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2016 | OriginalPaper | Chapter

7. Small and Medium-Sized Banks in Central and Eastern European Countries

Author : Katarzyna Mikołajczyk

Published in: Liquidity Risk, Efficiency and New Bank Business Models

Publisher: Springer International Publishing

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Abstract

The aim of this paper is to analyse the impact of bank size on the behaviour and performance of banks in Central and Eastern European countries, both before and after the recent financial crisis. To exploit this cross-country dimension, the current study measures bank size in two ways: in relation to absolute size and to market share. The analysis, which was carried out on bank-level data, employed the traditional ratio analysis of bank investment strategy, safety and profitability, supplemented by efficiency scores, estimated in data envelopment analysis models. The main research questions are whether medium-sized and small banks in CEE countries have experienced comparative advantages, and to what extent these advantages have been dependent on economic conditions.

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A summary of a selection of previous studies regarding this issue is provided by de Haan and Poghosyan (2012).

If the term CEE was extended to countries in the region not included in this study, the largest CEE bank would be the Russian Sberbank.

Mercieca et al. (2007), who investigated small European banks for the period 1997–2003, also reported a substantial decline (24 %) in the number of small banks.

For euro area banks in 2013, the median share of loans in total assets amounted to 65 %, and the median share of customer deposit in total liabilities stood at 50 % (ECB 2014).

ESRB (2014) Report used LtTA to distinguish between universal and retail banks, assuming that for the universal banking model loans do not exceed 40 % of total assets.

The median leverage ratio (EtTA) for banks in the euro area increased from 6 to 7.6 % between 2008 and 2013 (ECB 2014).

A similar trend could be observed when the liquidity ratio was calculated by dividing liquid assets by customer deposits and short-term funding. Small and very small banks reduced this ratio from 5 to 3 (very small banks maintained it at a slightly higher level), while large and medium-sized banks reduced it from 3 to 2.

However, data on credit quality and loan loss reserves are not fully comparable between different countries due to the lack of internationally adopted definitions and regulations, which distorts all multinational averages.

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Title: Small and Medium-Sized Banks in Central and Eastern European Countries
Author: Katarzyna Mikołajczyk
Publisher: Springer International Publishing
Book: Liquidity Risk, Efficiency and New Bank Business Models
Print ISBN: 978-3-319-30818-0

Electronic ISBN: 978-3-319-30819-7

Copyright Year: 2016
DOI: https://doi.org/10.1007/978-3-319-30819-7_7