State-Owned Banks, Stability, Privatization, and Growth: Practical

WP/05/10

State-Owned Banks, Stability,

Privatization, and Growth:

Practical Policy Decisions in a World

Without Empirical Proof

A. Michael Andrews

IMF Working Paper

Monetary and Financial Systems Department

State-Owned Banks, Stability, Privatization, and Growth:

Practical Policy Decisions in a World Without Empirical Proof

Prepared by A. Michael Andrews

Authorized for distribution by David S. Hoelscher

January 2005

Abstract

This Working Paper should not be reported as representing the views of the IMF.

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent

those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are

published to elicit comments and to further debate.

This paper provides an overview of the possible linkages between state-owned banks,

privatization, and banking sector crises. Data on privatizations in over 65 countries is used

together with data from the banking crisis literature to consider the relationship between

state-owned banks and financial sector stability. The paper draws on the existing literature to

provide guidance to policymakers regarding bank privatization.

JEL Classification Numbers: G18, G21, G32, L32

Keywords: State-owned banks, financial stability, banking crises, privatization

Author(s) E-Mail Address: mike@amandrews.ca

Principal, A. Michael Andrews and Associates Limited. Work on this paper was largely

completed while the author was a Financial Sector Advisor in the Monetary and Financial

Systems Department (MFD). Helpful comments and suggestions are gratefully acknowledged

from Steen Byskov, Peter Hayward, David Hoelscher, Gianni De Nicolò, Alvaro Piris,

Thomas Richardson, the participants in a MFD seminar who discussed an earlier version of the

paper, and reviewers in IMF departments and offices of the executive directors. Thanks are

extended to Marc Quintyn for encouragement and suggestions, and most especially for his

efforts in shepherding the paper through the review and clearance process. Any remaining errors

are the responsibility of the author.

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Content Page

I. Introduction ............................................................................................................................3

II. The Rationale and Pitfalls for State-Owned Banks...............................................................4

III. State-Owned Banks and Financial Sector Stability .............................................................8

A. Do State-Owned Banks Cause Banking Crises?.......................................................8

B. Does Privatization of State-Owned Banks Cause Banking Crises?........................10

C. State-Owned Banks and the Management of a Crisis.............................................11

IV. Bank Privatization: Toward a Policy Consensus?.............................................................16

V. Bank Privatization: Issues for Policymakers ......................................................................17

A. Institutional Infrastructure.......................................................................................18

B. Public Policy Objectives .........................................................................................18

C. Preparing for Privatization ......................................................................................20

D. Methods of Privatization.........................................................................................22

E. Prudential Review ...................................................................................................24

VI. Theory Meets the Real World: Obstacles to Privatization and Half-Way Measures to

Enhance Governance ........................................................................................................24

VII. Conclusion........................................................................................................................28

Tables

1. Countries Experiencing Crises Within Five Years of Bank Privatization.......................13

2. Nationalization in Response to a Banking Crisis.............................................................14

Boxes

1. What Can the Numbers Tell Us? State-Owned Banks and Development.........................7

2. Privatization Precedes Banking Crises in Chile and Mexico...........................................12

3. Key Considerations in Bank Privatization.......................................................................19

Appendices

1. Bank Privatizations ..........................................................................................................30

2. Privatization and Crisis Dates..........................................................................................42

References................................................................................................................................49

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I. INTRODUCTION

Does it matter whether the state owns some or all of a country’s commercial banks? There

have been relatively few attempts to answer this question directly, but the extensive literature

on state-owned enterprises more generally implies that it does matter. More tellingly,

policymakers in many countries at all stages of development have opted for bank

privatization over the last 25 years, reflecting a growing consensus that state-owned banks

are less desirable than privately owned banks. This growing preference for private bank

ownership may be due to an expectation of greater financial stability and higher economic

growth.

The propensity of countries to privatize banks after a systemic crisis reinforces the widely

held view that state-owned banks are bad for financial stability. Stability and growth, of

course, are not independent. Banking crises result in significant fiscal costs and even more

significant losses in output. Governments in many postcrisis countries have clearly decided

that one way to avoid the fiscal burden of repeated recapitalizations of state-owned banks is

to privatize. Privatization is frequently part of the package of policy measures intended to

strengthen the financial system, reducing the likelihood of future crises and the associated

output losses.

Even if full blown crises are avoided, the distortions introduced by state-owned banks can

make the financial sector less able to contribute to growth. There are multiple dimensions to

these distortions. State-owned banks may be explicitly required or implicitly expected to

finance loss-making state-owned enterprises, or provide financing on noncommercial terms

to regions or sectors, or extend credit based on political connections rather than risk

assessment. State-owned banks may be inefficient, providing opportunities for inefficient

private sector banks to thrive in less than competitive markets, or alternatively permit

efficient banks to earn extraordinary profits. State-owned banks may have a cost of funds

advantage over privately owned banks due to an implicit or explicit government guarantee. If

these funds are used to finance inefficient state-owned enterprises, the result can be a

crowding out of private intermediation.

This paper provides an overview of the issues and the existing literature addressing linkages

between state-owned banks and growth, privatization, and banking crises. The paper’s new

contribution is data on bank privatizations developed from multiple sources (Appendix I),

which is used in conjunction with data on systemic crises to consider the following questions:

• Do state-owned banks cause banking crises?

• Does privatization of state-owned banks cause banking crises?

This data, together with details of the nationalization of banks during recent banking crises, is

also used to consider a third question:

• To what extent is privatization of state-owned banks after a banking crisis simply a

return to the precrisis market structure?

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The data indicate that privatization of banks nationalized during crises accounts for only

about one-third of the bank privatizations occurring concurrently or within five years of the

end of a banking crisis. This suggests that policymakers in post crisis countries have an

increased preference for private ownership of banks.

A recurring theme in this paper is that financial sector stability issues, which include the

general preconditions for a sound financial sector as well as the strength of the supervisory

apparatus and the soundness of banks themselves, are intertwined with the growth and fiscal

issues that seem typically to drive policy decisions regarding state-owned banks. Some

suggestions are provided throughout the paper for further research into a topic that will

remain important to policymakers for many years to come given the continued prevalence of

state-owned banks in many countries.

The balance of the paper is organized as follows. The next section of the paper provides an

overview of the case for and against state ownership of banks, noting that regardless of the

state of the academic debate, the decision by policymakers to privatize is evidence that

government ownership has fallen into increasing disfavor. Section III of the paper uses the

data on privatizations presented in Appendix I together with the dates of banking crises and

details of bank nationalization during crises to consider linkages between state-owned banks

and financial sector stability. Sections IV and V draw on the literature on bank privatization,

and privatization more generally, in a discussion of issues of particular concern for

policymakers. The penultimate section of the paper provides policy suggestions to mitigate

the negative influence of state-owned banks in circumstances where privatization cannot be

quickly achieved, and the final section contains brief concluding remarks.

II. THE RATIONALE FOR AND PITFALLS OF STATE-OWNED BANKS

The number of bank privatizations around the world since the mid 1970s is evidence of how

state ownership of banks has fallen into disfavor with many policymakers (Appendix I

includes over 235 privatizations in more than 65 countries).

However, views on government

ownership of banks and other enterprises have evolved over time, and policymakers in the

In part, this may be attributed to IMF conditionality, as privatization is a common feature of

structural adjustment programs.

The discussion in the paper, and the data in Appendix I, excludes development banks,

which are distinguished from commercial banks by not raising deposits from the general

public. There are various types of government owned banks, including those operated on

similar lines and often competing with private commercial banks. Others are intended to

serve a specific purpose, such as mortgage financing. This paper includes special-purpose

banks in its general discussion of state-owned banks so long as these banks raise deposits

from the general public and thus compete with commercial banks for deposit funding.

Appendix I includes only banks in which government ultimately divested majority

ownership. Sales of minority ownership, unless part of the process leading to majority

divestiture, are excluded due to the continuation of government control.

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post-World War II period were generally much more inclined toward state-ownership.

As a

result, through the middle of the twentieth century governments in many countries became

more actively involved in the ownership of enterprises and provision of goods and services of

all types. Thus, even with large numbers of privatizations, state-owned banks still play a

major role in the financial system of many countries.

In the debate over the proper role of government, banking was commonly included in a list of

key sectors or functions that should be government controlled. In developed countries, the

premise for government ownership of the financial sector was to control the “commanding

heights” of the economy, ensuring among other things that the growth of regions or sectors

was not impeded by market failures. In developing countries, additional factors influenced

the tendency toward greater state-ownership in the financial sector.

The classic “development view” of state-owned banks is that government ownership can

stimulate growth when economic institutions are not sufficiently developed for private banks

to meet financing needs. This view, combined with the belief that government should control

the strategic sectors of the economy, was “adopted around the world as governments in the

1960s and 1970s nationalized the existing commercial banks and started new ones in Africa,

Asia, and Latin America.”

This trend was reinforced in some newly-independent countries

by a resentment of colonial institutions including foreign-owned banks, which were often

viewed as favoring the economic interests of their shareholders and large multinational

clients at the expense of indigenous individuals and businesses.

An alternative premise for state-owned enterprises and banks in particular, is that political

objectives take primacy over the quest for growth and development. In this “political view,”

politicians use state-owned banks and other enterprises “to provide employment, subsidies

and other benefits to supporters, who return the favor in the form of votes, political

contributions and bribes.”

State-owned banks are particularly desirable as instruments for

the distribution of political largess because their lending activities can influence all sectors of

the economy and banks frequently operate large branch networks spanning all or most

regions of a country. In addition, the information asymmetry between banks and outsiders

makes it relatively easy to disguise political motivations for loans, and the full costs of such

For a summary of the evolution of views on state-owned enterprises generally, see

Megginson and Netter (2001). La Porta, Lopez-de-Silanes, and Shleifer (2002) provide an

overview of the specific considerations for state ownership of banks.

La Porta, Lopez-de-Silanes, and Shleifer (2002, p. 265).

Brownbridge and Harvey (1999, p. 4).

La Porta, Lopez-de-Silanes, and Shleifer (2002, p. 266).

