Micro-effects For Countries In Transition Banking Reforms

During the past decade, the bank industry of transition countries has witnessedgreat changes. While the CEE (Central and Eastern European) and CIS (theCommonwealth of Independent States) countries have undergone distinct reformpaths and hence the different bank development levels of these two types of transitioncountries. Based on it, this thesis analyzes the bank reform of CEE and CIS countriesby both theory and empirical in the micro perspective, and the reform effects from theangels of internal restructuring and bank liberalization.This thesis found that the sunk cost of loans is one of the main reasons makingthe banks unable to harden the budget constraint on enterprises; the stable macroeconomic environment, improved legal system, enlarged banking scale and the entryof foreign banks would facilitate to harden budget constraint; the strengthening ofgovernment supervision and ex post asset injection would help to prevent the banksfrom gambling for resurrection, consequently reduce the bailout cost of government;the privatization of banks would benefit the improvement of bank operatingperformance; the entry of foreign banks would raise the development level of bankindustry of transition countries, but the effects depend on the development level ofhost country's economy and bank industry. The experience of CEE countriesdemonstrated that during the process of bank privatization, from the aspects of profitcapability and cost control, banks introduced in the strategic investor outperformedthe "Greenfield" ones. By comparing the difference of reform processes and the bankefficency between the two types of transition countries, this thesis found the mainreason why CEE countries are more successful is that the government implementedbailout and introduced a great deal of foreign strategic investors during the bankprivatization.Comparatively analyzing the bank reform process, and conducting far-reachingempirical research on the effects of bank privatization and foreign banks' entry, is acomprehensive summary about the reform and development of bank reform oftransition countries. Meanwhile, this thesis will provide some lessons for the reformand continuing open of our country's bank industry.The framework of this thesis is as follows:The first chapter is the preface, introduces the research background, significance,theory framework, challenges, innovation and defects. The second chapter is the review about the theory of transaction cost,information asymmetry related to financial intermediary, and the theory about bankreform of transition countries. It is pointed out that the traditional research on thereason for the existence of financial intermediary did not take the effects of systemand legislation into consideration, thus could not effectively explain the problemshappened during the bank reforms of transition countries. The imperfect legal systemadded the transaction cost, making the information asymmetry even worse, impactingthe normal operation of financial intermediaries in transition countries, that's why thebank reform of transition countries should conduct on the basis of improved legalsystem.The third chapter is about the soft budget constraints, bankruptcy cost of banksand the relation with bank reform of transition countries. It is the theory part of thisthesis. The soft budget constraints and bankruptcy cost have great impacts on bankreforms. The research showed that, the sunk cost of loans is one of the main reasonsmaking the banks unable to harden the budget constraint on enterprise. The stablemacro economy, improved legal system, enlarged banking scale and the entry offoreign banks would facilitate to harden budget constraint; the strengthening ofgovernment supervision and ex post asset injection would help to prevent the banksfrom gambling for resurrection, consequently reduce the bailout cost of government.The reduced bankruptcy cost is one of the main reasons for the morale hazard andadverse selection of bank management, while the imperfect legal system evenworsened it.The forth chapter is about the bank reform process in transition countries. Itcompares the bank reform process of CEE and CIS countries, which indicatesalthough the processes are different from each other among CEEs, these countries allput focuses on the bailout of banks and introduced in foreign strategic investorsduring bank privatization. That's why the development level of their bank industry ismuch higher than that of CIS countries.The fifth chapter is the empirical research about the relationship between bankprivatization and bank performance in transition countries. It is based on the financialdata of banks, and is just why this thesis is titled as on the micro effect of transitioncountries' bank reform. One of the main reasons why the bank development level ofCEEs is significantly higher than that of CIS lies in the difference between the bankreform paths and whether foreign strategic investors were introduced in. By comparing the bank efficiency ratios, it is revealed that the average efficiency ratiosof CIS banks were obviously lower than those of CEE countries other than Poland.Too relaxed bank entering policy, not implementing large-scale bank bailout and NPLdisposition, and having not introduced in foreign strategic investors is the primaryreason for the low average efficiency ratios of Russian banks.The sixth chapter is the empirical research about the entry of foreign banks andbank performance. The research indicates that the entry of foreign banks hassignificant effects on the performance of domestic banks, improved their efficiency.However, in the short run, the entry of foreign banks lowered the profit asset ratio andthe portion of non-interest income in total assets of CEE domestic banks. The effectsof foreign banks' entry on the domestic banks depend on the economic developmentlevel of host country and its bank development level. In CIS countries, the foreignbanks did not play important roles primarily because they only assume a small portionin the bank industry. It is hard for them to play full competition with domestic banks,hence no spillover effect can be generated.The seventh chapter is the conclusion and lessons for China. After comparing thebank reform of China with that of CEE and CIS countries, it is pointed out that muchsimilarity exists in the processes; however, China's bank reform was conducted afterfinishing the enterprise reform and under the stable economic developmentenvironment, so greater success can be achieved. In the end, some policy suggestionwas put forward for China's coming bank reform.