The East German Experience in Perspective

Bankenverband mittel. und ostdeutscher Länder (1997/8).Google Scholar

Deutsche Bundesbank (1995a).Google Scholar

Pickel (1992a, p.179).Google Scholar

See Maaz (1990).Google Scholar

Griffin (1994) makes this argument.Google Scholar

Quack and Hildebrandt (1995b, p. 11). Unfortunately, the authors do not mention what type of companies made up the sample.Google Scholar

Pohl and Claessens (1994, pp.12–13).Google Scholar

Prill (1995).Google Scholar

See, ‘Going West?’, Business Central Europe (October 1995, pp.48–50).Google Scholar

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Horst Köhler, ‘A savers’ solution’, The Banker (14 February 1995, p.14).Google Scholar

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This section draws on the findings of Robins (1995b). The study consisted of one week each in the Czech Republic, Hungary, Poland and Russia. In addition to collecting data, interviews were conducted with domestic and foreign bankers, regulators and bank customers.Google Scholar

In each of the countries, however, informal restrictions have played a role in recent years. Licensing moratoria and arrangements whereby foreign banks are expected to ‘contribute’ to the system (e.g. purchase a local bank with problems) have inhibited somewhat the number entering. These restrictions, however, came after the initial wave of foreign banks entered the markets and thus are unlikely to have kept out many other foreign banks. One exception which received attention is in Poland where some German banks — most notably Deutsche Bank- had been unable to obtain a banking licence (see ‘Deutsche Bank Wants to Extend Operation in Poland’, Reuters-News-Service, 27 January 1994), although Deutsche and Dresdner had received licences by 1995.Google Scholar

Russia is the only country in which domestic banks successfully lobbied to keep out foreign banks. Restrictions were imposed on foreign banks through decrees issued in November 1993 and June 1994, including: an aggregate limit of 12 per cent on foreign capital in the system; borrowers restricted to only one local currency account (which is already with a local bank); restrictions on operations with residents for banks which began these later than 15 November 1993; a minimum deposit level of 55 000 ecu (roughly US $72 000) thereby restricting foreign banks to high net-worth customers; a limit of one branch office in addition to the foreign bank’s main branch in Russia; and higher minimum capital requirements on foreign banks (US $5 mn) than on local banks (roughly US $610 000) (Robins, 1995b, p.23).Google Scholar

Asset levels may not capture off-balance sheet activities, however, an area where foreign banks are likely to be particularly active due to their smaller balance sheet size, higher skill levels and broader experience in such activities. Given that much attention has been devoted to the intermediation function of banks, the asset levels are a reasonably good measure of bank activity.Google Scholar

The relatively higher levels of foreign bank involvement in Hungary are largely due to the data which include all joint-venture banks with more than 50 per cent foreign ownership as foreign banks. In addition, the figures include the large off-shore consortium Central European International Bank (CIB) (see Zdeborsky and Geliert, 1992). In 1993, the CIB accounted for more than 11 per cent of the total assets of all foreign and joint-venture banks (calculated from CIB, Annual Report, 1993).Google Scholar

This represents the level as of 30 June 1994. See United States Department of the Treasury (1994, p.4).Google Scholar

The higher profitability of Czech domestic banks compared with domestic banks in Hungary and Poland also reflects the strong concentration of the Czech banking sector and the lack of advantages such as tax holidays, given to foreign banks when entering the market.Google Scholar

In Hungary, for example, small private banks accounted for the remaining 32 per cent of total net banking profits, whereas large Hungarian banks-most state-owned — accumulated net losses equal to 45 per cent of total net profits for the banking sector (State Banking Supervision of Hungary, 1995).Google Scholar

Prill (1995, p.121).Google Scholar

In Hungary, foreign banks had enjoyed a’ swap window’ whereby the central bank allowed them to exchange foreign currency for Hungarian forints to meet their liquidity requirements. In December 1994, this window was closed by the central bank (officially for monetary policy concerns) which provoked protests by foreign banks, underlining the importance they attached to this facility. As a result, the window was reopened though the levels allowed were lowered somewhat.Google Scholar

Wuffli and Hunt (1993, p.99).Google Scholar

This is true in the case of subsidiaries which are treated as local banks and expected to maintain the same capital adequacy requirements. For branches, such as those of the West German banks in the East, the capital of the parent bank is used thus giving more freedom to the local branch to extend higher lending volumes. Even in the case of branches, however, there is some degree of monitoring by the central banks of branch lending volumes to ensure the soundness of the banks (e.g. in Poland branches now must commit local capital in any event), and these banks also have internal limits on cross-border exposure which further limits the lending levels of branches. In any event, the issue of branches versus subsidiaries has been a contentious one in PCPEs, the Czech Republic being the most notable case in which several foreign branches were established and accused by local banks of lending exceedingly large amounts by virtue of their branch status. In Hungary, foreign banks may only enter via subsidiaries, and in Poland it appears that branch licences — though legally permitted — are no longer given.Google Scholar

One of the findings of interviews conducted (Robins, 1995b) was a clear lack of consensus among policy-makers, regulators and local bankers on the expectations of the role of foreign banks in PCPEs.Google Scholar

In Poland, in 1992 43.9 per cent of foreign bank assets were loans to other banks, a figure which fell gradually from 41.5 per cent in 1993 and 35.9 per cent in 1994 (National Bank of Poland, 1995).Google Scholar

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‘Commerzbank hodlá v Ceské republice postupovat i nadále velmi aktivne’, Hospodársué Noviny (10 January 1995, p.10.)Google Scholar

See, ‘Going West?’, Business Central Europe (October 1995, pp.48–50).Google Scholar

In Poland, for example, foreign banks developed the commercial paper market and also improved cash management services for business by initially sending daily faxes with account information and later moving to a fully electronic system.Google Scholar

In the PCPEs, foreign banks worked with regulators to develop the necessary infrastructure for these markets and, at the same time, built networks between financial institutions to enable the infrastructure to be utilised as it was developed. (Robins, 1995b)Google Scholar

‘Bracing for a Buying Binge’, The Economist (August 15 1998, p.66).Google Scholar