Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors
Over the past 10 years the three Baltic republics have undertaken significant restructuring of their banking sectors, supported by the World Bank through three projects: the Financial Institutions Development Project in Estonia, the Enterprise and...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/11/1643369/using-development-oriented-equity-investment-tool-restructuring-transition-banking-sectors http://hdl.handle.net/10986/19438 |
| id |
okr-10986-19438 |
|---|---|
| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCOUNTING AUDITING AUDITORS AUDITS BALANCE SHEET BANKING CRISES BANKING LEGISLATION BANKING SECTOR BANKING SECTOR DEVELOPMENT BANKING SERVICES BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKS BORROWING CAPITAL INFUSIONS CAPITAL LOANS CAPITALIZATION CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL LOANS CONNECTED LENDING CORPORATE GOVERNANCE CREDIT LINE CREDIT RISK DEPOSITS DISBURSEMENT DISCLOSURE EMERGING MARKETS EQUITY INVESTMENT EQUITY INVESTMENTS FINANCIAL AUTHORITIES FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL SECTOR DEVELOPMENT FOREIGN BANKS IMPAIRED ASSETS INSOLVENCY INSTITUTIONAL DEVELOPMENT INTEREST INCOME INTEREST RATES INTERNAL AUDIT INTERNATIONAL ACCOUNTING STANDARDS LAWS LEGISLATION LIABILITY MANAGEMENT LIQUIDITY LOAN LOSS PROVISIONS LOAN MATURITY LOAN SECURITY MANAGEMENT INFORMATION SYSTEMS MARKET RISK NORDIC INVESTMENT BANK PRIVATE BANKING PRIVATE BANKS PRIVATIZATION PROFITABILITY PROJECT FINANCE RATING AGENCIES RECESSION REGULATORY FRAMEWORK RISK MANAGEMENT RISK TAKING SAVINGS SECURITIES SHAREHOLDERS SMALL BANKS STATE BANKS STATE ENTERPRISES STATE OWNED BANKS STOCK MARKETS STOCK PRICES SUBSIDIARY SUPERVISORY AGENCIES SUPERVISORY FRAMEWORK TECHNICAL ASSISTANCE TRADING TRANSPARENCY TREASURY OPERATIONS WORKING CAPITAL |
| spellingShingle |
ACCOUNTING AUDITING AUDITORS AUDITS BALANCE SHEET BANKING CRISES BANKING LEGISLATION BANKING SECTOR BANKING SECTOR DEVELOPMENT BANKING SERVICES BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKS BORROWING CAPITAL INFUSIONS CAPITAL LOANS CAPITALIZATION CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL LOANS CONNECTED LENDING CORPORATE GOVERNANCE CREDIT LINE CREDIT RISK DEPOSITS DISBURSEMENT DISCLOSURE EMERGING MARKETS EQUITY INVESTMENT EQUITY INVESTMENTS FINANCIAL AUTHORITIES FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL SECTOR DEVELOPMENT FOREIGN BANKS IMPAIRED ASSETS INSOLVENCY INSTITUTIONAL DEVELOPMENT INTEREST INCOME INTEREST RATES INTERNAL AUDIT INTERNATIONAL ACCOUNTING STANDARDS LAWS LEGISLATION LIABILITY MANAGEMENT LIQUIDITY LOAN LOSS PROVISIONS LOAN MATURITY LOAN SECURITY MANAGEMENT INFORMATION SYSTEMS MARKET RISK NORDIC INVESTMENT BANK PRIVATE BANKING PRIVATE BANKS PRIVATIZATION PROFITABILITY PROJECT FINANCE RATING AGENCIES RECESSION REGULATORY FRAMEWORK RISK MANAGEMENT RISK TAKING SAVINGS SECURITIES SHAREHOLDERS SMALL BANKS STATE BANKS STATE ENTERPRISES STATE OWNED BANKS STOCK MARKETS STOCK PRICES SUBSIDIARY SUPERVISORY AGENCIES SUPERVISORY FRAMEWORK TECHNICAL ASSISTANCE TRADING TRANSPARENCY TREASURY OPERATIONS WORKING CAPITAL Meigas, Helo Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors |
| geographic_facet |
Europe and Central Asia |
| relation |
Policy Research Working Paper;No. 2723 |
| description |
Over the past 10 years the three Baltic
republics have undertaken significant restructuring of their
banking sectors, supported by the World Bank through three
projects: the Financial Institutions Development Project in
Estonia, the Enterprise and Financial Sector Restructuring
Project in Latvia, and the Enterprise and Financial Sector
Project in Lithuania. These projects included a credit line,
channeled through local commercial banks, to provide
long-term funding and complementary technical assistance to
private enterprises. In parallel, the government of Sweden
injected equity into the commercial banks from Swedfund
Financial Markets (SFM). The projects and the accompanying
Swedfund equity were aimed at promoting sound banking
systems in the three Baltic countries-by strengthening the
equity in the banks and thereby expanding medium- and
long-term financing. Meigas examines the role of SFM-which
provides development-oriented equity investment (DEI) to
Baltic banks-in the context of the World Bank programs. She
examines the arguments for deploying DEI as a development
vehicle by gauging its impact in the three Baltic countries
on banking skills and services, on capitalization, and on
shareholder structure and board membership. She draws out
the role of technical assistance and compares its impact
with that of DEI, and explores the possibilities offered by
DEI for imposing sound corporate governance. The author also
describes the necessary ingredients for successful DEI. The
author's analysis shows that the Baltic projects were
valuable initiatives that could in principle be replicated
in other transition or developing economies whose banking
sector faces serious restructuring challenges. A
development-oriented equity investment, like that made by
SFM, can address the important deficiencies in a banking
sector that is still in a rudimentary state, lacking both
capital and banking skills. SFM's most effective tool
was the imposition of sound corporate governance on the
institutions that received the equity injection. This
approach provided a powerful supplement to the banking
supervisory functions. Rather than relying on the external
enforcement power of state supervision, SFM targeted
internal processes to change business practices. As a
result, the DEI led to improvements in the corporate culture
and broader risk management and thus in the quality of
banking services-not only meeting the institutional
development objectives but also ensuring an adequate return
on the invested capital. The potential of good corporate
governance for easing the work of banking supervisors has
been stressed by the Basle Committee on Banking Supervision.
