Eastern European Banking Model

A traditional banking model in a CEEC (Central and Eastern European Country) consisted of a central bank and several purpose banks, one dealing with individuals’ savings and other banking needs, and another focusing on foreign financial activities, etc. The central bank provided most of the commercial banking needs of enterprises in addition to other functions. During the late 1980s, the CEECs modified this earlier structure by taking all the commercial banking activities of the central bank and transferring them to new commercial banks. In most countries the new banks were set up along industry lines, although in Poland a regional approach has been adopted.

On the whole, these new stale-owned commercial banks controlled the bulk of financial transactions, although a few ‘de novo banks’ were allowed in Hungary and Poland. Simply transferring existing loans from the central bank to the new state-owned commercial banks had its problems, since it involved transferring both ‘good’ and ‘bad’ assets. Moreover, each bank’s portfolio was restricted to the enterprise and industry assigned to them and they were not allowed to deal with other enterprises outside their remit.

As the central banks would always ‘bale out’ troubled state enterprises, these commercial banks cannot play the same role as commercial banks in the West. CEEC commercial banks cannot foreclose on a debt. If a firm did not wish to pay, the state-owned enterprise would, historically, receive further finance to cover its difficulties, it was a very rare occurrence for a bank to bring about the bankruptcy of a firm. In other words, state-owned enterprises were not allowed to go bankrupt, primarily because it would have affected the commercial banks, balance sheets, but more importantly, the rise in unemployment that would follow might have had high political costs.

What was needed was for commercial banks to have their balance sheets ‘cleaned up’, perhaps by the government purchasing their bad loans with long-term bonds. Adopting Western accounting procedures might also benefit the new commercial banks.

This picture of state-controlled commercial banks has begun to change during the mid to late 1990s as the CEECs began to appreciate that the move towards market-based economies required a vibrant commercial banking sector. There are still a number of issues lo be addressed in this sector, however. For example, in the Czech Republic the government has promised to privatize the banking sector beginning in 1998. Currently the banking sector suffers from a number of weaknesses. A number of the smaller hanks appear to be facing difficulties as money market competition picks up, highlighting their tinder-capitalization and the greater amount of higher-risk business in which they are involved. There have also been issues concerning banking sector regulation and the control mechanisms that are available. This has resulted in the government’s proposal for an independent securities commission to regulate capital markets.

The privatization package for the Czech Republic’s four largest banks, which currently control about 60 percent of the sector’s assets, will also allow foreign banks into a highly developed market where their influence has been marginal until now. It is anticipated that each of the four banks will be sold to a single bidder in an attempt to create a regional hub of a foreign bank’s network. One problem with all four banks is that inspection of their balance sheets may throw up problems which could reduce the size of any bid. All four banks have at least 20 percent of their loans as classified, where no interest has been paid for 30 days or more. Banks could make provisions to reduce these loans by collateral held against them, but in some cases the loans exceed the collateral. Moreover, getting an accurate picture of the value of the collateral is difficult since bankruptcy legislation is ineffective. The ability to write off these bad debts was not permitted until 1996, but even if this route is taken then this will eat into the banks’ assets, leaving them very close to the lower limit of 8 percent capital adequacy ratio. In addition, the ‘commercial’ banks have been influenced by the action of the national bank, which in early 1997 caused bond prices to fall, leading to a fall in the commercial banks’ bond portfolios. Thus the banking sector in the Czech Republic still has a long way to go.

In Hungary the privatization of the banking sector is almost complete. However, a state rescue package had to be agreed at the beginning of 1997 for the second-largest state bank, Postabank, owned indirectly by the main social security bodies and the post office, and this indicates the fragility of this sector. Outside of the difficulties experienced with Postabank, the Hungarian banking system has been transformed. The rapid move towards privatization resulted from the problems experienced by the state-owned banks, which the government bad to bail out, costing it around 7 percent of GDP. At that stage it was possible that the banking system could collapse and government funding, although saving the banks, did not solve the problems of corporate governance or moral hazard. Thus the privatization process was started in earnest. Magyar Kulkereskedelmi Bank (MKB) was sold to Bayerische Landesbank and the EBDR in 1994, Budapest Bank was bought by GE Capital and Magyar Hitel Bank was bought by ABN-AMRO. In November 1997 the state completed the last stage of the sale of the state savings bank (OTP), Hungary’s largest bank. The state, which dominated the banking system three years ago, now only retains a majority stake in two specialist banks, the Hungarian Development Bank and Eximbank.

