Presentation on theme: "Reinhard Schwaiger & Peter R. Haiss*"— Presentation transcript:
1 Reinhard Schwaiger & Peter R. Haiss* EABH & NBP 2013 Conference on“Foreign Financial Institutions & NationalFinancial Systems “, Warsaw, 07-08/06/2013Session 4 on “Reasons of Cross-border Activities of FinancialInstitutions and their Influence on National Banking Systems”Reinhard Schwaiger & Peter R. Haiss*WU Vienna University of Economics and Business„History compared: Austrian banks‘ internationalization during the monarchy and after the fall of the Iron Curtain“* The opinions expressed are the authors‘ personal views1
2 Agenda Research Issue Motivation/Purpose Summary/Conclusion Method Theoretical FoundationsEarlier ResearchResultsConclusion
3 Research Issue “What drove Austrian bank internationalization during the Monarchy and after the fall of the Iron Curtain?”
4 Motivation/PurposeAustrians banks’ commitment/exposure to the “East” significant market positionHistoric importance of the region banks expanded stronglyConnection: Monarchy to present timesHistoric ties to Central, Eastern & Southeastern Europe?
5 Motivation/Purpose cont’d Examine the reasons for the banks’ internationalization then and nowComparison of strategies: Monarchy <-> after 1989Role and strategy of Austrian banks during the Austrian- Hungarian Dual MonarchyElaborate on the development of the major Austrian banks and their dominant positionGain an overall picture within the time frame from the monarchy until nowRole of cultural closeness and historic ties concerning internationalization of banks
6 Summary/ConclusionHistorically Austrian banks pursued a “follow the client” strategy, mainly driven by the establishment of industrial firms along the newly created railroad networkPresent strategies are more directed towards the retail market and therefore proactive - widespread retail networkFactors like cultural/psychic closeness & geographical distance played an important role
7 Method/DataLiterature review: Junction of historical studies and internationalization theoriesTimes series analysis: Monarchy vs – 2012-> descriptive indicator: number of branchesGeographical analysis branch networks: cost-intensive means of entering markets and thus a certain proof for long-term intentions2. Case-study design: Creditanstalt/LänderbankData: Statistical yearbooks (branch locations)
8 Theoretical Foundations Haselmann (2006): Foreign banks specialize in financing enterprises which have the same country of origin-> „Follow Your Customer Strategy“-> Push/Pull conditions: economic environment foreign/home countryFocarelli and Pozzolo (2005): Degree of integration, institutional characteristics and profit opportunities drive bank internationalizationWilliams (1997): Banks are responding to their client’s movement abroad - -> want to defend their client-bank relationshipJohanson and Vahlne (1993 & 2009): Internationalization frequently started in foreign markets that were close to the domestic market in terms of psychic distance-> Psychic distance is defined in terms of factors such as closeness in language, culture, political systems
9 Historical ReviewSource: Shepherd, The Historical Atlas, (New York 1911) cited from University of Austin, 2012.
10 Industrial production in Austria between 1830 and 1913 Index (1880=100), Source: Rudolph, ‘The Pattern of Industrial Growth’, 94.
