A sleeping beauty or a dead duck? The state of capital market development in CESEE EU Member States

Thomas Reininger () and Zoltan Walko ()
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Thomas Reininger: Oesterreichische Nationalbank, Foreign Research Division, http://www.oenb.at
Zoltan Walko: Oesterreichische Nationalbank, http://www.oenb.at

Focus on European Economic Integration, 2020, issue Q3/20, 7-35

Abstract: For quite some while, there have been high expectations that stronger capital markets could generate a broader range of financing sources and reduce the buildup of vulnerabilities for the corporate sector in European Union Member States in Central, Eastern and Southeastern Europe (CESEE). These expectations prompted various supportive measures by international institutions, national authorities and market participants over the past 10 to 15 years. However, despite these efforts, capital market developments in the region have been far from dynamic over the past decade. Capital markets continue to be substantially less developed than in the euro area and the U.S.A., judging from the balances of debt securities, listed shares and investment fund shares outstanding both in relation to GDP and as a share of total financial liabilities. Even taken together, these three types of securities account for a smaller portion of total financial liabilities than loans, with loan penetration levels (loans as a percentage of GDP) already approaching euro area and U.S. levels. Data on financial flows show narrower gaps with the euro area for funding via debt securities, but issuance is dominated by government entities. Analyzing the financial liabilities of nonfinancial corporations, we find some relevance for listed shares only in Poland and Croatia (but less of a relevance than in the euro area) and a negligible role for debt securities (with the euro being the dominant issuing currency in most non-euro area CESEE EU Member States). The predominantly bank-based nature of the financial systems of the CESEE EU Member States is also confirmed by the fact that the total assets of nonbank financial institutions are well below the level of domestic bank credit to the private sector, thus playing a relatively smaller role in financial intermediation than in the euro area and the U.S.A. In view of this evidence, we review the key factors which have so far prevented a more dynamic development, describe major efforts undertaken to overcome these detrimental factors and synthesize proposals by various institutions for future action to deepen local capital markets in the region, including in the context of the European Union’s capital markets union.

Keywords: CESEE; capital markets; financial intermediation; European Union; capital markets union (search for similar items in EconPapers)
JEL-codes: D14 D18 D31 D63 E44 G21 G28 H81 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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