How Important Are Foreign Banks in European Transition Countries? A Comparative Analysis

This paper analyses the development of the banking sector in twelve transition countries. Foreign banks have become major players in the financial system of these countries. Still, foreign bank presence and financial development in general vary considerably between these economies. Distance from the home country is an important determinant for a foreign bank to enter a specific country. The most frequently used mode of entry is buying (part) of a domestic bank. This share is gradually expanded until a majority share is held. It turns out that foreign banks have, in general, higher profitability and efficiency levels than domestic banks.