11 Banking during the monarchy Crédit Mobilier: Émile and Isaac Péreire expaned upon the ideas of mobilization of credit and the marriage of banking and industry-> Accumulation of both small and big funds and the subsequent investment in undertakings like the extension of the railway trackSchumpeter: Crédit Mobilier one of the most explosive inventions of the 19th centuryAustria:Creditanstalt first of its kind with an enormous capital base; other banks like Länderbank followed the modelsometimes the opening of a bank branch and the entering into service of a newly built railway happened at the same time
12 Earlier ResearchMärz (1968): Austrian economic history was to a large part bank history - emphasizes the importance of banks as motor and supporter of economic growth. Shows economic conditions by looking at the annual increase of the railway networkGerschenkron (1962) tried to integrate the role of banks into an overall model of industrialization and assumes their key role especially in Austria or GermanyEigner (1997): Austrian banks had positive influences concerning the acceleration of industrialization and a powerful position towards the industryRudolph (1976) emphasizes that the enlargement of the branch network took place largely in the Czech crown lands, the industrial heart of the monarchy
13 Share of industry & craftmanship in total employment of the aggregate Austrian population (1910)Motivation IISource: Bachinger & Matis, ‘Österreichs Industrielle Entwicklung’, supplement
15 Source: www.tramways.at . Source: Nautz, ‘Zerfall und Integration’ ‘Economic Geography in Historic Perspective’ (2008), 4..Source:
16 Results - monarchyThe banking sector emerged as a matter of fact due the high demand of loans in the course of the industrialization process e.g. Silesia, BohemiaIntertwined drivers of development:railway construction (financing/branching out)joint stock banks/Crédit Mobilier (branching out)Strong integration of banks and industrial companiese.g. Creditanstalt: interlinking directorships and majority shares in successful industrial companiesBanks conducted industrial policy and specialized in certain lines of industries -> Banks followed their clients
17 Results - monarchy cont’d Stringent division of labor within the Habsburg monarchy:Industrial core in the now Czech RepublicHungary granary of the empireVienna as administrative center -> led to the emergence of a strong banking machineryKernbauer and Weber (1993) and Eigner (2008): see Vienna before 1914 as the sole financial center in Central Europe besides Berlin.Less developed countries like the Balkan states did not have the banking know-how. That pattern was predominant again after fall of the iron curtain.
18 Timeline of Austrian Banks’ subsidiaries in CESEE countries and Status in 2011By 2011:8.250 branchesin 20 CESEEcountriesMarket shares:UA 10%, SI 17%HU/BG/RS ~ 25%CZ, RO ~ 35%SK, BH ~ 45%HR >70%Source: OeNB (2009), 101; CESEE = Central, Eastern & Southeastern Europe
19 Comparison loans to households and to private enterprises in selected countries CZ1999200020012002200320042005200620072008200920102011Loans priv. ent. % GDP33,529,819,517,616,616,319,720,322,120,920,721,3Loans households % GDP4,04,75,36,48,210,112,715,418,321,024,025,426,0HR-14,918,025,924,924,826,831,224,625,627,029,932,015,318,523,827,730,434,038,235,436,537,837,4SK36,121,218,817,814,723,625,117,325,024,14,35,15,57,08,611,313,511,822,423,7HU20,524,521,523,327,328,428,630,127,827,44,14,56,18,512,414,517,219,923,127,530,831,430,2Source: RZB, CEE Banking Sector Reports, var. issues 10/2004, 10/2007, 06/2012.
20 Results - post 1989Directly after the fall of the Iron Curtain some “first mover” banks followed their corporate clients into the neighboring CESEE countries.Banks soon changed their strategy to setting up (or acquiring) retail networks across CESEE, and going further South/East as well.Banks were attracted by the favorable economic conditions (pull condition). Operations were aimed at long-term growth.Different framework and strategiesTodays branch network 50 times largerWidespread retail banking networks, proactive
21 Cultural & geographical closeness Historic ties serve as base for the subjective closeness and rather low psychic distance. In daily business same mentality is striking.Nowotny (2009), Wurm (2006) and Haiss (1992) state that the cultural closeness between Austria and CESEE countries is one of the reasons for the success.Austrian expertise regarding market operations in the East is an asset. Market knowledge and contacts were an advantage for Austrian firms at an early stage.Important hub and gateway to the East with Vienna as its centre of regional financial expertise.CESEE = Central, Eastern & South-Eastern Europe
