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By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"

The Austrian Erste Bank has just published a report about the state of the banking system in Central and Eastern Europe. Macedonia is not even mentioned. The banking sectors of Bulgaria, Romania, Russia and Ukraine are poised to grow the fastest, as these countries catch up with the West.

With the exception of the scandal-ridden French Societe Generale, no prime foreign bank is represented in Macedonia. Even Societe Generale has merely purchased a local bank rather than open its own branch. Erste Bank itself declined to buy Stopanska Banka in 1997.

But is foreign banking such a good thing?

Research demonstrates that foreign banks tend to lend to foreign direct investors and foreign clients. They rarely extend credit to local firms, let alone individuals in the host country. True, they bring with them management know-how, access to financial networks and markets, and fresh capital. Their entry fosters competition and improves the overall performance of the banking sector, as well as the terms and conditions offered to domestic clients by domestic banks.

But not all is rosy. Foreign banks bring with them systemic risks. Macedonia was spared the worst of the global credit crunch precisely because it was not exposed to the global financial system. It had no subprime mortgage market, no crazy credit derivatives, no mysterious hedge funds. Its backwardness turned out to be a blessing as it avoided the excesses perpetrated by foreign banks in the USA, in Europe, and in some parts of Asia.

Erste Bank's report is very clear about it: the existence of foreign banks in Bulgaria, Romania, Russia and Ukraine is precisely why the meltdown of the global credit markets has wreaked collateral damage on the banking sectors in these countries.

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Author Bio

Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East.

He served as a columnist for Central Europe Review, Global Politician, PopMatters, eBookWeb , and Bellaonline, and as a United Press International (UPI) Senior Business Correspondent. He was the editor of mental health and Central East Europe categories in The Open Directory and Suite101.

Visit Sam's Web site at http://samvak.tripod.com



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