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loans may be deferred for some time until a state-owned bank recognizes losses on loans

made on political rather than commercial terms.

In both the political and development views, the rationale for state-owned banks is to finance

projects that otherwise would not be funded. The difference is that in the development view,

the motivation is the more laudable objective of funding economically desirable projects that

the private sector neglects due to market failures, rather than more crassly funding politically

desirable projects without regard to economic viability. Either case, however, provides strong

motivation for the establishment and maintenance of state-owned banks.

Despite these motivations, state-owned banks no longer enjoy the popularity of the 1960s and

1970s. Development successes proved elusive (Box 1). By the 1980s, many of the African

governments that nationalized banks in the previous decades faced acute economic crises.

Latin American crises in the 1980s preceded privatization of many state-owned banks. The

general trend toward privatization in Europe in the 1980s included the divestiture of state-

owned banks in many countries including France, Italy, Portugal, and Spain. On balance, the

costs of state-owned banks came to be seen as outweighing the benefits. In formerly planned

economies, transformation of the banking system was central to the transition to a market

economy.

Many of the costs and drawbacks to state-owned banks are the same for state-owned

enterprises more generally. In addition to susceptibility to partisan political influence, a

mandate for commercial viability may conflict with social and development objectives.

These can include considerations such as providing nationwide service regardless of

economic viability, supporting economic activity in certain sectors or regions, and providing

employment opportunities. While this may comprise all or part of the rationale for state-

owned banks, even if there is a sound governance structure in place to insulate state-owned

banks from direct political pressure, the need to achieve various government policy

objectives may preclude the efficiency that a privately-owned firm would achieve in financial

intermediation. This can be reflected in explicit subsidies to state-owned enterprises, or more

commonly, poorer financial performance than would be expected from a pure commercial

entity.

Explicit or implied requirements to finance inefficient state-owned enterprises or directly

finance government deficits can further impair the ability of state-owned banks to operate on

commercial terms. For example, one of the challenges to bank reform in China is the volume

of nonperforming loans extended to state-owned enterprises that are unable to repay the

loans, and must themselves be restructured. Use of the deposits raised by state-owned banks

for the support of state-owned enterprises may crowd out potentially more productive use of

savings by privately-owned intermediaries.

Dinç (2002, p. 2).

Brownbridge and Harvey (1999, p. 6).

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Box 1. What Can the Numbers Tell Us? State-Owned Banks and Development

Interventionist and inefficient governments, and poor protection of property rights are among some of

the most usual suspects in cross-country empirical studies of growth and development. Since state-

owned banks so often are prevalent in countries scoring poorly on these measures, it may be difficult

to determine whether state-owned banks are really a cause of lower economic growth, or simply a

common feature of countries with poor government and institutional infrastructure.

One of the few empirical studies explicitly exploring this relationship, La Porta, Lopez-de-Silanes,

and Shleifer (2002) constructs a database of government ownership of banks in 92 countries. This is

used with various measures of economic performance, the quality, nature and role of government and

the legal framework, and financial sector structure and performance, to consider four questions.

• How significant is government ownership in various countries?

• What types of countries have more government ownership of banks?

• Does government ownership of banks promote subsequent financial growth?

• Does government ownership of banks promote subsequent economic growth and how does it

affect factor accumulation, savings and growth of productivity?

The paper finds that countries with higher levels of state-bank ownership tend to have lower levels of

per capita income, underdeveloped financial systems, interventionist and inefficient governments, and

poor protection of property rights. While slower economic growth is associated with higher levels of

historical state-ownership of the banking system, the paper does not empirically infer causality.

Two other empirical studies fail to find support for the development role of state-owned banks.

Building on the data on the La Porta, Lopez de Silanes, and Shleifer data on state-owned banks, Dinç

(2002) examines the lending behavior of state-owned banks using financial data for state-owned and

private banks. The paper finds that the greater lending and restructuring activities of state-owned

banks in election years supports the “political view” of state-owned banks, rejecting the hypothesis

that state-owned banks play a beneficial development role. Examining Italian banks, Sapienza (2002)

finds that while some behavior such as lower interest rates and favoring particular regions may be

consistent with development objectives, only the political view is consistent with these behaviors as

well as the influence of election results and political party affiliation.

In addition to the general problems of quantification and measurement of factors influencing

development, the state-bank ownership data used in these studies are subject to some limitations. The

La Porta, Lopez-de-Silanes, and Shleifer data uses indicators of state-bank ownership in 1970 and

1995. To the extent that state-owned banks are indicative of institutional factors that change only

slowly, use of data for only two dates may well be indicative of the influence of state-owned banks on

growth. However, when examining specific countries use of data for two dates may not provide an

indication of some important episodes in a country’s banking history. For example, the

nationalization of most Mexican banks in 1982 and subsequent privatization in 1991–92 falls in

between the two dates. Similarly, the nationalization of major banks in response to a banking crisis

can be a major blip in the long-term trend of declining state-ownership of banks, and in many

countries, 1995 was far from an end point in bank privatization.

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III. STATE-OWNED BANKS AND FINANCIAL SECTOR STABILITY

Problems in state-owned banks can arise from the same three generic causes that affect

private sector banks. Microeconomic causes of problem banks are generally poor banking

practices that lead to losses through inadequate management of credit and other risks, or

fraud. Macroeconomic shocks such as the 1970s oil crisis, or imprudent fiscal or monetary

policies, can lead to losses at privately or state-owned banks. Similarly, structural problems

such as an inadequate legal system for the enforcement of contracts can affect bank

performance regardless of its ownership.

Even if state-owned banks have only the same vulnerability as privately-owned banks to

these three sources of problems, state-owned banks may be more exposed to solvency-

threatening losses. This is because the profits of state-owned banks are lower than they

otherwise might be,

reducing the availability of earnings as the first line of defense against

unexpected losses, and lessening the ability to generate capital through retained earnings.

The macroeconomic environment is the same for private and state-owned banks in a given

country, so observable differences between banks with private and state ownership must be

attributable to bank-specific factors. There could be a range of factors contributing to the

poorer performance of state-owned banks, including objectives other than profit

maximization, less competent management, overstaffing and other operational inefficiencies,

and less well developed risk management. In addition, state-owned banks may be more or

less rigorously supervised leading to lower likelihood of detection of emerging problems and

initiation of remedial measures by the supervisory authority.

The lower resilience of state-owned banks can be compounded by the greater vulnerability of

state banks to losses on loans and investments made for policy or political reasons rather than

on pure commercial terms. While privately-owned banks may be subject to moral suasion,

state-owned banks are subject to the directives of the shareholder, which might include

support for inefficient state-owned enterprises, for either development or political purposes.

Not only does this increase the risk of loss to the banks, it also is a misallocation of capital

within the economy.

A. Do State-Owned Banks Cause Banking Crises?

The three empirical studies to examine the relationship between state-owned banks and

banking crisis find little or weak evidence of a causal link. This finding may be somewhat

surprising given the evidence from studies of bank privatizations indicating that state-owned

banks have poorer financial performance than private banks. However, individual bank

problems do not necessarily lead to systemic crisis, and also the lack of a causal link may be

because state-owned banks tend to be more prevalent in countries with other policies and

Case studies generally find improved financial performance following bank privatization, a

finding that is supported by empirical studies. See Verbrugge and Megginson (1999), and

Bonin, Hasan, and Wachtel (2003).

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weak institutions that may be more important in causing crises. Thus, a high prevalence of

state-owned banks tends to be associated with crises even though there is no empirical proof

of causation.

Barth, Caprio, and Levine (2000) find little evidence of a causal link between state-owned

banks and the likelihood of crises in an examination of 66 countries. The finding is not

consistent with their prior assumption, and they hypothesize that “state-owned banks that

encounter difficulties may receive subsidies through various channels, so that the banks are

never identified as being in crises.”

The study uses data on government ownership as of

1997 and, thus, may not capture any effect from changes over time in the percentage of a

country’s banking system controlled by state-owned banks. In addition, the focus of the study

on regulation and ownership may not adequately control for many other factors that may

contribute to banking crisis, particularly the necessary preconditions for an effective

regulatory regime. The nature of regulation specific to the financial sector may be much less

important than the quality of the general legal infrastructure and government institutions.

La Porta, Lopez de Silanes, and Shleifer (2002) find only a weak relationship between the

level of government ownership of the banking system and measures of financial instability in

their examination of 92 countries. They hypothesize that this “may be because such factors as

the general interventionist stance of the government, its efficiency and the security of

property rights may be more important correlates of government bank ownership than are the

assorted crises.”

Their findings indicate that countries with higher levels of government

ownership of the banking system “are more backward and statist. They are poorer and have

more interventionist and inefficient governments, and less secure property rights. Countries

with less developed financial systems also seem to have higher government ownership of

banks.”

Although the study does consider the levels of bank ownership in 1970 and 1995,

the findings rely on equations including only the 1995 levels, as the authors note a high

correlation between the 1970 and 1995 levels. Use of a single point for government

ownership, or even two points, may miss important developments within countries. These

can include a cycle of nationalization and subsequent divesture in response to a banking

crisis, for example, in the Nordic countries in the 1990s. In addition, the trend toward

privatizations may not be fully captured as in many countries significant privatization

occurred after 1995. However, if institutional factors are determining factors and government

ownership only a by-product of the state structure in countries with poorer infrastructure,

similar findings would be expected using additional and more recent data on government

ownership of the banking system. While government ownership can be divested relatively

quickly, the quality of institutions changes only over time.

Barth, Caprio, and Levine (2000, p. 20).

La Porta, Lopez-de-Silanes, and Shleifer (2002, p. 280).

Ibid p. 281.

