Chapter 5: Banking sector development in the Czech Republic
Zdenek Tuma ˇ ˚ 1. INTRODUCTION At the time of writing, the ﬁnancial sector of the Czech Republic ﬁnds itself in the ﬁnal stage of reform. Now that the privatization of large banks has been completed, the banking sector is dominated by foreign strategic owners, most of them EU-based banks. These owners are expected to bring much-needed modern banking expertise, improve the eﬃciency of domestic banks and prepare them for the challenges of EU and EMU accession. After extensive clean-ups of portfolios, the banks’ prudential indicators have improved signiﬁcantly. The regulation of the banking sector has been largely standardized, and the remaining challenges are broadly similar to those faced by ﬁnancial regulators in advanced countries, too. The path from the beginning of transition to this promising stage has not been an easy one, though. Reform has come at a substantial cost, both in terms of macroeconomic ineﬃciencies in the allocation of resources and in terms of public expenditures. The aim of this chapter is to describe these reform processes, focusing in particular on the current situation and future prospects. The chapter is organized as follows. In section 2, I give a short overview of the starting conditions and the early years of transition. Section 3 presents the major developments and reform steps in 1994–2001, including the public and macroeconomic costs. Section 4 describes the current situation of the Czech banking system and its outlook. Section 5 summarizes and concludes with some general observations for the transition economies. 2....
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