Convergence Between the EU and Central and Eastern Europe
Edited by David G. Dickinson and Andrew W. Mullineux
Chapter 16: Banking sector restructuring and debt consolidation in the Czech Republic
Roman Matous ek ÿ INTRODUCTION A decade has passed since the Central and Eastern European (CEE) countries began the transition to establishing market-based economies integrated with the rest of the world. The development of a broad-based financial sector has been seen as an integral component of the transition. The approach and progress towards development of a viable financial sector vary among the countries and are dependent on a number of factors: ¥ the countryÕs starting point (particularly its historical experience with market-based economic systems and the degree to which its economy had been centrally planned and controlled); ¥ the macroeconomic setting; ¥ the pace of other reforms Ð institutional and legal environment (commercial and civil law, bankruptcy law, accounting standards and so on); and ¥ political consensus in support of market-based institutions. Banking reforms took place in the Czech Republic at the beginning of 1990, when the so-called Ôtwo-tierÕ banking system was established. The banking sector has undergone a rapid process of liberalization. Interest rate ceilings on credit were removed, barriers to entry on private domestic banks and later also on foreign banks were abolished, allocation of credit was no longer made on the basis of government decisions, and regulation and supervision were strengthened. Nevertheless, even though all essential liberalization steps that are considered essential for improving functional efficiency and competitiveness within the banking sector have been taken, the outcomes are still modest. Past experience in Visegrad countries has shown that the common feature for developing a sound and efficient banking system requires a balance...
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