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The third empirical examination of the relationship between government ownership of the

banking system and the likelihood of banking crises also considers whether the severity of

crises is increased by higher levels of government ownership. Caprio and Martinez Peria

(1999), use the La Porta, Lopez-de-Silanes, and Shleifer data on government ownership of

banks in a sample of 64 countries. They find that greater government ownership does

increase the likelihood of banking crises, although the model does not control for potentially

important institutional factors such as the rule of law, property rights, and government

efficiency. The finding that greater government ownership of banks increases the costs of

banking crises is not statistically significant, and as the authors note, is subject to significant

difficulty in measuring the costs of crises. The use of data at two points in time rather than a

series may not reveal a relationship if government ownership of banks, or changes in the

percentage of the banking system held by government-owned banks, is a proximate cause of

crisis. For instance, poorly-handled privatization might precipitate a crisis, as could

nationalization. However, as with the La Porta, Lopez-de-Silanes, and Shleifer findings, if

institutional factors that change only slowly are the causal factors, then similar results might

be expected using additional data points for government ownership.

Further empirical work addressing some of the difficulties in measurement and modeling

identified by these studies might provide evidence of a stronger link between state-ownership

and banking crises, but even undisputed empirical proof would likely have little impact on

policymakers. The broad trend toward bank privatization has emerged in the absence of such

proof, likely because the empirical work does not contradict the theoretical arguments against

state-owned banks and the anecdotal experience with state-ownership in many countries.

While not providing strong support for a causal link to banking crises, the findings of all

three empirical studies are consistent with the body of literature indicating that institutions

are more important than other factors as determinates of economic development.

Recent

empirical work indicates that poor institutional structure is more important than the specific

regulatory framework for the financial sector.

Put another way, countries with poor

institutional structure are more likely to have state-owned banks and weak public sector

governance, and thus are more prone to banking crises. Improving the institutional structure,

including reducing the direct intervention of government in economic activities, usually

involves reducing government ownership in the banking sector.

B. Does Privatization of State-Owned Banks Cause Banking Crises?

Bank privatization programs, or more accurately, shortcomings in the design or execution of

the programs, are sometimes cited as contributing to future banking crises. Mexico and Chile

Rodrik, Subramanian, and Trebbi (2002) summarize and critique the recent work in this

field and provide some new empirical evidence to support their view of the primacy of

institutions.

Das, Quintyn, and Chenard (2004) find that weak public sector governance has an effect

on financial sector soundness over and above the quality of the regulatory framework.

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in particular are cited as examples (Box 2).

However, when the data on bank privatizations

are juxtaposed with the dates of banking crises, only a handful of countries are identified

where major bank privatizations took place within five years prior to the onset of a banking

crisis (Table 1). Some of these countries tend to have experienced “serial” crises over a

period of years, indicating great difficulty in addressing the fundamental problems of the

banking sector. Failure to establish preconditions for effective banking supervision,

deficiencies in the regulatory framework and its enforcement, lack of capital and inadequate

managerial capacity were all proximate causes of the ensuing banking crises. A successful

privatization may deal with issues of managerial capacity, but a simple change in bank

ownership is not enough to address broader financial sector problems.

Kenya (Commercial Bank of Kenya) is an instance where government initially sold only a

small ownership stake, retaining majority control for a number of years following the initial

move to privatization. In Korea, the privatization of Kookmin had no causal link to the 1997

crisis, although the need for strengthened prudential supervision and hidden weaknesses in

the banking sector because evident after the onset of crisis. In the Ukraine, the initial

privatizations were through share distribution, a method of privatization that fails to bring

new capital or expertise to the bank. Privatization of banks is only rarely associated with

banking crisis, but the few instances suggest that partial privatizations are not effective in

addressing the weaknesses of state-owned banks, nor are privatizations that do not bring new

capital or management skills to the bank.

C. State-Owned Banks and the Management of a Crisis

Once a banking crisis occurs in a country, does the presence or absence of state-owned banks

have any impact on the authorities’ reaction to the crisis? Quantifying the extent of problems

to develop a viable strategy can be more difficult if state banks have not been subject to the

same standard of banking supervision as applied to privately-owned banks. While there is an

international consensus that state-owned banks should be subject to the same prudential

oversight as private banks, in practice it often happens that regulatory forbearance is applied

to state banks. This can be due to an implicit assumption that government ultimately

backstops the risk to depositors, mitigating the need for prudential oversight, or because bank

supervisors prove unable or unwilling to require that state-owned banks adhere to

regulations. This may mean that the asset valuations and reported profitability of state-owned

banks may be less-reliable than similar data for privately-owned banks.

The presence of state-owned banks may be a benefit in attempting to stabilize a crisis as

state-owned banks may be less susceptible to runs as government may be seen as more able

See, for example, Dziobek and Pazarbasioglu (1997b) and Gruben and McComb (1997).

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Box 2. Privatization Precedes Banking Crises in Chile and Mexico

Chile: As part of a broad reform program initiated in 1973, 19 of 20 state-owned banks were

sold to private investors in 1975. The bulk of these banks were acquired by financial

conglomerates, which were required to make only a 20 percent initial down payment toward

the purchase price. Many conglomerates then used loans from the banks to make down

payments on nonfinancial state-owned enterprises being privatized. Some changes to the

legal framework for banking supervision were implemented in the late 1970s, but were

inadequate to deal with the rapidly changing financial sector. By 1981 the banking system

was in crisis, leading among other things to intervention in eight banks, central bank liquidity

support, and in 1982 and 1984, purchase by the central bank of nonperforming bank assets.

In 1985, the central bank participated directly in recapitalizing banks, five of which were

subsequently returned to private ownership in 1986. As part of the response to the crisis, the

prudential framework was strengthened, and the funding and staffing of the supervisory

agency increased.

Mexico: Government sold controlling stakes in 18 banks over 14 months from June 1991 to

July 1992. Although some deregulation had taken place, sale of the banks at generally high

multiples of book value indicates the purchasers expected the Mexican banking market to

continue to be characterized by limited competition, providing opportunities for large profits.

Initially this was the case. As spreads widened, however, this tended to mask lack of

operating efficiency (Gruben and McComb, 1997). Competition increased more rapidly than

expected, when numerous new domestic banks were chartered beginning in 1993, and new

regulations in 1994 pursuant to the North American Free Trade Agreement permitted greater

foreign competition. In addition to facing increasing competition with little improved

operating efficiency, the banks also engaged in significant amounts of related parties’

transitions, and some used derivatives to take risky and leveraged currency positions. Banks

came under increasing pressure following the peso devaluation in 1994, and in 1995 a special

recapitalization program was introduced to deal with a number of problem banks.

Neither in Chile nor in Mexico can the privatization of banks be singled out as the cause of

the ensuing crises. In both cases, privatizations occurred in the early stages of major

liberalization programs. Stronger prudential frameworks and better supervision could have

mitigated subsequent problems, for instance by restricting insider transactions and imposing

more stringent limits on credit and currency risks. In both cases the transformation from a

banking system dominated by state-owned institution to privately-owned institutions took

place quickly, but it is not clear that there would have been any advantage to extending the

privatization program over a longer-time period, apart from the opportunity to make further

progress on other needed reforms.

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Table 1. Countries Experiencing Crises Within Five Years of Bank Privatization

Country

Bank

Date

Crisis Dates 1/

Notes

Cameroon Standard Chartered Bank 1994 1995–98

Sale of government stake in

subsidiary of major

international bank.

Croatia Dubrovacka Bank 1994 1996 Renationalized due to

financial distress;

reprivatized in 2002.

Kenya Kenya Commercial Bank

Ltd.

1988 1993–95 Government retained

majority holding until after

onset of crisis.

Korea Citizens National Bank

(Kookmin)

1994 1997–00 Strengthened prudential

regulations and liberalized

ownership and management

rules introduced after 1997

crisis.

Mexico 18 banks 1991–92 1994–97 See Box 2.

Ukraine Bank Ukraina 1993–94 1997–98 Privatized through share

distribution, mainly to

employees.

1/ See Appendix II for details on crisis dates.

and willing to provide financial support than the shareholders of private banks.

Never-

theless, in about one-third of banking crises in countries where state-owned banks accounted

for 75 percent or more of the banking market, the authorities introduced a blanket guarantee

as part of the crisis management strategy,

suggesting that in the absence of a specific

government commitment, depositors may run even from state-owned banks. State-owned

banks can be useful in dealing with runs on insolvent private banks if the ability to honor

deposits is undoubted. State-owned banks could act as the paying agent under a blanket

guarantee or deposit insurance scheme for the deposits of closed banks, and would not

require cash or liquid assets for these deposits to the extent that they were retained rather than

withdrawn by depositors.

One common tool to deal with crises is the nationalization of privately-owned banks as an

alternative to permitting them to fail (Table 2) This has occurred in systems that were

Despite often weaker financial fundamentals, state-owned banks generally enjoy higher

deposit ratings than their private sector comparators, as ratings agencies rely on an implicit

sovereign guarantee. See Hawkins and Mihaljek (2001, p. 10).

Honohan and Klingebiel (2002).

- 14 -

Table 2. Nationalization in Response to a Banking Crisis

Country Nationalization Subsequent Divestment

Argentina

(Jul. 2001–present)

Three banks nationalized.

Ecuador

(Aug. 1998–01)

One bank (Pacifico) merged into a bank

wholly owned by the central bank

(Continental).

Finland

(Aug. 1991–93)

41 savings banks merged into the Savings

Bank of Finland, taken over by the

Government Guarantee Fund.

Sound assets of the Savings Bank sold

October 1993 in equal parts to four large

private banking groups.

Indonesia

(Aug. 1997–2002)

Four private banks taken over by

government restructuring agency April-

May 1998, eight additional banks taken

over March 1999, and eight private banks

recapitalized with majority government

funds, private participation. One of the

joint recap banks was subsequently taken

over in 2001, five of the banks taken over

merged to create Bank Permata.

Majority share in five nationalized banks

divested prior to 2004 wind-up of the

restructuring agency (Bank Central Asia,

Bank Niaga, Danamon, Bank International

Indonesia, and Bank Lippo). One bank

(Bukopin) reprivatized by shareholders

pursuant to joint recapitalization agreement

December 2001. One bank still to be

privatized (Bank Permata-negotiations

underway with preferred bidder at end-

October 2004).

Korea

(Nov. 1997–00)

Two commercial banks were taken over in

December 1997.

