Abstract
The aim of this paper is to analyze the influence of foreign capital on the commercial banking sector of the emerging markets. The entry of foreign banks into the markets of Central and Eastern European countries (CEECs) has been rapid, remarkable and massive. This paper presents some empirical results of foreign banks’ entry, activities, operation and strategies in four CEECs (Estonia, Lithuania, Poland, and Romania); the first three of them have already joined the European Union integrated financial market in May 2004. The paper is based on a special survey results obtained by the authors from domestic and foreign-owned banks in these countries. Meanwhile mergers and acquisitions of the domestic banks are rather technical details of a foreign capital influx. According to our results, the main incentives motivating foreign entry have been to exploit new business opportunities and/or market expansion strategies. The host country market specifics, advantages and disadvantages of foreign banks, main target groups, and fields of activities, as well as foreign banks’ motives for strategic long-term stay in the host country market some more important characteristics of banks’ governance and management are also discussed. Interesting are the questions who are the key decision-makers in the majority of foreign-owned banks, how banks have adopted knowhow and risk management systems from the mother bank, how the mother bank helps its daughter in the host country, etc. The issues of the competitive pressure by foreign banks and the domestic banks’ survival prospects are also addressed in the paper.
Highlights
Theoretical background and related literatureForeign banks' entry into transition economies is a widely discussed subject in recent literature, because the banking sector has a strong effect on the whole economy
In Central and Eastern European countries (CEEC) the foreign banks entry is a challenge for both domestic banking systems and foreign banks
Each country enjoyed a certain specificity, which has been perceived by economic analysts and policyrnakers. Questions such as: "What reasons do foreign banks have to act in CEEC and with what strate'Cl?" or "What role do foreign banks play in the development of the financial system, in corporate restructuring, governance and in providing financial sources for investment in CEEC?" have to be met by means of theoretical and empirical research
Summary
The aim ofthis paper is to analyze the influence offoreign capital on the commercial banking sector of the emerging markets. The entry offoreign banks into the markets ofCentral and Eastern European countries (CEECs) has been rapid, remarkable and massive. This paperpresentssome empiricalresults offoreign banks' entty, activities, operation andstrategies in four CEECs (Estonia, Lithuania, Poland, and Romania); the first three ofthem have alreadyjoined the European Union integrated financial market in May 2004. The paper is based on a special survey results obtained by the authors from domestic and foreign-owned banks in these countries. According to our reSUlts, the main incentives motivating foreign entry have been to exploit new business opportunities and/or market expansion strategies. The issues of the competitive pressure by foreign banks and the domestic banks' survival prospects are addressed in the paper
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