Eastern European Banking Model
https://worldspaper.com/ Traditional banking structures in CEEC (Central and Eastern European Countries) countries included a central bank and a number of special purpose banks, one of which handled customer deposits and other banking requirements and the others which concentrated on international financial activities, etc. In addition to performing other duties, the central bank met the majority of the commercial banking requirements of businesses. The CEECs altered this older arrangement in the late 1980s by taking over all of the central bank’s commercial banking operations and transferring them to fresh commercial banks. The new banks were established along industry lines in the majority of the world, while Poland took a regional strategy.
Even though a small number of “de novo banks” were permitted in Hungary and Poland, these newly established, state-owned commercial banks generally held sway over the majority of financial transactions. Since it included moving both “good” and “poor” assets, just transferring existing loans from the central bank to the new state-owned commercial banks had its issues. Additionally, each bank was only permitted to conduct business with the companies and industries that had been allotted to them, and they were not permitted to interact with any other companies.
https://thewdmedia.com/ These commercial banks cannot perform the same functions as commercial banks in the West since the central banks will constantly “balance out” troubled state firms. Banks in the CEEC are not allowed to foreclose on debts. It was extremely rare for a bank to force a company into bankruptcy; instead, if a corporation refused to pay, the state-owned enterprise would historically obtain additional financing to help it through its problems. To put it another way, it was forbidden for state-owned companies to fail, mainly because it would have had an impact on the balance sheets and commercial banks, but also because the subsequent increase in unemployment may have had significant political repercussions.
It was necessary to “clean up” the balance books of commercial banks, potentially by having the government buy their subprime loans with long-term bonds. Western accounting practices could be advantageous to the new commercial banks as well.
This perception of state-controlled commercial banks started to shift in the middle to end of the 1990s as CEECs realized that the transition to market-based economies necessitated a thriving commercial banking sector. But there are still a lot of problems in this field that need to be solved. For instance, the Czech Republic’s government pledged to start privatizing the banking industry in 1998.
The banking industry currently has a lot of flaws. As money market competition increases, a number of the smaller hanks seem to be having trouble, emphasizing their tinder capitalization and the increased amount of higher-risk operations they are engaged in. Regulation of the banking industry and available control tools have also been a source of controversy. As a result, the government has suggested creating a separate securities commission to oversee the capital markets.
The privatisation package for the four biggest banks in the Czech Republic, which presently own roughly 60% of the assets in that sector, will also let international banks enter a highly developed market where their impact has previously been minimal. In an effort to establish a regional hub for the network of a foreign bank, it is anticipated that each of the four banks will be sold to a single bidder. One issue with all four banks is that a review of their balance statements may reveal issues that could cause any proposal to be smaller than intended.
At least 20 percent of the debts held by each of the four banks are categorized as unpaid for at least thirty days. The collateral that banks hold against these loans may be used to lower the debts, but occasionally the loans are more than the collateral. Furthermore, it is challenging to determine the value of the collateral accurately because bankruptcy law is ineffectual. It wasn’t until 1996 that it became legal to write off these bad debts, but even if it is done, the assets of the banks will be depleted, bringing them dangerously near to the lower threshold of an 8 percent capital adequacy ratio.
Additionally, the national bank’s intervention in early 1997 prompted a decline in bond prices, which in turn led the commercial banks’ bond portfolios to decline. This move had an impact on the “commercial” banks. Therefore, there is much work to be done in the Czech Republic’s banking industry.