51 percent interest in Korea First Bank sold

by tender September 1999. Seoul Bank

merged with Hana Bank, December 2002.

Malaysia

(Jul. 1997–00)

None.

Mexico

(Dec. 1994–95)

None.

Russia

(Aug. 1998–99)

21 banks were restructured or liquidated by

the Agency for Restructuring Credit

Organizations (ARCO).

As of January 2003, ARCO had sold its

shares in 11 banks through auction and

transferred shares.

Sweden

(Fall 1991–92)

State took over all shares of Gota Bank

1992, subsequently merged with

Nordbanken, which already had majority

state ownership.

Government sold 34.5 percent of

Nordbanken, October 1995, and by 2004

retained 18.5 percent in the Nordic Financial

Group (former Nordbanken).

Thailand

(Jul. 1997–00)

Three intervened banks merged with state-

owned banks.

Two intervened banks not yet privatized.

Turkey

(Dec. 2000–present)

By end-November 2002, 20 banks taken

over by the state deposit insurance fund.

Most exited through mergers or closure,

five sold in 2001–2002.

Source: Updated from Hoelscher and Quintyn (2003).

- 15 -

dominated by privately-owned banks prior to the crises, as well as in cases where there was

already significant state ownership. In times of crises the private sector may be unwilling or

unable to provide capital to support the banking system. Faced with a widely-insolvent

banking system, many governments have opted to use public funds for bank recapitalization,

acting as the “owner of last resort” to preserve essential banking functions.

Privatization has also been a common policy response to banking crises. Of the 65 countries

undertaking bank privatizations documented in Appendix I, 39 have also experienced

banking crises (Appendix II). Of these 39 countries, 23 undertook one or more bank

privatizations concurrently with the crisis or within three years of its end. This is due in part

to the divestiture of banks that had been nationalized as part of the immediate response to the

crisis, but this explains the majority of privatizations in only about one-third of these

23 countries. For the other cases, the crisis appears to have provided a political impetus for

privatization. In some instances, this has been influenced by conditionality attached to IMF

programs or World Bank loans. Another factor, however, is that politicians will be in favor of

privatization when the political cost of maintaining state ownership outweighs the benefits.

The political benefits of state-owned banks may be reduced, or less easy to realize, in a post-

crisis period. Banks emerging from serious financial distress will be less able to afford credit

decisions made on political basis or in furtherance of policy objectives that may conflict with

commercial objectives. The need to restructure and rationalize may limit opportunities to

provide employment in regions or to political supporters by maintaining unneeded positions.

Even if state-owned banks emerge from a crisis financially able to deliver the political

largesse, the heightened scrutiny and enhanced governance that may follow large

expenditures to recapitalize state-owned banks can prohibit such transactions, or make

readily apparent their political motivation. Finally, there may be a “never again” factor.

When the electorate has been critical of the costs of resolving the banking crises, politicians

may be attracted to privatization, particularly to a strong foreign investor, as a means of

ensuring that they will not have to approve future expenditures to support state-owned banks.

Further research, particularly case studies, of privatization following crises could be

enlightening. It would be useful to systematically examine the benefits to government of

rapid divestiture of banks nationalized during a crisis as opposed to a longer-term approach

to returning banks to private sector ownership. The example of Sweden (1992–94) indicates

that rapid divestiture is possible and desirable. The general problems with governance of

state-owned institutions, potential strengthening of management and risk management

through sale to a well-regarded private bank, and a desire to return the banking sector to a

normal footing as quickly as possible are among the reasons supporting the quick sale

strategy. However, country authorities are often attracted by the potential financial upside of

longer-term government ownership, arguing that the government stake will appreciate in

value until finally sold after several years of profitable operation.

Cull and Clark (1997).

- 16 -

IV. BANK PRIVATIZATION: TOWARD A POLICY CONSENSUS?

The world-wide trend of bank privatization less reflects a single consensus than waves of

policy decisions with similar outcomes, often reached for very different reasons. While bank

privatizations often occur during or shortly after banking crises, bank privatizations are

frequently part of a more general trend in a country and, thus, generally share many of the

same objectives as privatization. In most countries, some or all of the following objectives

have motivated privatization,

which in many cases have specific considerations for state-

owned banks.

• Raise revenues for the state. The importance of privatization revenues extends well

beyond development and transition economies. Privatization revenues have been

important for some countries seeking to meet the Maastricht criteria. British

privatization proceeds in the 1980s substantially reduced government debt.

• Promote economic efficiency and reduce government interference in the

economy. Government ownership often has not been effective in meeting

development goals. Policymakers may expect privatized enterprises to be more

responsive in meeting consumer demand. Efficiency gains can eliminate the need for

subsidies, freeing up fiscal resources for other priority spending or debt reduction.

The potential fiscal burden of subsidizing the credit and operating losses inefficient

state-owned banks can provide political motivation for privatization, as even

substantial costs to clean up a bank’s balance sheet to make it attractive to investors

may be less burdensome than continuing subsidies. A more efficient banking system

will benefit the economy overall by reducing the costs of intermediation.

• Promote wider share ownership. Initial public offerings (IPOs) are a frequent

means of privatization, with provisions such as shares being sold in small allotments

or restriction on foreign participation commonly being used to promote ownership by

individual domestic investors. These provisions are frequently viewed as a tool to

promote the development of capital markets. However, policymakers often have a

preference for a strategic partner to acquire a controlling or significant interest as the

bank is divested, as opposed to widely dispersed ownership, particularly where there

are concerns about the quality of management and systems of a state-owned bank.

• Provide the opportunity to introduce competition. In some of the former socialist

countries, such as Russia and Poland, large state-owned banks were transformed into

a number of smaller banks before or during privatization. Using privatization to

encourage foreign bank entry can lead to an overall enhancement of management

skills in the banking sector.

• Subject state-owned enterprises to market discipline. Privatizing banks can be

particularly helpful in achieving this objective, as private banks are less susceptible to

Megginson and Netter (2001, p 4).

- 17 -

moral suasion or explicit directives to provide preferential financing to state-owned

enterprises. Thus, bank privatization may help to improve the efficiency of other

state-owned enterprises as they would have to be able to obtain credit on commercial

terms rather than relying on the support of state-owned banks.

The evidence of many bank privatizations in a diverse array of countries makes it clear that

policymakers believe that it does matter whether government owns banks. While there may

not be conclusive empirical evidence of causation, it is clear that state-owned banks are

associated with “bad” growth and development outcomes. These can be attributed to

inefficiency on the part of state-owned banks, or less benignly to political interference. Even

if lacking empirical proof, many policymakers have concluded that private sector banks are

more efficient, and privatization removes the irresistible cookie jar of state-owned bank

largess from the reach of politicians. Thus, the trend to privatization of state-owned banks is

likely to continue.

V. B

ANK PRIVATIZATION: ISSUES FOR POLICYMAKERS

The lessons to be drawn from the experience of bank privatizations are in the form of broad

principles rather than a “how to” checklist, since each case has unique features. There are

many similarities between the privatization of banks and privatization of nonfinancial

enterprises, however, there are some key differences. The failure of a privatized bank is

potentially more damaging than the failure of a nonfinancial enterprise because of the

potential loss of depositors’ funds, disruption to the payments system, and possible domino

effects on other banks. For these reasons, it is important that there be an appropriate

institutional structure in place, including a sound framework of general commercial law and

effective banking supervision. The bank supervisory authority should play a key role in the

privatization process, as it would in reviewing and approving the proposed change in

ownership of any bank.

State-owned banks may enjoy real or perceived special privileges. For example, depositors

may consider their deposits implicitly guaranteed by the state. It may be necessary to

introduce a form of limited deposit insurance prior to privatization of state-owned banks as a

means of clearly signaling the end of an implicit guarantee. Failure to deal with the special

positions of state-owned banks prior to privatization runs the risk that markets continue to

perceive state support, which both provides the privatized bank with a competitive

advantage, and increases the potential political pressure for a bail-out should the privatized

bank subsequently experience difficulties.

Bank privatization in transition economies presents a special case that is significantly

different from privatization of nonfinancial enterprises. Cement companies can still produce

and sell cement, but the services of socialist banks as bookkeepers for the planned allocation

Beyer, Dziobek, and Garrett (1999).

- 18 -

of resources are in little demand in a market economy.

Thus, state-owned banks require

even more fundamental reform than nonfinancial enterprises because their basic economic

function has to be completely overhauled in preparation for privatization. Key considerations

and general guidelines drawn from the case studies of bank privatization, with support from

the literature on financial sector development and privatization more generally, are presented

below. The issues are sequenced from broad policy measures to specific concerns for

individual bank privatizations (see Box 3 for a summary).

A. Institutional Infrastructure

Change in ownership alone will not address many of the factors contributing to poor

performance by state-owned banks. Institutional factors, the most important of which are

captured in the preconditions of the Basel Core Principles for Effective Banking Supervision,

have to be conducive to sound banking. These factors include sustainable macro-economic

policies, legal infrastructure, particularly with respect to contract law and measures for

pledging collateral and enforcing security agreements, and appropriate and widely-used

accounting standards. In countries where these preconditions require strengthening,

successful bank privatization must be part of a broader program of reforms.

In an ideal world, it would be possible to complete each part of a major reform project

without the complications of how to deal with other issues either concurrently or

sequentially. Everything cannot happen at once, and even if there is a clear view on whether

privatization should precede or follow key reforms, the ideal sequencing may not be possible.

In practice, many elements of the reform are undertaken concurrently, or subsequent to

privatization. Policymakers in many countries have proceeded with bank privatization before

the necessary legal infrastructure and framework for effective banking supervision has been

put in place. In these circumstances, private ownership, motivated by potential loss of

investment may be better able to minimize exposure to the banking risks arising from

inadequate infrastructure, although in such circumstances government ownership might

rather be seen as a greater advantage. In some cases private investors have preferred a

continued government minority stake as a possible means of influencing favorable outcomes

in an unpredictable legal system, or increasing the likelihood that important state-owned

enterprises honor the commercial terms of their contracts with the privatized bank.

