A Comparative Study of Banks’ balance sheets in the European Union and European Transition Countries, 1995–2003

Abstract

The banking sector in the new European Union Member States (NMS)1 has changed dramatically since the transition from centrally planned to market-based economies.2 In 1993, the ratio of average banking assets to gross domestic product (GDP) was 53 per cent, and this had increased to 72 per cent by 2000. However the banking sector in NMS is, however, still relatively small compared to the former European Union 15 (EU-15), for which the same ratio was 140 per cent in 2000. In NMS the level of bank intermediation is also low. In 2000, the ratio of private sector credit to GDP was less than 40 per cent, whereas in the euro area it was 100 per cent. A third distinguishing feature of NMS banks is that foreign investors now dominate ownership. In 1995, 8 per cent of banking assets were in foreign hands, and by 2002 this had increased to 88 per cent.3 In contrast, banks in the former EU-15 are mainly domestically owned or are traded on national stock markets.