Challenges and Prospects
Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 22: Banking reform in South-East Europe: accomplishments and challenges
Evan Kraft1 1. INTRODUCTION The transformation of the banking industry in transition countries has been one of the most dramatic and far-reaching aspects of the quite dramatic and far-reaching process of transition. For example, while in 1995 foreign bank penetration in the former Communist countries of Central and Eastern Europe (CEE) and South-East Europe (SEE) was minimal, by 2002 foreign banks held majority shares, and often overwhelmingly large shares, in 13 of the 15 countries of CEE and SEE. In SEE, Albania, Bosnia and Herzegovina, Bulgaria, Croatia and Romania had foreign majority ownership (measured by capital), with Macedonia very close to 50 per cent and Serbia and Montenegro somewhat behind as of end-2004. Such a transformation from a banking system dominated by either stateowned banks of questionable quality or newly formed and untested private banks, to one dominated generally by reputable (but by no means ﬁrst-tier quality) EU banks would have been diﬃcult to imagine ten years ago, particularly in some of the poorer and politically less stable SEE countries. The transformation of the banking industry has turned one of the most vulnerable and unstable parts of the economies of the transition countries into one of the most advanced sectors, one which at times seems so far ahead of other sectors as to cause certain problems. Nonetheless, policy makers and regulators continue to face important, if somewhat less daunting challenges in SEE countries. Many of these challenges come from the underdevelopment of key institutional supports for the growth of...
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