B. Public Policy Objectives

The drive to privatize banks frequently comes from the belief that private ownership will

contribute to financial stability and longer-term growth. However, some or all of the

objectives of privatization generally—raising revenues, promoting efficiency, encouraging

wider share ownership, enhancing competition, and introducing market discipline—will also

apply in bank privatizations. These public policy objectives are likely to influence the

Fries and Taci (2002, p.1).

- 19 -

Box 3. Key Considerations in Bank Privatization

Institutional infrastructure: Preconditions are vital to sound banking. These include macro-

economic stability, legal infrastructure, accounting standards and an appropriate safety net

(lender-of-last-resort facilities, and, possibly, deposit insurance). Sound banking supervision

is required to review proposed privatizations from a prudential perspective, and to

subsequently oversee the privatized banks. Perfect infrastructure and banking supervision

will never be in place, so it will generally be preferable to privatize in conjunction with other

reforms rather than to wait for ideal circumstances.

Public policy objectives: A safe and sound financial system is not the only objective to be

met in privatization. There will be inevitable trade-offs, and other objectives such as

supporting national champions or maintaining employment are likely to have broad political

support. Prudential issues should not be sacrificed to other policy objectives due to the

potentially far-reaching impact of subsequent bank failures.

Preparing a bank for privatization: An “as is” sale is preferable, if possible, as it can be

completed quickly and does not entail major public investment in preparing a bank for

privatization. However, state-owned banks are frequently in such poor condition that

financial restructuring is required if reputable private investors are to be attracted.

Methods of privatization: Almost all successful bank privatizations have been some form of

share sale. Attracting a reputable financial institution as a strategic investor, often with a

significant public share float, has generally proven more successful than privatizations

resulting in widely-held ownership. Government retention of a majority shareholding for an

extended period has often been unsuccessful, thwarting true reform and leading to a need for

additional recapitalization. There is empirical evidence that foreign bank entry improves the

function of national banking markets, so attracting a foreign bank as strategic investor may

be particularly desirable.

Prudential review: As with any change in bank ownership, the supervisory authority should

only approve the transaction if the new owners are fit and proper, management is competent

and experienced, the source of capital is verified, and the business plan is viable.

preparations for privatization and the design of the transaction itself, which can come into

conflict with financial stability concerns.

A desire for “national champions” and maintaining domestic control of the largest financial

institutions are two related public policy objectives that frequently influence privatizations.

While there may be a desire to acquire expertise and/or foreign capital to enhance stability

and growth, policymakers are often reluctant to lose domestic control of large institutions.

One of the motivations for both objectives is an element of pride or nationalism associated

with having strong domestically-owned institutions. In addition to this emotional concern,

- 20 -

which may have a very important political impact, economic arguments are also presented in

favor of maintaining domestic control. While there is certainly no consensus on these issues,

arguments presented include:

• A national economy may be diminished in the long run if it becomes merely a

“branch plant” without the benefits of the headquarters functions of international

firms.

• Domestically-owned banks may establish stronger relationships with domestic

industry, thus, providing more favorable and consistent trade financing to the nation’s

exporters and importers than will foreign banks.

• Domestically-owned banks are arguably less likely to favor foreign business over

domestic customers if faced with capital constraints, and are more susceptible to the

exercise of moral suasion by government.

Similarly, domestic banks cannot

withdraw from a market in the same way that a foreign-owned subsidiary might

curtail certain activities or even withdraw completely from a country as a result of a

change in the strategic focus of the parent bank.

Other policy concerns are likely to include the maintenance of services in all areas served by

state-owned banks prior to privatization, continued servicing of specific sectors, and

preserving employment. These concerns can conflict with the desire to increase efficiency, as

new private owners typically look to close unprofitable locations, eliminate policy-influenced

lending to small business or state-owned enterprises, and improve operating efficiency

through staff retrenchments.

Since privatization is a political process, regardless of the state of the economic debate

regarding national champions, maintaining service to all regions and sectors and preserving

employment, these issues are likely to be raised in the policy debate over bank privatization,

and thus will influence the process.

C. Preparing for Privatization

A crucial question is whether to restructure a state-owned bank prior to privatization, or to try

to sell the government stake essentially on an “as is” basis. In the rare case of state-owned

bank operating efficiently on a commercial basis, there is little need for operational or

financial restructuring as part of the process of government divestment. However, in the

more typical case, state-owned banks require significant restructuring to become fully

competitive with privately-owned banks.

Porter (1998).

Aliber, (1984).

Peek and Rosengren (1997).

- 21 -

The case for financial restructuring is often clear-cut as deeply insolvent state-owned banks

are not very attractive to private sector owners. Since investors are unwilling to pay enough

to “fill the hole” created by bad assets, government as owner has to find a way to provide the

bank with a sufficient quantity of good quality assets to equal its liabilities in order to attract

new equity investors. Methods of restructuring can vary. One frequently used model is the

“good bank-bad bank” split,

with nonperforming loans left in the bad bank, and

government providing the good bank with assets, usually bonds, to fill the balance sheet

hole.

A variation on this approach, which has been used in Ghana, Tanzania, and Uganda,

among other countries, is to transfer the bad assets to a specialized asset management

company (AMC) rather than leave them in the bad bank. When the volume of bad assets is

smaller, or if the decision is made that the bank should work out the problem loans itself,

government as shareholder may subscribe to new equity issues. A further variation, which is

only available if the bank to be privatized is already on a reasonably sound financial footing,

is to issue subordinated debt to bolster the capital base prior to privatization.

While the need for financial restructuring is often clear-cut, the timing of such restructuring

is not. When the state-owned bank is insolvent, delayed recapitalization can serve to increase

losses and the ultimate cost. An insolvent bank can lack sufficient income from its earning

assets to cover its costs, and without the new earning assets acquired through recapitalization,

it may not be possible to return to profitability regardless of the amount of operational

restructuring undertaken. However, when a bank has been recapitalized, failed operational

restructuring and long privatization delays can lead to the need for further recapitalization

expenses when the bank is finally ready for divestiture. For this reason, it is often

recommended that recapitalization be closely linked to the privatization transaction.

One

attempt to balance the need for earning assets provided through recapitalization with the need

to ensure effective restructuring is to provide recapitalization in stages, contingent on

meeting restructuring objectives.

Even when it is clear that operational restructuring is required, it may not be clear whether it

is better for this to happen under government ownership, or if it is ultimately more cost-

effective to sell the bank on an as-is basis. The “as is” sale price may be higher than the sale

This approach was used for most Argentine bank privatizations in the 1990s. See Clarke

and Cull (1997). For a discussion of variations on this approach and other options, see

Borish, Ding, and Noël (1997).

For technical details on the use of government bonds for restructuring and recapitalization,

see Andrews (2003).

Meyendorff and Snyder (1977, p. 27).

This was the intent behind the phased recapitalization of four Indonesian state-owned

banks in 1998–002 (Bank Mandiri, Bank Nasional Indonesia, Bank Rakyat Indonesia, and

Bank Tabungan Negara).

- 22 -

price for a restructured bank net of ongoing operating losses and one-off charges for staff

retrenchments, branch closings, and other restructuring costs. This is because restructuring

costs may not be fully recovered in subsequent divestiture, as management or consultants

retained to assist are unlikely to achieve the exact branch alignment and staffing that a new

owner would prefer. While new owners may pay more not to have to deal with an operational

restructuring plan already underway, there may also be situations where new owners are

reluctant to take on the burden of staff reductions and branch closures. Particularly where

strong political pressure is anticipated, new owners may require certain closures or lay-offs to

occur prior to privatization.

D. Methods of Privatization

The literature provides several taxonomies of privatization methods,

but almost all bank

privatizations can be categorized as share sales, asset sales or voucher privatizations. The

vast majority of bank privatizations take some form of share sale, with a phased privatization

often involving first an IPO or private placement, followed by subsequent secondary

offerings (Appendix I). “Privatization is a process, not an event,”

so while it is common to

categorize by type of transaction, there are many decisions that lead to the final choice about

how to divest government’s ownership stake. These decisions are influenced by policy

objectives and political and fiscal constraints.

The use of voucher privatizations, where individuals received vouchers that could be

exchanged for shares in various state-owned enterprises, has been almost exclusively limited

to the transition economies of the former Soviet Union. The attractiveness was the speed of

government divestment, and intended egalitarianism of distributing ownership of state assets

to individual citizens. The process does not raise funds for the state, and thus is not suitable

for meeting the government financing objective that is often one of the driving forces for

privatization. Voucher privatizations brought no new equity into the bank, and at least

initially resulted in a widely-held ownership structure, precluding a strategic investor taking a

keen interest in the operational restructuring and governance of the bank. In some cases this

changed over time as investors acquired significant holdings of shares originally distributed

through voucher privatizations. Voucher privatizations have generally been unproductive,

and when employed for banks have not led to healthy banks. However, as the transactions

took place while the countries were in the throes of massive reform with governments using

the voucher method having few options, it is difficult to see how more successful

privatizations could have been completed at the time.

There are few cases of bank privatization by asset sales. One example is the disposition of

banks nationalized in Finland in response to the Nordic banking crisis. In 1993 the

Megginson and Netter (2001) identify four generic types of privatization: restitution; sale

of state property; mass (voucher) privatization; and privatization from below.

Verbrugge, Megginson, and Owens (1999, p. 30).

- 23 -

government sold to four commercial banking groups equal tranches of the assets of the

Savings Bank of Finland, which had been formed from an amalgamation of savings banks

during the crisis. The creation of many new banks from the branches of Zhilsotsbank in

Russia could be considered a form of asset sale, as branch managers were allowed to choose

the assets that would constitute the new banks, essentially acquiring state assets at a zero

price. Similarly, the good-bank bad-bank split could be considered a form of asset sale, as the

good assets of the bank are repackaged for sale. A variation on this method is the disposition

of the assets of closed banks by a centralized AMC, such as the Indonesian Bank

Restructuring Agency. Aside from these examples, it is difficult to find cases of privatization

by sale of state-owned banking assets as opposed to the sale of shares in a state-owned bank.

