Management of Non-Performing Loans in Eastern Europe

Abstract

The objective of the study is twofold. First, the paper aims to provide a critical analysis of the various methods used in resolving banking crises in Central and Eastern Europe Countries (CEEs). Secondly, it offers an estimate of what would have been the optimal way of resolving crises in state-owned commercial banks (SOBs) and small and medium sized commercial banks (SMBs) in the Czech Republic, Hungary, and Poland. The analysis shows bad loans clean up have turned out to be awkward. A delay in restructuring increased costs and required a stronger response. Examining the experience of these three countries, no firm conclusion can be drawn about the optimal crisis resolution in the banking sector in transition. Looking back, we could argue about the essential elements of an optimal resolution, though Hungary has adopted a quasi-optimal crisis resolution.