A Comparative Study of Banks' balance sheets in the European Union and European Transition Countries, 1995-2003

Ilko Naaborg, Bert Scholtens

Research output: Chapter in Book/Report/Conference proceedingChapter

1 Citation (Scopus)

Abstract

Using data from bank balance sheets, we analyse the banking sectors of the former EU-15, the NMS and SEE/CIS in terms of size, operations and funding. In the former EU-15, the banking sector in relation to GDP is about twice the size of banking in the NMS (including those that will soon join). Although bank size still differs substantially between the regions, median growth has been similar between 1995 and 2002. The composition of assets and liabilities of banks in the three regions appears to be quite similar. This similarity vanishes, however, when we focus on the asset side of the balance sheet. Banks in the former EU-15 have more loans with longer maturities than bank in the NMS and SEE/CIS, and there is greater diversity of loans amongst the former EU-15 banks. From this perspective, therefore, the NMS banks are still underdeveloped. Further, when examining the banks' deposit base, liquidity is much higher for the clients of EU-15 banks than for those in transition countries. In combination with the maturity composition of the loan portfolios, we can conclude that banks in the former EU-15 are much more involved in maturity transformation than those in the transition countries. Contrary to the general trend, foreign bank size in the former EU-15 became smaller after 1998. Due to continued merger and acquisition activity in the NMS, foreign banks are on average three times larger than domestic banks. In all regions, foreign banks are more involved in leasing operations and in loans to the corporate sector than domestic banks. In addition, foreign banks tend to be funded more with deposits and have less well-diversified liabilities than domestic banks. Foreign banks in all regions also are better capitalised than their domestic counterparts. Whether this means that they incur more risk is a matter for future research. We conclude that in the course of their development, the NMS and transition countries are catching up. Banks in the former EU-15 are much more involved in credit and maturity risk transformation than those in the NMS and even more so than those in SEE/CIS. However, in the NMS we detect a trend towards more credit risk and maturity/liquidity risk transformation - a trend that is not apparent in banks operating in the SEE/CIS region.

Original languageEnglish
Title of host publicationEmerging European Financial Markets
Subtitle of host publicationIndependence and Integration Post-Enlargement
Pages157-178
Number of pages22
DOIs
Publication statusPublished - 27 Apr 2006

Publication series

NameInternational Finance Review
Volume6
ISSN (Print)1569-3767

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