By far the most common type of bank privatization involves the sale of shares, which can be

either a public offering, or a tender or auction process. Virtually all cases included in

Appendix I are some form of share sale. The choice of share sale method is typically

influenced by a range of sometimes conflicting objectives.

Maximizing government revenues may be achieved by a phased privatization, however, this

has to be balanced against the likely difficulty in instilling market-oriented governance and

management in banks when government retains a large ownership stake.

Continued state-

ownership carries with it the risk of recurring credit losses or operating losses, leading to a

need for additional recapitalization before final divestment.

A widely-subscribed IPO can be politically attractive as a means of preserving domestic

ownership, avoiding the pitfalls of lending to parties connected to significant owners of the

bank, and may also serve to foster capital market development by providing a large listing for

the local stock exchange. Widely-held ownership has the drawback of not providing strong

oversight of management by a significant shareholder, and also does not provide the natural

conduit to strengthen management and the bank’s internal systems that would arise from sale

of a controlling interest to a strong bank.

Privatization by IPO can be disappointing in countries with small and emerging capital

markets.

Underdeveloped institutional structures, such as inexperienced investment banks,

limited broker networks and trading mechanisms, have led to market manipulation at worst,

or inefficient share distribution at best. Countries seeking to use bank privatizations as a

catalyst for capital market development may be disappointed with the pricing of the IPO, and

Verbrugge, Megginson, and Owens (1999) find some evidence that an IPO leaving

government with a majority holding, followed by subsequent further divestiture, can

maximize government revenue. Initial offerings tend to be significantly underpriced, while

seasoned offerings are less underpriced. By selling in phases, the government may get a

higher price for subsequent tranches and, thus, greater overall revenue relative to selling its

entire ownership share at once.

Bonin and Wachtel (1999, p. 2).

- 24 -

still have markets with limited depth and liquidity due to inadequate institutional structure

and low investor interest.

Evidence from case studies suggests that better financial performance is achieved when

privatization involves a strong financial institution as a significant shareholder.

Ensuring

that there is a suitable significant investor can be achieved through a sale by tender, or in an

IPO, by reserving a controlling percentage for a prequalified investor. However, such a

transaction can be politically difficult in developing and transition economies, as the only

suitable strategic investors are likely to be foreign. There is empirical evidence to support the

hypothesis that foreign bank entry can make domestic markets more efficient by forcing local

banks to operate more efficiently, providing long-run benefits for banking customers in the

form of lower intermediation and service charges.

This suggests that a reputable foreign

bank is particularly desirable as a strategic investor when privatizing in markets dominated

by domestic banks, notwithstanding possible political opposition to sale to foreign interests.

E. Prudential Review

There are many cases where the subsequent financial difficulties of a privatized bank could

have been avoided if an appropriate prudential review had been undertaken prior to

privatization. Owners and managers lacking banking experience or fitness and probity,

investors lacking the promised capital, and unviable business plans are common causes of

failed privatizations that should be identified in a prudential preview.

The privatization

should only proceed if the supervisory authority is satisfied in all respects. Pressure to

approve a transaction despite prudential concerns, lack of capacity on the part of the

supervisory authority to undertake a suitable review, or proceeding with privatization without

any involvement of the supervisory authority has resulted in the need for subsequent

intervention in failed privatizations in Croatia, the Czech Republic, Mozambique, and

Uganda, among others.

VI. THEORY MEETS THE REAL WORLD: OBSTACLES TO PRIVATIZATION AND HALF-WAY

MEASURES TO ENHANCE GOVERNANCE

Even when privatization of banks is viewed as a good policy option, implementation may be

problematic. Many bank privatizations have been long delayed or aborted. Key issues to be

managed include the cost, sequencing of other reforms, and achieving political consensus.

Even if privatization is not possible, policymakers have some options to help avoid the

Meyendorff and Snyder (1997, p. 27).

Classens, Demirgüç-Kunt, and Huizinga (2001) and Clarke, Cull, and Martinez Peria

(2001).

For a detailed discussion of the prudential review of proposed ownership changes in banks,

see Andrews (2002).

- 25 -

vicious cycle of repeated recapitalizations or forbearance to deal with recurring losses of

inefficient state-owned banks.

The cost of making weak banks attractive to private investors may far exceed the revenues

from privatization. This is not an uncommon situation, and even when long-term cost savings

are substantial, the immediate fiscal burden of making weak banks attractive to private

investors can be greater than the immediate costs of continued state-ownership. This is

particularly true if the recognition of the costs of state-owned banks is deferred through

supervisory forbearance. Banks may appear sound and profitable if loan loss provisioning

requirements and capital adequacy requirements are not enforced. This creates a strong

incentive for the “wait and hope” strategy. Unfortunately, experience around the world is

that the condition of weak banks is more likely to deteriorate than improve unless decisive

action is taken.

India presents a case in point of the real difficulties in proceeding with privatization, and

some of the half-way measures that can be undertaken (Box 4). Among other obstacles, the

cost of restructuring weak banks to make them attractive to private investors was seen as

prohibitive. The costs are not limited to dealing with nonperforming loans, but extend to

needed rationalization of branch networks and head office staffing. Quite apart from the

monetary costs of severance and branch closures to achieve efficiencies, there are significant

social costs, and a political cost to downsize the unionized workforce.

As an alternative to privatization, India has pursued bank reform with the following key

components:

• reduction in barriers to entry to foster greater foreign competition

• ensuring private sector-quality boards of directors and senior management

• voluntary retrenchment schemes to facilitate needed staff rationalization

• gradual strengthening of prudential norms

The combination of exposure to increasing competition, relaxation of some of the more

restrictive elements of the regulatory regime, strengthened governance and prudential

oversight was intended to improve the performance of the state-owned banks, while retaining

majority government ownership and at least some elements of the social commitment to

finance priority sectors.

China provides an illustration of issues of sequencing and the extended time that can be

required for other reforms. Although China has indicated an intention to privatize all but the

largest state-owned enterprises, thus far the number of divestitures has been small.

This is

in part because of the need for broad structural reforms. The large state-owned banks

historically served to allocate credit in a planned economy, so not only has there been a need

to introduce basic commercial banking concepts such as credit risk assessment, there has

Megginson and Netter (2002, p. 36).

- 26 -

Box 4. India: Experience With State Bank Reform.

India’s banking sector has evolved considerably since the beginning of a reform program in 1991.

Public sector banks (PSBs), which accounted for about 90 percent of the banking market in 1991,

now have 75 percent of total banking assets. None of the 27 PSBs has been privatized, although

15 have tapped the capital markets and have minority shareholdings ranging from 25 percent to

45 percent. The policy of gradually tightening prudential regulations and at the same time increasing

competition in the market by removing restrictive regulations and permitting new entrants has

contributed to improved efficiency in the PSBs. Asset quality and profitability have converged toward

the average for commercial banks in India.

Weaknesses within the PSBs were broadly known within policy circles, but until the introduction of

more stringent accounting and prudential standards in 1992–93, the extent of the problems was not

evident in the banks’ financial reporting. Interest accrued but not paid could be recognized as income,

and banks were widely under provisioned in the absence of specific prudential requirements.

New banks very quickly took advantage of liberalized entry rules, with 24 new private banks,

including 15 with foreign ownership, beginning operations in India between January 1993 and March

1998. The new prudential standards quickly brought to light longstanding problems in the PSBs. In

1992–93 the PSBs, all but one of which had been profitable the previous year, collectively recorded a

net loss, and half reported negative net worth. This prompted government to make capital injections

into 19 of the PSBs in 1993–94, with many receiving further support in subsequent years. The capital

support was contingent on recovery plans, but a number of banks made little substantive progress, in

part because of the expectation, subsequently confirmed, that government would continue to provide

capital injections.

A 1999 review of the PSBs identified as chronically weak rejected merger and closure options.

Privatization was viewed as attractive to eliminate the need for future government recapitalizations,

but impractical due to cost of needed restructuring and the likely inability to attract private investors.

Instead, renewed efforts at restructuring, including harder looks at staff reductions and branch

closures was recommended. These renewed efforts ultimately bore fruit, with all PSBs meeting the

9 percent capital adequacy requirement in 2003.

The Indian approach to date has been to reform state-owned banks without privatizing and retaining

some noncommercial mandates such as lending to priority sectors. The Reserve Bank of India as

banking supervisor has been extremely active in driving the restructuring, which has been undertaken

concurrently with efforts to strengthen governance and management practices throughout the Indian

banking sector. The list of changes to the legal framework for banking supervision and improvements

to its practical implementation is impressively long. The greatly strengthened prudential regime is

intended to ensure that other government policy objectives do not overwhelm the need for PSBs

financial viability, but it remains to be seen if this is achievable over the medium to long term.

- 27 -

been the much broader need to reform the state-owned enterprises unable to service debt on

commercial terms, and to introduce a prudential framework and effective bank supervision.

This reform process has been underway since the early 1990s, combined with a measured

opening of the banking market to foreign competition. Recapitalization of state-owned banks

in 1998 and the creation of asset management companies have not truly addressed the banks’

fundamental problems of governance and management, so there is a continuing flow of new

problem assets, notwithstanding the very rapid growth in the loan portfolio and weak

provisioning rules, which have helped to minimize reported nonperforming loan levels. A

further complication in reforming the banks is the need for a new social welfare mechanisms

to replace the housing, medical and other services historically provided to employees and

retirees by state-owned institutions. These functions need to be removed from the state-

owned banks if they are ever to be privatized.

In cases where privatization in the short term cannot be achieved, there are measures that can

enhance the performance of state-owned banks. Vulnerability to explicit or implicit political

interference, and the potential difficulty in reconciling various government policy objectives

with prudent commercial banking practices, can leave a state-owned bank with an unclear

mandate, or unable to fulfill conflicting elements of its mandate. If the commercial banking

operations are not to be privatized, then three important half-way measures are (i) a mandate

to operate on a commercial basis; (ii) a governance structure to insulate, so far as possible,

state-owned banks from overt political influence; and (iii) implementation of the same

supervisory regime that is applicable to private banks. These measures can make government

ownership a sustainable state as well as paving the way for ultimate privatization.

