There is only one way to describe the banking sector in central Europe: too small. The banks in Poland, the Czech Republic and Hungary are too small and too few to meet the growing demand for capital from corporate and retail customers and they are not big enough to survive without outside help if the three states join the European Union.
According to analysts in the west, there is only one effective way to deal with this problem: sell the banks to foreigners. "The local banks don't have the power, the skill or the knowledge to help develop a fully functioning and transparent capital market," says an analyst at one of the major foreign banks involved in the region. "This is partly because of the lack of equity capital at the banks."
Compared with the situation of five years ago, however, the banking sectors in all three countries have improved enormously. Banks in each country must now observe strict lending limits and reserve requirements (although still not enough, in the case of the Czechs), and can act as brokers and asset managers, as well as developing their corporate and retail services.