Keywords

foreign banks; Croatia; foreign direct investment; banking

This article examines the impact foreign banks have had on the Croatian market by interviewing bankers from both foreign and domestic banks. Since entry was slow and foreign banks were cautious in their approach to the Croatian market through late 1999, foreign banks' impact has not been dramatic. Competition has been increased mildly, but foreign banks have introduced few new products and services. Foreign banks have cheaper funding sources, possess approximately equal knowledge of the local market, and employ better cadre than local banks, according to our interviews. Analysis of the structure of foreign banks' clients on both sides of the balance sheet suggests that foreign banks raise deposits from both domestic and foreign clients, but lend somewhat more to domestic clients. Furthermore, as major players on the interbank markets, the foreign banks have channeled funds to domestic banks during the hard times of the 1998-99 banking crisis. Finally, the arrival of the foreign banks represents substantial foreign direct investment in and of itself. Thus, the overall impact of foreign banks appears to have been positive in the period studied.