Corporate Governance for Banks in Southeast Europe: Policy - IFC

Table 2: Number of Banks and Percent of Registered Capital Foreign-ownedJurisdiction/CountryNumber of banks% of registered capitalforeign-owned2007 2008 2009 2010 2007 2008 2009 2010Albania 16 16 16 16 93.9 93.9 93.3 92.1Bosnia and Herzegovina(Federation)22 20 20 19 92.4 94.3 93.9 91.9Bosnia and Herzegovina(Republika Srpska)10 10 10 10 na 91.9* 91.1* 91.3*Bulgaria 29 30 30 30 82.1* 83.9* 84.1* 80.7*Croatia 33 39 39 38 90.6 90.8 91.0 90.4FYR Macedonia 18 18 18 18 85.9 92.7 93.3 92.9Montenegro 11 11 11 11 79.0 85.0 87.0 88.0Romania 31 32 31 32 87.7 88.2 85.3 85.1Serbia 35 34 34 33 75.6 75.5 74.3 73.5Source: Data from BSCEE Review 2009 and BSCEE Review 2010. http://www.bscee.org.*Percentage on the basis of total assets.Foreign banks typically entered the SEE region as strategic investors. They brought stability to the bankingsector and a significant knowledge transfer from more developed markets. They also served to introducegood corporate governance practices, which they did by revamping the banks they acquired. Foreign banksalso brought with them experience with home-country bank regulations. They typically complied with BaselII, International Financial Reporting Standards (IFRS), and, when listed, the stock exchange rules in their homemarkets. Because of accounting rules and prudential regulation, foreign bank subsidiaries were required tomeet both their home requirements and those of local regulators. These home regulations were typicallymore stringent than local regulation, but, equally important, the banks had long experience in compliance.The foreign influx has not come without challenges. Foreign banks created considerable competition fordomestic banks. They had easier access to funding, could finance larger companies, and had establishedproducts and services, procedures and systems, and economies of scale. For supervisors, having a greatnumber of banks that followed a sophisticated external regulatory regime seemed to provide significantbenefits in efficiency, security, and application of best practice. However, during the crisis, news from abroadworried some regulators, who saw that local bank strategy was controlled from abroad, and that they hadlimited control over foreign group entities.The crisisThe 2007 crisis came as an exogenous shock to SEE. At the time, one of the fears was that internationalbanking groups would withdraw from the region. Given their overwhelming importance to the local bankingsector, their departure would have triggered a systemic banking crisis with ensuing damage to the realeconomy. Fortunately, these fears were met by a strong national and regional response.A key factor in stabilizing the banking sector on the regional level was the European Bank CoordinationInitiative (EBCI), the so-called “Vienna Initiative” that was launched at the height of the financial crisis whenbanks were trying to take as much liquidity out of the region as possible. EBCI was designed to provide a8Policy BriefCorporate Governance for Banks in Southeast Europe