Publication of a report on Banking structures in the new EU Member States
The European Central Bank (ECB) has today published a report on Banking structures in the new EU Member States. This publication has been prepared by the Banking Supervision Committee of the European System of Central Banks, which comprises representatives of the national central banks and banking supervisory authorities of the EU and the ECB.
The report, which is mainly based on data for 2003, examines the structure of the banking sector in the ten new Member States (NMSs) that joined the EU on 1 May 2004 and gives a brief overview of changes that occurred in the run-up to EU accession. It also identifies major challenges confronting NMS banking sectors in the area of financial stability and supervision.
The main findings of the report can be summarised as follows:
- Most of the NMSs’ banking sectors share some common structural characteristics, having undergone similar structural changes over a relatively short period of time. In recent years, banking sectors in the NMSs have operated under favourable macroeconomic conditions owing to considerable progress in real and nominal convergence towards the EU-15. Indeed, benefiting from favourable macroeconomic conditions and high lending growth, banks in the NMSs generally improved their performance in 2003 and maintained adequate capital buffers. Currently, the level of financial intermediation remains low in the NMSs; and the NMSs are more reliant – even more so than EU-15 countries – on intermediation through banks than financial markets. Two defining characteristics in most NMSs banking sectors are a large foreign presence and relatively high concentration.
- Empirical evidence suggests that high foreign ownership in the NMSs may have a stabilising effect on credit supply. Foreign banks may also contribute in other respects to the deepening of financial sectors in NMSs, for example via the transfer of knowledge and the introduction of better risk management systems.
- Although concentration is relatively high, competition in NMS banking markets is intense and expected to intensify further, partly owing to the increasing integration of EU banking sectors. While this should have positive welfare implications, it may also put pressure on banks’ margins and profitability. However, rapidly growing lending volumes and an expected increase in non-interest income may offset this pressure. In some countries, high lending growth has already triggered responses from national authorities.
- There are indications that the framework for prudential regulation and supervision has improved substantially in NMSs since the late 1990s. An important supervisory challenge in the NMSs may stem from the specific ownership structure and the potential transformation of foreign subsidiaries into branches. In particular, if a foreign branch in the NMS has systemic importance in the host country, but only a modest share of the group’s total operations, the coordination and information-sharing between host and home supervisory authorities need to be enhanced.
The full report can be downloaded from the “Publications” section of the ECB’s website (http://www.ecb.europa.eu/pub). Printed copies are also available free of charge from the ECB’s Press and Information Division at the address given below.