Financial Intermediation in South East Europe
Financial Intermediation in South East Europe

Obstacles and Opportunities

Summary/Abstract: The focus of this paper is on several major obstacles to financial development in South East Europe (SEE), and on potential policy remedies capable of supporting financial intermediation in the region. Financial underdevelopment is present both in the banking and in the non-banking financial industry. Non-performing loans are seriously hampering credit growth in the banking industry, and overall economic growth in SEE financial systems is dominated by banks. In addition, certain regulatory shortcomings, collateral valuation practices and high level of dollarization are further slowing and burdening banking sector development. Other (deposit taking and non-deposit taking) non-banking credit financial institutions are frequently unregulated and/or underdeveloped. The securities industry is a far cry from initial expectations, underdeveloped and incapable of generating adequate gross fixed capital formation to support economic growth. Alternative financing through venture capital and angel financing is virtually nonexistent. This paper aims to provide an analysis of root causes of these shortcomings, and proposes certain policy recommendations for the development of financial intermediation in SEE countries.

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