Regional Integration Challenges in South East Europe: Banking Sector Trends

Abstract

This article reviews and evaluates a particular aspect of the institution‐building process in the transition countries of Southeast Europe. It focuses on the development of the banking sector. It argues that banking sector development plays an integral and pivotal role in the successful completion of the transition process. It functions as a regional integrating force and a pillar of growth and development in the new market environment of the Balkan economies. This study is threefold. First, it undertakes a brief literature review of regional integration approaches in the Balkans. Second, it provides an overview of the most significant changes that have taken place in the banking sector. And third, it reviews some structural characteristics and performance indicators, all of which point to considerable advancements made in this sector in recent years. Empirical evidence is provided showing that a substantial harmonisation of ownership structures and performance indicators have been achieved in the banking sectors of these countries initiating a convergence process toward European Union banking structures and functions. In this regard, this study complements the findings of others focusing on various sectors of economic activity that clearly show that a de facto regional and, even more so, continental integration of the Southeast European countries is under way.