State-owned banks should be required to operate on a commercial basis. This requires

competent staff and efficient internal systems, operating free from political influence. The

governance measures cited above can ensure that competent senior management are retained

with the mandate and freedom to implement the same kinds of systems and controls that

would be adopted by any prudent commercial bank. A key component of this commercial

operation is credit risk assessment, both for state-owned enterprises and other borrowers. To

the extent that state banks are required to undertake lending or provision of other services on

nonmarket terms in order to meet government policy objectives, this should be explicitly

acknowledged and undertaken transparently, preferably with a government subsidy or

guarantee.

Once a state-owned bank has been given a clear commercial mandate, the governance

structure is important in ensuring that the mandate can be fulfilled. As with other state

For a brief summary, see Barnett (2004).

Governance reform, new professional management and strengthened prudential regulation

have all been used to stabilize state-banks in Central Europe and Latin America as part of the

process leading to privatization. See Hawkins and Mihaljek (2001), pp. 7–13.

- 28 -

entities, a balance of independence and accountability is important. A board comprised of

independent directors serving for fixed terms can serve as important buffer between

government and the state-owned bank. Directors need to be clearly charged with stewardship

of the public funds invested in the bank, so that their fiduciary responsibility should take

precedence over any partisan affiliation. Directors of state-owned banks, taking seriously the

responsibility for oversight of public funds, with fixed terms to preclude summary dismissal

by the government of the day, may provide similar stewardship to that provided by directors

of privately-owned banks.

One potential market distortion is that state-owned banks, even if operating on a commercial

basis relatively well-insulated from political pressure, may have cost of fund advantages over

private banks, arising from an implicit (or explicit) government guarantee of the deposits of

state-owned banks. This may be more pronounced if the state-owned banks are not required

to meet regulatory capital or other prudential requirements. Application of the same

supervisory regime to state-owned banks and private banks can help to minimize the

distortions introduced in the market by state-owned banks.

While it can be challenging in practice, treating government in the same way as other bank

owners are treated—requiring all prudential norms to be observed, and that capital be

restored in the event of losses—the supervisory regime can provide additional incentives for

state-owned banks to operate on a commercial basis. This approach is a general principle for

banking supervision, but in practice, there are inevitable complications in dealing with state-

owned banks. Nevertheless, it is important in ensuring that the competitive playing field

remains level and to maintain credibility in the financial sector that state-owned banks are not

dealt with in a more favorable manner than privately-owned banks.

VII. CONCLUSION

The question of how state-owned banks and their privatization affect financial sector stability

and growth will continue to be an important issue for policymakers. Despite numerous

privatizations in recent years, many countries continue to have financial sectors featuring

significant roles for state-owned banks.

State-owned banks are often associated with significant shortcomings in the preconditions for

an effective banking system, such as the rule of law and strong government infrastructure, so

any particular problems introduced by state banks may be obscured by these important

institutional weaknesses. This is consistent with the finding that large privatizations

immediately precede crises in only a few instances. In these countries, failure to establish the

institutional preconditions for sound banking prior to, or at least concurrently with, the

privatizations is more likely to have been a proximate cause of the crisis than the

privatizations themselves.

Basel Committee (2002, pp. 40–42).

- 29 -

Nationalization of banks is a policy response often used in dealing with a banking crisis,

raising the possibility of a temporary increase in state ownership and subsequent divestiture.

Only about one-third of privatizations in postcrisis countries are explained by this

phenomenon, suggesting that in the wake of a crisis, policymakers opt to divest government

ownership in banks as part of the reforms intended to strengthen the financial sector. This is

consistent with the growing preference for private ownership of banks, likely due to an

expectation of greater financial stability and higher growth.

The prudential dimension distinguishes bank privatizations from the privatization of

nonfinancial enterprises. The experience of failed privatizations illustrates that policymakers

ignore at their peril the key prudential concerns of having fit and proper owners, adequate

capital, competent management, and viable business plans. Too often, either through lack of

capacity on the part of the supervisory authority, or a failure to conduct an appropriate

prudential review, privatized banks subsequently face distress due to issues that could have

been foreseen at the time of the privatization.

Governance structures can significantly mitigate the pitfalls of state ownership, although

state-owned banks will inevitably be more susceptible to political suasion than their private

sector counterparts. Greater focus on state bank governance is important given the significant

presence of state ownership that will persist for many years in many countries. In some

countries, a strong philosophical commitment to state-owned banks remains an integral part

of public policy, and in other countries, even though there is some support for privatization, it

will take many years to achieve the objective. In either case, enhanced governance can help

to avoid the expensive cycle of losses and recapitalizations.

Considerably more research could assist policymakers in dealing with state-owned banks. A

systematic series of case studies organized around themes such as the institutional

infrastructure, public policy objectives, preparing banks for privatization, methods of

privatization, and the prudential review, could lead to improved “how to” recommendations

for policymakers. Further work on banking crises, including more precise delineation of

crisis and identification of observable indicators would permit more valuable work on

capturing the interaction between crises and possible causal factors, including state

ownership.

Despite the absence of empirical proof, it is clear that policymakers believe it does matter

whether the state owns some or all of a country’s commercial banks. The widespread trend of

privatization is likely to continue, and further research can improve the practical policy

advice provided to government officials undertaking bank privatizations.

- 30 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Argentina Chaco 1994 Tender

Argentina Entre Rios 1994 Tender

Argentina Formosa 1995 Tender

Argentina Misiones 1995 Tender

Argentina Rio Negro 1996 Tender

Argentina Salta 1996 Tender

Argentina Tucuman 1996 Tender

Argentina San Luis 1996 Tender

Argentina Santiago del Estero 1996 Tender

Argentina San Juan 1996 Tender

Argentina Mendoza 1996 Tender

Argentina Municipal de Tucuman 1997 Tender

Argentina Jujuy 1998 Tender

Argentina Santa Fe 1998 Tender Government sold 90 percent

Argentina Santa Cruz 1998 Tender

Australia Commonwealth Bank 1991 IPO Government sold 29 percent by IPO August 1991, 20.3 percent by secondary

offering October 1993 to hold 50.25, and fully divested by 1996

Australia State Bank of New South Wales 1994 State government sold to the Colonial Mutual Life Association

Australia State Bank of South Australia 1995 State government sold to Advance Bank

Australia Bankwest 1996 IPO Government sold 49 percent by IPO January 1996 to hold 51 percent

Austria Creditanstaldt 1997 Tender Government sold controlling interest to Bank Austria

Austria Osterreichische Landerbank Tender Government sold to Zentralsparkasse und Kommerzialbank Wien to form

Bank Austria

Bangladesh Pubali Bank 1984

Bangladesh Uttara Bank 1984

Barbados Barbados National Bank 2000 IPO Government sold less than majority shareholding by IPO

Brazil Baneb 1999 Tender Sold by auction June 22, 1999

Brazil Credireal 1997 Tender Sold by auction August 7, 1997

Brazil Banestado 2000 Tender Sold by auction October 17, 2000

- 31 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Brazil Bandepe 1998 Tender Sold by auction November 17, 1998

Brazil Banerj 1997 Tender 100 percent sold to Bank Itaú, June 26, 1997; following restructuring after

intervention by central bank

Brazil Minas Gerais 1998 Tender 100 percent sold to Bank Itaú, September 1998 following restructuring after

intervention by central bank

Bulgaria United Bulgarian Bank 1997 Tender 65 percent sold to Oppenheimer (U.S.) and the EBRD

Bulgaria Post Bank 1998 Tender 78 percent share sold

Bulgaria Express Bank 1999 Tender 67 percent share sold

Bulgaria Bulbank 2000 Tender 98 percent sold to a consortium of Unicredito (ItalY0 and Allianz (Germany)

Bulgaria DSK Bank 2003 Tender 100 percent sold to OTP Bank (Hungary)

Cameroon Standard Chartered Bank 1994

Canada Province of Ontario Savings Office 2003 Tender 100 percent sold to Desjardins Financial Group, effective April 1, 2003

Cape Verde Caixa Econômica Cabo Verde 1999 Significant share sold to 3 Portuguêse financial institutions, which

collectively hold 46 percent. Government share reduced to a minority,

although other shareholders include eh Cape Verde Pension Fund and Cape

Verde post office.

Cape Verde Banco Comercial do Atlântico 1999 Majority share sold to Portuguêse bank, which is itself state-owned,

government retains substantial minority interest

Chile Nineteen banks 1975 19 of 20 state-owned banks sold to private investors, only 20 percent down

payment required

Colombia Banco de Colombia IPO Government 99.2 percent share sold

- 32 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Congo,

Democratic

Republic

Union Zairoise de Banques 1995

Côte d'Ivoire BIAO 2000

Côte d'Ivoire BICICI 1999

Croatia Dubrovacka Bank 1994 Majority share sold to domestic investor, renationalized in 1998 due to

distress

Croatia Dubrovacka Bank 2002

Croatia Privedna Banka 2000

Croatia Rijecka Banka 2000 Renationalized in 2002 when purchaser walked away, subsequently

reprivatized

Croatia Splitska Banka 2000

Croatia Zagrabacka Banka 1996 IPO IPO June 1996

Czech Republic Komercni Banka 1994 IPO 21 percent sold through IPO November 1994, subsequent exchange offerings

of 3 percent in 1995 and 1996. Government retained majority stake until

June 2001 when government sold 60 percent to Société Générale

Czech Republic Ceska Sporitelna 2001

Czech Republic Investieni a Postovni Banka 1998 Sold to Nomura Investments, performed poorly and subsequently

renationalized

Czech Republic Investieni a Postovni Banka 2000 Sold to CSOB in second privatization attempt

