Eastern European Banking Model

A traditional banking model in a CEEC (Central and Eastern European Country) consisted of a central bank and several purpose banks, one dealing with individuals’ savings and other banking needs, and another focusing on foreign financial activities, etc. The central bank provided most of the commercial banking needs of enterprises in addition to other functions. During the late 1980s, the CEECs modified this earlier structure by taking all the commercial banking activities of the central bank and transferring them to new commercial banks. In most countries the new banks were set up along industry lines, although in Poland a regional approach has been adopted.

On the whole, these new stale-owned commercial banks controlled the bulk of financial transactions, although a few ‘de novo banks’ were allowed in Hungary and Poland. Simply transferring existing loans from the central bank to the new state-owned commercial banks had its problems, since it involved transferring both ‘good’ and ‘bad’ assets. Moreover, each bank’s portfolio was restricted to the enterprise and industry assigned to them and they were not allowed to deal with other enterprises outside their remit.

As the central banks would always ‘bale out’ troubled state enterprises, these commercial banks cannot play the same role as commercial banks in the West. CEEC commercial banks cannot foreclose on a debt. If a firm did not wish to pay, the state-owned enterprise would, historically, receive further finance to cover its difficulties, it was a very rare occurrence for a bank to bring about the bankruptcy of a firm. In other words, state-owned enterprises were not allowed to go bankrupt, primarily because it would have affected the commercial banks, balance sheets, but more importantly, the rise in unemployment that would follow might have had high political costs.

What was needed was for commercial banks to have their balance sheets ‘cleaned up’, perhaps by the government purchasing their bad loans with long-term bonds. Adopting Western accounting procedures might also benefit the new commercial banks.

This picture of state-controlled commercial banks has begun to change during the mid to late 1990s as the CEECs began to appreciate that the move towards market-based economies required a vibrant commercial banking sector. There are still a number of issues lo be addressed in this sector, however. For example, in the Czech Republic the government has promised to privatize the banking sector beginning in 1998. Currently the banking sector suffers from a number of weaknesses. A number of the smaller hanks appear to be facing difficulties as money market competition picks up, highlighting their tinder-capitalization and the greater amount of higher-risk business in which they are involved. There have also been issues concerning banking sector regulation and the control mechanisms that are available. This has resulted in the government’s proposal for an independent securities commission to regulate capital markets.

The privatization package for the Czech Republic’s four largest banks, which currently control about 60 percent of the sector’s assets, will also allow foreign banks into a highly developed market where their influence has been marginal until now. It is anticipated that each of the four banks will be sold to a single bidder in an attempt to create a regional hub of a foreign bank’s network. One problem with all four banks is that inspection of their balance sheets may throw up problems which could reduce the size of any bid. All four banks have at least 20 percent of their loans as classified, where no interest has been paid for 30 days or more. Banks could make provisions to reduce these loans by collateral held against them, but in some cases the loans exceed the collateral. Moreover, getting an accurate picture of the value of the collateral is difficult since bankruptcy legislation is ineffective. The ability to write off these bad debts was not permitted until 1996, but even if this route is taken then this will eat into the banks’ assets, leaving them very close to the lower limit of 8 percent capital adequacy ratio. In addition, the ‘commercial’ banks have been influenced by the action of the national bank, which in early 1997 caused bond prices to fall, leading to a fall in the commercial banks’ bond portfolios. Thus the banking sector in the Czech Republic still has a long way to go.

In Hungary the privatization of the banking sector is almost complete. However, a state rescue package had to be agreed at the beginning of 1997 for the second-largest state bank, Postabank, owned indirectly by the main social security bodies and the post office, and this indicates the fragility of this sector. Outside of the difficulties experienced with Postabank, the Hungarian banking system has been transformed. The rapid move towards privatization resulted from the problems experienced by the state-owned banks, which the government bad to bail out, costing it around 7 percent of GDP. At that stage it was possible that the banking system could collapse and government funding, although saving the banks, did not solve the problems of corporate governance or moral hazard. Thus the privatization process was started in earnest. Magyar Kulkereskedelmi Bank (MKB) was sold to Bayerische Landesbank and the EBDR in 1994, Budapest Bank was bought by GE Capital and Magyar Hitel Bank was bought by ABN-AMRO. In November 1997 the state completed the last stage of the sale of the state savings bank (OTP), Hungary’s largest bank. The state, which dominated the banking system three years ago, now only retains a majority stake in two specialist banks, the Hungarian Development Bank and Eximbank.

