Prague Economic Papers 2021, 30(5):596-612 | DOI: 10.18267/j.pep.782

Foreign Banks in Central and Eastern Europe: The Good, the Bad and the Ugly

Mihai Nițoi ORCID...a, Dorina Clichici ORCID...a, Simona Moagăr-Poladian ORCID...a
a Institute for World Economy, Romanian Academy, Romania

Foreign banks have played a major role in Central and Eastern European economic landscape over the last decades. They have spurred banking intermediation and fuelled economic growth for years. However, the global financial crisis unveiled the other side of the coin. This article analyses foreign banks' lending behaviour in Central and Eastern Europe over the period from 2000 to 2016. It aims to investigate the nexus between bank loan growth, cross-border bank claims and the cycle period. Moreover, it captures the impact of the financial cycle on foreign banks' credit behaviour and highlights whether foreign bank ownership is influenced by host- and home-country effects. Our findings reveal the strong nexus between foreign banks' loan growth and cross-border bank claims. Also, we emphasize the pro-cyclicality of foreign banks' loan growth and cross-border bank claims. Furthermore, we see clear differences related to foreign banks' lending behaviour during normal and turbulent times, triggered by host- and home-country effects. These results raise policy challenges regarding the right bank ownership balance and the use of prudential regulation.

Keywords: Foreign banks, loan growth, cross-border bank claims, financial crisis, Central and Eastern Europe
JEL classification: F21, F36, G21

Received: October 27, 2020; Revised: May 20, 2021; Accepted: June 30, 2021; Prepublished online: August 11, 2021; Published: October 22, 2021  Show citation

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Nițoi, M., Clichici, D., & Moagăr-Poladian, S. (2021). Foreign Banks in Central and Eastern Europe: The Good, the Bad and the Ugly. Prague Economic Papers, 30(5), 596-612. doi: 10.18267/j.pep.782
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