Profitability of foreign banks in Central and Eastern Europe: Does the entry mode matter?

Olena Havrylchyk () and Emilia Jurzyk ()
Additional contact information
Emilia Jurzyk: K.U. Leuven, Belqium

No 5/2006, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: Using data for 265 banks in Central and Eastern European Countries for the period of 1995-2003, this paper analyses the differences in profitability between domestic and for-eign banks. We show that foreign banks, especially greenfield institutions, earn higher profits than domestic banks. However, this effect is acquired rather than inherited, since there is evidence that foreign banks tend to take over less profitable institutions. Profits of foreign banks in CEECs also exceed profits of their parent banks, explaining the reasons for their entry. Further, we study benefits and costs of foreign ownership by analyzing de-terminants of profitability for domestic, takeover, and greenfield banks. Profits of foreign banks are less affected by macroeconomic conditions in their host countries. However, greenfield banks are sensitive to the situation of their parent banks. Only domestic banks enjoy higher profits in more concentrated banking markets, whereas takeover banks suffer from diseconomies of scale due to the fact that they acquired large institutions.

Keywords: foreign banks; bank profits; multinational banking; transition economies (search for similar items in EconPapers)
JEL-codes: F36 G15 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec, nep-eff, nep-fin, nep-fmk, nep-mac and nep-tra
Date: 2006-04-25
View list of references View citations in EconPapers

Downloads: (external link)
http://www.bof.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/2006/dp0506.htm (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:hhs:bofitp:2006_005

Access Statistics for this paper

More papers in BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition
Address: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Contact information at EDIRC.
Series data maintained by Tiina Saajasto ().