The move towards, and success of privatization can be seen in the balance sheets of the banks, which showed an increase in post-tax profits of 45 percent in 1996. These banks are also seeing higher savings and deposits and a strong rise in demand for corporate and retail lending. In addition, the growth in competition in the banking sector has led to a narrowing of the spreads between lending and deposit rates, and the further knock-on effect of mergers and small-hank closures. Over 50 percent of Hungarian bank assets are controlled by foreign-owned banks, and this has led to Hungarian banks offering services similar to those expected in many Western European countries. Most of the foreign-owned but mainly Hungarian-managed banks were recapitalized after their acquisition and they have spent heavily on staff training and new information technology systems. From 1998, foreign banks will be free to open branches in Hungary, thus opening up the domestic banking market to full competition.

As a whole, the CEECs have come a long way since the early 1990s in dealing with their banking problems. For some countries the process of privatization still has a long way to go but others such as Hungary have moved quickly along the process of transforming their banking systems in readiness for their entry into the EU.

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Tips for The Average Joe

Key Things to Think About While Hiring a Brokerage Company

Are you looking forward to choosing the best brokerage company? If you are, it is prudent of you to first research for the best brokerage school firms that have the most trained brokerage companies. It is upon you to make sure that you have known all the qualities a good brokerage company should possess so that you can be easier for you to locate the best brokerage company. You need to ensure also that you have involved your family so that they can help you choose the right brokerage company who will be at your disposal to represent you well on your case. You ought to consider a few factors while looking for the best this brokerage company. Continue reading for you to discover some of the factors to put in place before choosing the best brokerage company.

Ensure that you have factored in qualification of any brokerage company before hiring any. In this case, you ought to make sure that you have hired a highly qualified brokerage company so that you can be sure of better representation on your claim. You need to make sure that you have taken your time to look at the academic documents of your preferred brokerage company so that you can have a look at their level of competence. Make sure that you have confirmed this brokerage company of your choice joined a renowned brokerage school institute.

You need to ensure that you have contemplated on the period of time a brokerage company has been in the field before settling for any. When giving thoughts on the period of time a particular brokerage company has worked ,it is prudent of you to make sure that you have hired the one that has been in the industry for long as they are more knowledgeable and skillful to represent you well in your claim. You ought to make sure that you have taken your time to look at the performance record of a particular brokerage company of your choice so that you can have more information on the period they have been working before you allow them to work for you.

Another key thing that you ought to keep in mind before settling for this brokerage company is the repute. You ought to make sure that you have selected a brokerage company that owns a good name of providing quality brokerage school services. For you to have more information regarding the character of your preferred brokerage company, you need to make sure that you have visited their website so that you can look at the revised noted regarding their repute.

To sum up, before hiring your preferred brokerage company, you ought to ensure that you have given a thought to their certification.

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What Research About Can Teach You

Amazing Advantages of Booking a Flower Delivery Online

Ever since the internet was invented, it became a life changing asset to some business establishments and consumers because of its development it helps in coping with the fast demand of convenient and cost-effective services. That is the explanation numerous people will orchestrate things and organizations online for it is beneficial and down to earth. It is useful to book a flower delivery online for such a noteworthy number of reasons that you need to know. To have a predominant appreciation about this, here are the dumbfounding points of interest of booking a flower delivery on the web.

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Booking a flower delivery online helps you to save time and effort because it will deliver the flowers and they offer same day deliveries as well. This urges you to keep you verified when there is exceptional occasion and you can’t come. The recipient will also feel special when they receive flowers from you in behalf of your presence. To know more about this, you can click this link and learn more.

Booking a flower delivery online sets aside you cash for your fuel or charge which makes it practical. Online flower shops can also operate 24 hours a day and can accommodate you anytime of the day. To get some answers concerning this, you can click this site and discover extra.

Booking a flower delivery online is definitely not hard to process since you are simply going to pick the sorts of flowers and the strategy that you like to be passed on. They will deliver your order on time and in perfect condition. To know more about this, you can click this link and learn more here.

These are the amazing benefits of booking a flower delivery online that you need to take into consideration. If you want to know more about this, you can click this link and learn more here.
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Why No One Talks About Anymore

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