Foreign Banks in European Transition Countries: A Panel Data Study

Numerous studies show foreign banks' effect on the economic and financial progress in transition countries, but few investigate the determinant factors that attract foreign bank entry into these emerging countries. The primary objective of this paper is to identify and investigate which factors attract foreign bank entry into transition countries using a panel data study. The study is carried out separately for three groups of European transition countries: CEEB, CIS, and SEE. Although countries that belonged to the former Soviet-bloc are often considered as similar, they differ essentially in their economic and financial system development. Our results show that these differences cause significant differences in factors influencing foreign bank entries into each group of transition states. For the CEEB and CIS countries, the most important factors that influenced foreign bank entry are the number of banks (total and foreign-owned) and non-performing loans. For the SEE countries, the determinant factors of foreign bank entry seem less economically driven than politically motivated.