Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe

January 1, 2010

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Emilia M Jurzyk, and Olena Havrylchyk. Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe, (USA: International Monetary Fund, 2010) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions.

Subject: Balance of payments, Banking, Commercial banks, Financial institutions, Financial regulation and supervision, Foreign banks, Foreign direct investment, Loan loss provisions, National accounts, Personal income

Keywords: Acquired bank, Bank capitalization, Bank ownership, Central and Eastern Europe, Commercial banks, Control bank, Domestic bank, Foreign acquisition, Foreign bank, Foreign banks, Foreign direct investment, Greenfield bank, Loan loss provisions, Personal income, Propensity score matching, Takeover bank, Target bank, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/004
Stock No:

WPIEA2010004
ISBN:

9781451961713
ISSN:

1018-5941

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