Reformation of the Estonian banking system

Mart Sõrg

No 02/2003, Wirtschaftswissenschaftliche Diskussionspapiere from University of Greifswald, Faculty of Law and Economics

Abstract: Over fifteen years have passed since the beginning of the reconstruction of the transition countries' banking systems. The analysis of the development of commercial banking in Estonia and other transition countries points out several features, which are typical for the starting period of financial sector reforms. It turns out from our research that the success of the reconstruction of banking sector in certain transition countries differs substantially. It turned out from the research that since the starting of reforms in 1988 the Estonian banking sector has passed two development periods ending with banking crisis. The first period can be named as a "wild" and the second as a "naive-optimistic" banking period. The crisis cleared the banking sector of weaker links and showed both the central bank and the management of operating banks the directions for improving banking regulations and management practices. In our study we do not deal only with the success of the reforms of a banking sector from the aspect of the growth of assets but we also pay a lot of attention to the changes in quality. We research the extent of the growth of the banks' creditability, the stability of their working results, the conformity of services to clients' needs, the harmonization of banking regulations with the European Union's requirements and the implementation of good banking practices. For today the transition period in Estonian banking has been actually passed. The banks operate in accordance with modern market economy patterns in every respect. But in several transition countries the reforms are quite in the starting period. The cornerstones of the Estonian banking sector reforms success have been both stable economic policy as well as reliable currency and the central bank's policy, which forces the reforms.

Date: 2003
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