of debits, non-financial companies are the largest borrowers. Further, we provide indirect evidence that the completed privatization of the Visegrad banking sector is an important factor behind the dramatic change in the degree of credit and debit flows. The majority of the data series in all four countries exhibit structural breaks in mean in the year in which the privatization of the banking sector was completed. The importance of the individual channels of financial flows is assessed using intermediation ratios. We show that the role of banks as mobilizers of savings from the non-financial sectors is substantial and that banking is not a declining industry in the Visegrad Four countries.

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