This potential is particularly valuable in countries still
developing the supervisory function, and DEI, the author
argues, is well suited for the task of improving corporate governance. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Meigas, Helo |
| author_facet |
Meigas, Helo |
| author_sort |
Meigas, Helo |
| title |
Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors |
| title_short |
Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors |
| title_full |
Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors |
| title_fullStr |
Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors |
| title_full_unstemmed |
Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors |
| title_sort |
using development-oriented equity investment as a tool for restructuring transition banking sectors |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2001/11/1643369/using-development-oriented-equity-investment-tool-restructuring-transition-banking-sectors http://hdl.handle.net/10986/19438 |
| _version_ |
1764439861032386560 |
| spelling |
okr-10986-194382021-04-23T14:03:43Z Using Development-Oriented Equity Investment as a Tool for Restructuring Transition Banking Sectors Meigas, Helo ACCOUNTING AUDITING AUDITORS AUDITS BALANCE SHEET BANKING CRISES BANKING LEGISLATION BANKING SECTOR BANKING SECTOR DEVELOPMENT BANKING SERVICES BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKS BORROWING CAPITAL INFUSIONS CAPITAL LOANS CAPITALIZATION CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL LOANS CONNECTED LENDING CORPORATE GOVERNANCE CREDIT LINE CREDIT RISK DEPOSITS DISBURSEMENT DISCLOSURE EMERGING MARKETS EQUITY INVESTMENT EQUITY INVESTMENTS FINANCIAL AUTHORITIES FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL SECTOR DEVELOPMENT FOREIGN BANKS IMPAIRED ASSETS INSOLVENCY INSTITUTIONAL DEVELOPMENT INTEREST INCOME INTEREST RATES INTERNAL AUDIT INTERNATIONAL ACCOUNTING STANDARDS LAWS LEGISLATION LIABILITY MANAGEMENT LIQUIDITY LOAN LOSS PROVISIONS LOAN MATURITY LOAN SECURITY MANAGEMENT INFORMATION SYSTEMS MARKET RISK NORDIC INVESTMENT BANK PRIVATE BANKING PRIVATE BANKS PRIVATIZATION PROFITABILITY PROJECT FINANCE RATING AGENCIES RECESSION REGULATORY FRAMEWORK RISK MANAGEMENT RISK TAKING SAVINGS SECURITIES SHAREHOLDERS SMALL BANKS STATE BANKS STATE ENTERPRISES STATE OWNED BANKS STOCK MARKETS STOCK PRICES SUBSIDIARY SUPERVISORY AGENCIES SUPERVISORY FRAMEWORK TECHNICAL ASSISTANCE TRADING TRANSPARENCY TREASURY OPERATIONS WORKING CAPITAL Over the past 10 years the three Baltic republics have undertaken significant restructuring of their banking sectors, supported by the World Bank through three projects: the Financial Institutions Development Project in Estonia, the Enterprise and Financial Sector Restructuring Project in Latvia, and the Enterprise and Financial Sector Project in Lithuania. These projects included a credit line, channeled through local commercial banks, to provide long-term funding and complementary technical assistance to private enterprises. In parallel, the government of Sweden injected equity into the commercial banks from Swedfund Financial Markets (SFM). The projects and the accompanying Swedfund equity were aimed at promoting sound banking systems in the three Baltic countries-by strengthening the equity in the banks and thereby expanding medium- and long-term financing. Meigas examines the role of SFM-which provides development-oriented equity investment (DEI) to Baltic banks-in the context of the World Bank programs. She examines the arguments for deploying DEI as a development vehicle by gauging its impact in the three Baltic countries on banking skills and services, on capitalization, and on shareholder structure and board membership. She draws out the role of technical assistance and compares its impact with that of DEI, and explores the possibilities offered by DEI for imposing sound corporate governance. The author also describes the necessary ingredients for successful DEI. The author's analysis shows that the Baltic projects were valuable initiatives that could in principle be replicated in other transition or developing economies whose banking sector faces serious restructuring challenges. A development-oriented equity investment, like that made by SFM, can address the important deficiencies in a banking sector that is still in a rudimentary state, lacking both capital and banking skills. SFM's most effective tool was the imposition of sound corporate governance on the institutions that received the equity injection. This approach provided a powerful supplement to the banking supervisory functions. Rather than relying on the external enforcement power of state supervision, SFM targeted internal processes to change business practices. As a result, the DEI led to improvements in the corporate culture and broader risk management and thus in the quality of banking services-not only meeting the institutional development objectives but also ensuring an adequate return on the invested capital. The potential of good corporate governance for easing the work of banking supervisors has been stressed by the Basle Committee on Banking Supervision. This potential is particularly valuable in countries still developing the supervisory function, and DEI, the author argues, is well suited for the task of improving corporate governance. 2014-08-19T18:11:35Z 2014-08-19T18:11:35Z 2001-11 http://documents.worldbank.org/curated/en/2001/11/1643369/using-development-oriented-equity-investment-tool-restructuring-transition-banking-sectors http://hdl.handle.net/10986/19438 English en_US Policy Research Working Paper;No. 2723 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia |