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Multinational Banks: Protective Factors of Financial Stability in Central and Eastern Europe?

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Foreign Direct Investment in Central and Eastern Europe

Part of the book series: Studies in Economic Transition ((SET))

Abstract

The chapter analyses the determinants of capital adequacy in the banking FDI of Central and Eastern European countries, relying on the Bankscope database. The main hypothesis is that multinational ownership softened the impact of the crisis in commercial banks, as the parent banks capitalised those affiliates which turned red in household and corporate crediting. This type of cross-market rebalancing is tested by a regression analysis, and the “too-big-to-fail” nature of the parent bank is the main significant determinant in all specifications, supporting the hypothesis.

The research was supported by the following programs: KAAD Osteuropaprogram and the MTA Bólyai Scholarship.

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Notes

  1. 1.

    For a full summary of the literature, see Bol et al. (2002).

  2. 2.

    See, for example, Agarwal (1980), Grosse (1981), Lizondo (1990), Caves (1996), Williams (1998), Moshirian and Pram (1999).

  3. 3.

    Although there is a specific indicator for the NPL ratio in Bankscope, that is, the NCO/average gross loans, the database is very deficient when it comes to CEE banks. The ratio is defined by Bankscope in the following way: “Net charge off (NCO) or the amount written-off from loan loss reserves less recoveries is measured at a percentage of the gross loans. It indicates what percentage of today’s loans have been finally been written off the books. The lower this figure, the better as long as the write off policy is consistent across comparable banks.” NCO refers to the debt owed to a bank that is unlikely to be recovered.

  4. 4.

    For example, in 2013 the Korean Hanwha Bank in Hungary was acquired by Evo Pro, a Hungarian company, thus, it became a domestic bank. Banco Popolare sold its affiliate to the domestic MagNet Bank, and the Bayerishe Landesbank sold its subsidiary MKB to the Hungarian government. The same happened with the Hungarian affiliate of DZ Bank, Takarékbank.

  5. 5.

    The enter method means that all independent variables are entered into the equation in one step. The stepwise method includes or removes one independent variable at each step, based on its contribution to the model. The stepwise method selects only the significant variables, and thus modifies the values of the coefficients.

  6. 6.

    The averages of the three dependent variables are close to each other (TIER = 15.59, TCR = 17.46, ETA = 11.77), so their constants are comparable.

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Authors and Affiliations

  1. Institute of World Economy, Corvinus University Budapest, Budapest, Hungary

    Gábor Kutasi

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  1. Aston Centre for Europe, Aston University, Birmingham, United Kingdom

    Balázs Szent-Iványi

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Kutasi, G. (2017). Multinational Banks: Protective Factors of Financial Stability in Central and Eastern Europe?. In: Szent-Iványi, B. (eds) Foreign Direct Investment in Central and Eastern Europe. Studies in Economic Transition. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-40496-7_8

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  • DOI: https://doi.org/10.1007/978-3-319-40496-7_8

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-40495-0

  • Online ISBN: 978-3-319-40496-7

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