engleski

Profitability of foreign and domestic banks

Banking sectors in Eastern Europe have undergone a remarkable transformation from the beginning of the 1990s, which resulted in a relatively consolidated and to a large extent privatized banking industry that is characterized by a heavy presence of foreign owned banks. While several authors emphasize the beneficial effects of foreign banks’ entry in developing Eastern European economies (e.g. Fries and Taci, 2005), there is still very little evidence on the impact of foreign-owned banks on bank performance in the South-East European region. Some of the countries from the region were included as subsets in broader studies (e.g. Demirguc-Kunt and Huizinga, 1999), but research focused on this region is scarce.The purpose of this paper is to investigate the relationship between bank ownership foreign vs. domestic) and bank profitability in six South-Eastern European countries (SEE-6): Albania, Bulgaria, Croatia, FYR Macedonia, Romania, and Serbia & Montenegro, using individual bank data. The analysis is based on the bank level, industry level and macroeconomic data for the period 1995 – 2004 and consists of two parts. The first partoftheanalysiscontainsaseriesofthemean equality tests for four profitability indicators for domestic and foreign owned banks in each of the studied countries. The second part of the analysis relies on the econometric analysis of the bank profitability determinants in selected banking sectors.

Eastern Europe, banking system, banks, ownership, foreign investments, profit, comparisons

COBISS.SI-ID.: 17214950