The move towards, and success of privatization can be seen in the balance sheets of the banks, which showed an increase in post-tax profits of 45 percent in 1996. These banks are also seeing higher savings and deposits and a strong rise in demand for corporate and retail lending. In addition, the growth in competition in the banking sector has led to a narrowing of the spreads between lending and deposit rates, and the further knock-on effect of mergers and small-hank closures. Over 50 percent of Hungarian bank assets are controlled by foreign-owned banks, and this has led to Hungarian banks offering services similar to those expected in many Western European countries. Most of the foreign-owned but mainly Hungarian-managed banks were recapitalized after their acquisition and they have spent heavily on staff training and new information technology systems. From 1998, foreign banks will be free to open branches in Hungary, thus opening up the domestic banking market to full competition.

As a whole, the CEECs have come a long way since the early 1990s in dealing with their banking problems. For some countries the process of privatization still has a long way to go but others such as Hungary have moved quickly along the process of transforming their banking systems in readiness for their entry into the EU.

Read More

Why Aren’t As Bad As You Think

sell my house: Hints for Narrowing to a Deal

Based on the encounters which people have had when they sell their homes, it has been revealed that it is not an easy one. It is a wise decision to coordinate with a realtor when you are thinking of converting your property into cash. Most of the articles with titles corresponding to ‘sell my house’ ought to be reviewed and the process of choosing a perfect realtor evaluated carefully during the process. The possibility of becoming stressed up as you work out the process of converting your house to cash based on these recommendations, you ought to expect friendlier outcomes. Before you speak out to anyone on anything related to selling my house, read this article for the best ways for briefs.

To sell my house with a lot of ease; I will first need to come up with prices that make sense and are real. Here you will have to accept that the market may not match with your offer and the best means to tackle this will be to make a decision on what to charge based on both the market driving factors and the worth of your house. The house buyers will not let you down since what they will give is something that you will have expected in case you will have taken your time to look at the possibilities before coming out to state that ‘I want to sell my house.’ Potential buyers will give offers that are lower than what you will ask for, and if you have rated your home correct, you will find it easy to draw them for negotiation to close the sell my house exercise.

It will be necessary to enhance friendliness with the house buyers during all the processes that relate to selling my house. Something that you will have to avoid when you liquidate your home is becoming emotional. You ought to be prepared to face those who will be giving too little and those who will joke with you as you figure out a way to find the best deal for your house. An advice for the best outcomes out of the sell my house task is not to take things so personally. As much as possible, you will need to avoid standoffs with the homebuyers who give laughable offers.

You will need to be certain that you want to accomplish your goals and therefore confidence with the process of liquidating your house. The defining qualities that will make this process a success includes willingness and readiness to bend the terms and the offers made and thinking out of the box. A strategy will be required when you are handling that homebuyer who is insisting on giving less than the value of your house without insulting or acting rudely.

Read More

The Beginner’s Guide to

Tips for Making Extra money

If you usually have a fixed salary, it might be so hard for you to think of purchasing some items. Therefore, for you to easily purchase some of the items which you might have desired to buy then you should think of how you will make extra money. Deliberating on the tips which are outlined below will easily help you know some of the crucial ways which can help you make extra money.

Firstly, you should think of your junk cars. If you do not know what to do with your junk cars then it is wise to think of how you will make extra money through them. Never identify a firm which will offer less price for purchasing your junk cars if you desire to make good extra money. Never think of having any deal with a company which will not offer the best price as you might have expected while selling your junk cars. Since there are so many companies mainly buys junk cars, if you identify the one which is not reliable enough then you might end up not fulfilling your desires as you might have expected. If you do not have junk cars, then this essential way cannot be effective to you when it comes to making extra money.

Selling your plasma is the second essential way which you can use to make extra money as you might have desired. This is so vital since you will be helping someone and at the same time make extra money which you can top up on your salary as you might have desired. Therefore, as you are going to draw your blood you should know the minimal time which will be taken to complete this process. If you are under the age of eighteen years then you might not be allowed to sell your plasma, and therefore this guide might not be crucial to you. You should first set the amount which you will require to for you to sell your plasma so that you may identify the right plasma center which will meet your expectations. If you are not healthy enough then you should not think of selling your plasma even though you might desire to make extra money.

The third important crucial way which is explored in this article that you can use to make extra money is by utilizing cashback. If you think of using a rewards card as a credit card you can be guaranteed of getting free money.

The explored above are some of the ways which you can use to make extra money only if you reflect on them quickly.

Read More