22 Summary/ConclusionHistorically Austrian banks pursued a “follow the client” strategy, mainly driven by the establishment of industrial firms along the newly created railroad networkRecent strategies are more directed towards the retail market and therefore proactive - widespread retail network=> Factors like common history, cultural/psychic closeness andgeographical distance played a major role
23 Reinhard Schwaiger & Peter R. Haiss* EABH & NBP 2013 Conference on“Foreign Financial Institutions & NationalFinancial Systems “, Warsaw, 07-08/06/2013Session 4 on “Reasons of Cross-border Activities of FinancialInstitutions and their Influence on National Banking Systems”Reinhard Schwaiger & Peter R. Haiss*WU Vienna University of Economics and Business„History compared: Austrian banks‘ internationalization during the monarchy and after the fall of the Iron Curtain“* The opinions expressed are the authors‘ personal views23
24 Related Research http://ssrn.com/author=115752 Cizek, Hannes / Haiss, Peter / Mahlberg, Bernhard (2013): The pattern of cross-border bank lending to CEE, Paper presented at the 2013 Annual Meeting of the Austrian Economic Association (NOeG 2013), Innsbruck, Austria, May 10th-11th, 2013, Haiss, Peter / Rainer, Wolfgang (2012): Credit Euroization in Eastern Europe: The “Foreign Funds” Channel at Work, Comparative Economic Studies 54(3): , Haiss, Peter / Winkler, Alissa (2011): Financial Crisis in Central and Eastern Europe: How did Foreign Banks Adapt? in Ugurlu, Mete (ed.) Proceedings of the International Financial Symposium 2010, Marmara University, Istanbul: , Haiss, Peter / Schellander, Elisabeth (2010): Knowledge Transfer by Austrian Banks to the Transition Economies of CESEE, in Springer, R. / Chadraba, P. (eds.): Proceedings of the 18th Annual Conference on Marketing and Business Strategies for CEE ,WU Wien: Krumhuber, Peter / Haiss, Peter (2009): Austrian-Turkish Business Relations – Why Way Behind CEE Level? In Szymura-Tyc, M. (ed.): International Marketing and Business in the CEE Markets, Katowice, Roessl, Petra / Haiss, Peter (2008): FDI as Signal for Competitive Advantage: Does Financial Sector FDI Attract Real Sector FDI, Portfolio Investment and Trade? In Kowalewski, O. and Weresa, M. (eds.): The Role of Foreign Direct Investment in the Economy, pp9-41,http://www.hampp-verlag.de/ Haiss, Peter / Pichler, Andreas / Steiner, Katharina (2009): Austrian and Spanish Banks Abroad – A Comparison of Responsible Regional Integration Strategies in Gadziyev, S. Et al(eds.): Business De-velopment and Markets in the European Economic Area, Foundations of Intl Studies Publ. Kyiev, Eller, Markus / Haiss, Peter / Steiner, Katharina (2006): FDI in the financial sector and economic growth in CEE: The crucial role of the efficiency channel, Emerging Markets Review 7(4): Fink, Gerhard / Haiss, Peter / Orlowski, Lucjan / Salvatore, Dominick (1998): CEE Banks & Stock Exchanges: Capacity Building and Institutional Development, European Management Journal 16(4): Fink, Gerhard / Haiss, Peter (1995): Western Strategies in CEE, Journal of East-West Business 3/95,: Haiss, Peter (1995): The Twin Challenges to Austrian Banking: the Environment and the East, Long Range Planning, 25(4): Haiss, Peter (1991): Central European Strategies of Austrian Banks, Bankarchiv 5/1991:
25 Austrian banks’ market share by host country (%) 1999200020012002200320042005200620072008200920102011AL35,4~3027,0BG19,429,024,624,824,422,022,1BH41,045,052,6 ~50~5047,044,5CZ5,021,025,031,032,034,937,037,134,834,134,032,8HR9,018,036,045,263,064,365,866,666,067,0HU14,015,016,015,720,520,720,422,223,022,322,6ME8,08,314,415,316,9PL7,010,110,511,211,02,22,32,02,1RO9,514,517,541,640,337,336,235,0RS30,029,227,928,126,3SI3,08,510,014,217,018,917,916,8SK40,046,043,044,044,152,050,050,245,7UA12,98,213,612,410,2Source: OeNB,’Financial Stability Report’, Austrian National Bank, various issues (Nr. 2/2001; Nr.5/2003; Nr. 9/2005; Nr. 11/2006; Nr. 13/2007; Nr. 21/2011)* PL: if UCBA included ~ 15%; further rose with RBI acquisition 2012
26 Branch Network 10 largest stock banks in 1914 Source: Compass Finanzielles Jahrbuch für Österreich (1915).
27 Foreign bank presence and growth in cross-border lending Source: Mihaljek, 2009
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