Foreign banks in central and eastern Europe: the good, the bad and the ugly
Foreign banks in central and eastern Europe: the good, the bad and the ugly

Summary/Abstract: Foreign banks have played a major role in Central and Eastern European economiclandscape over the last decades. They have spurred banking intermediation and fuelledeconomic growth for years. However, the global financial crisis unveiled the other sideof the coin. This article analyses foreign banks’ lending behaviour in Central and EasternEurope over the period from 2000 to 2016. It aims to investigate the nexus betweenbank loan growth, cross-border bank claims and the cycle period. Moreover, it capturesthe impact of the financial cycle on foreign banks’ credit behaviour and highlights whetherforeign bank ownership is influenced by host- and home-country effects. Our findingsreveal the strong nexus between foreign banks’ loan growth and cross-border bank claims.Also, we emphasize the pro-cyclicality of foreign banks’ loan growth and cross-borderbank claims. Furthermore, we see clear differences related to foreign banks’ lendingbehaviour during normal and turbulent times, triggered by host- and home-country effects.These results raise policy challenges regarding the right bank ownership balance andthe use of prudential regulation.

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