Czech Republic CSOB 2000

Denmark Girobank 1993 IPO Government sold 51 percent to hold 49 percent

Egypt Commercial International Bank 1993 IPO Government sold 26.5 percent through IPO November 1993. Retained

majority ownership stake

Egypt Egyptian American Bank 1996

Egypt Egyptian Commercial Bank 1996

Egypt MISR International Bank 1996

Egypt Alexandra Commercial and Maritime Bank 1997

Egypt Cairo Barclays 1999

- 33 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Fiji National Bank of Fiji 1999 Government sold 51 percent to Colonial Limited (New Zealand, ultimate

parent in Australia), retaining 51 percent, agreed in 1998, closed February

1999

Finland Savings Bank of Finland 1993-94 Asset sale Government sold good assets in four tranches, Savings Bank had been

nationalized in dealing with the crisis

France Banque du Bâtiment et Travaux Publiques

(BTP)

1987 IPO Government sold 100 percent by IPO April 1987

France Banque Industrielle et Mobilière Privée

(BIMP)

1987 IPO Government sold 100 percent by IPO April 1987

France Compagnie Financière de Paribas 1987 IPO Government sold 100 percent by IPO January 1987

France Compagnie Financière de Suez 1987 IPO

France Crédit Commercial de France 1987 IPO Government sold its 48.99 share by IPO May 1987

France Société Générale 1987 IPO Government sold 59.1 percent by IPO and 20 percent by private placement,

June 1987, to hold 3.9 percent. 17 percent had been privately held prior to

IPO

France Credit Local de France 1991 IPO Government sold 27.5 percent by IPO December 1991, sold remaining 72.5

percent by secondary offering June 1993

France Banque Nationale de Paris 1993 IPO Government sold 73 percent by IPO October 1993, remainder in secondary

offering

France Banque française de Commerce Extérieur 1995 Government sold all shares to Crédit Nationale December 1995

France CIC 1998 Government sold 67 percent to Crédit Mutuel

France Société Marreillaise de Crédit 1998 Government sold to Banque Chaix October 1998

France Crédit Lyonnais 1999 IPO Government divestiture by IPO March 1999

France Banque Hervert 2001 Sold to CCF March 200

Georgia United Georgian Bank 1996 Formed by a merger of 3 state-owned banks in 1995

Georgia Agrobank 1996

Georgia Exim bank 1996

Germany Deutsche Verkehrskredit bank 1988 IPO Government sold 24.9 percent by IPO March 1988, retaining 75.1 percent

Germany Deutsche Suedlunds and Landesrenten-bank 1989 IPO Government sold 48 percent by IPO October 1989, retaining 52 percent

Germany Deutsche Pfandbrief-und Hypothekenbank 1991 IPO Government sold 46.5 percent by IPO and 40 percent by private placement

March 1991, retaining 13.5

Ghana Merchant Bank 1995

Ghana Social Security Bank Limited 1995 IPO 21 percent sold through IPO March 1995, 40 percent purchased by a

strategic investor, 60 percent of shares listed on Ghana Stock Exchange,

- 34 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

October 1995

Ghana National Investment Bank 2000 After three failed attempts to divest since 1995, 60 percent sold to a

consortium of foreign banks January 2000

Guyana National Bank of Industry and Commerce 1997 51 percent sold by government in October 1997 to the Republic Bank of

Trinidad and Tobago

Hungary Budapest Bank 1995

Hungary Foreign Trade Bank 1996

Hungary Magyar Hitel Bank 1995-96

Hungary National Savings and Commercial Bank

(OTP)

1997 IPO 30 percent sold through IPO October 1997,. Further 41 percent divested

October 1997, and 14.1 percent by subsequent share offering November

1999

Hungary Kereskedelmi and Hitel Bank 1997 Minority share sold in 1997

Hungary Postabank

Hungary Realbank

Indonesia Bank Central Asia 2001 IPO, SEO, Private

Placement

Government sold 22.5 percent by IPO, 10 percent by secondary offering July

2001, and 51 percent by private placement in March 2002 to hold 9.3

percent

Indonesia Bank Niaga 2002 Tender 51 percent to Commerce Bank Malaysia in 2002, additional 20 percent sold

in secondary offering Sept 2003

Indonesia Bank Danamon 2003 Tender 51 percent by tender to international consortium including Temasek

Holdings (Singapore) and Deutsche Bank

Israel Bank Hapoalim 1993 IPO Government sold 20 percent by IPO June 1993, 6.9 percent in secondary

offering November 1993, and 34.6 percent by private placement October

1997

Italy Banca Commerciale Italiana 1981 IPO Private ownership increased from 11.1 percent to 14.9 percent. Government

purchased 85 percent of 1984 secondary offering, so was not diluted, some

dilution in March 1986 and March 1987 secondary offerings

Italy Mediobanca 1988 IPO Three government owned banks with 56.9 percent share sold 13.3 percent by

private placement October 1989, and 18.6 percent by IPO October 1989, to

hold 25 percent

Italy Credito Italiano 1991 SEO Government divested 6.8 percent to hold 58 percent November 1991, and

balance of holdings by secondary offer December 1993

Italy Banca Commerciale Italiana 1994 SEO Government divested balance of holdings (54.8 percent) in March 1994

secondary offering

Italy Istituto Mobiliare Italiano 1994 IPO Government sold 32 percent by IPO January 1994 to hold 31 percent

- 35 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Jamaica National Commercial Bank 1986 IPO 51 percent sold through IPO December 1986, additional shares sold in

market, government sold final 39 percent holding by private placement,

December 1999.

Kazakhstan Industry and Construction Bank 1992 Privatized as Kredsoz Bank

Kazakhstan Agroprom Bank 1993 Completely privatized by 1996

Kazakhstan Turan-Alem Bank 1998

Kenya Kenya Commercial Bank Ltd. 1988 IPO Government sold 20 percent by IPO July 1988, 10 percent by secondary

offering October 1990, 10.59 percent by secondary offering September

1996, and currently holds 35 percent

Korea Citizens National Bank (Kookmin) 1994 IPO 10 percent sold through IPO August 1994, April 1999, Goldman Sachs

acquired 17 percent, subsequent sale increased foreign holding to 71.1

percent, leaving government with 9.6 percent

Korea Korea First Bank 1999 Tender Korea First Bank was nationalized in 1998 in response to the banking crisis,

government sold 51 percent to Newbridge Capital in December 1999

Korea Cheju Bank 2002 Tender Government sold 51 percent to Shinhan Financial Holding Company in

April 2002

Korea Seoul Bank 2002 Tender Sold to Hana Bank in September 2002, purchase price paid in shares giving

government 31 percent share in Hana Bank. Government planning to divest

its shareholding in Hana Bank

Latvia Unibank 1995 IPO Government sold 66 percent through IPO issued for privatization vouchers.

Minimal government ownership after 1997 secondary offering of Global

Depository Receipts

Latvia Savings Bank 1997 Control transferred to private sector, government retaining 30 percent share,

reduced to less than 1 percent by 2003.

Lebanon Banque Nationale du Développement de

l'Industrie et du Tourisme

1994 Bank restructured and opened to majority private sector participation

Lebanon Crédit Libanais 1997 Acquired by the central bank due to financial distress in 1980s, sold to

private investors in 1997

Lesotho Lesotho Bank 1999 Tender

Lithuania Development Bank 2000 Tender

Lithuania Savings Bank 2001 Tender Government shares sold to Hansabank September 2001

Lithuania Agricultural Bank 2002 Tender Government sold 76 percent to Nord LB (Germany)

- 36 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Macedonia, FYR Stopanska Bank 2000 Majority share sold to Greek National Bank, itself also a state-owned bank.

Madagascar BNI-Crédit Lyonnais Madagascar 1991

Madagascar National Bank of Commerce (BFV) 1998 After restructuring and recapitalization, 70 percent sold to Société Générale

(France)

Madagascar Bank for Rural Development (BTM) 1999 Newly-licensed bank controlled by foreign investors purchased good assets

of the BTM for cash and 15 percent of equity in the new bank

Malta Mid-Med Bank 1999 Tender Sale of 67 percent share.

Mauritius State Bank of Mauritius IPO, SEO Bank founded in 1970, government divested over time through IOP and

secondary offerings to hold 37 percent

Mexico Banamex 1991 Tender Government sold 70.7 percent, August 1991

Mexico Bancomer 1991 Tender Government sold 56 percent, October 1991

Mexico Bancreser 1991 Tender Government sold 100 percent, August 1991

Mexico Banorie 1991 Tender Government sold 66 percent, August 1991

Mexico Banpais 1991 Tender Government sold 100 percent, June 1991

Mexico BCII 1991 Tender Government sold 100 percent, November 1991

Mexico Confia 1991 Tender Government sold 78.7 percent, August 1991

Mexico Cremi 1991 Tender Government sold 66.7 percent, June 1991

Mexico Mercantil 1991 Tender Government sold 77.2 percent, June 1991

Mexico Atlantico 1992 Tender Government sold 68.5 percent, March 1992

Mexico Bancen 1992 Tender Government sold 66.3 percent, July 1992

Mexico Banoro 1992 Tender Government sold 66 percent, April 1992

Mexico Banorte 1992 Tender Government sold 66 percent, June 1992

Mexico Comermex 1992 Tender Government sold 66.5 percent, February 1992

Mexico Internacional 1992 Tender Government sold 51 percent, June 1992

Mexico Promex 1992 Tender Government sold 66 percent, April 1992

Mexico Serfin 1992 Tender Government sold 51 percent, January 1992

Mexico Somex 1992 Tender Government sold 81.6 percent, February 1992

Mongolia Trade and Development Bank 2002 Tender Government's 76 percent share sold to foreign consortium in May 2002

Mongolia Agricultural Bank 2003 Tender Government sold 100 percent to H.S. Securities (Japan)

- 37 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Morocco Société Nationale d'Investissement 1994 IPO

Morocco Banque Marocaine du Commerce Extérieur

(BMCE)

1995 IPO State and state-owned institutions had acquired 50.1 percent. Sold 35

percent through IPO January 1995, and remaining

15 percent by secondary offering April 1996.

Morocco Crédit Eqdom 1995 IPO Government sold 18 percent through IPO June 1995, retained 82 percent

Mozambique Banco Comercial de Moçambique SARL 1996 Tender Government sold 51 percent to a local consortium

Mozambique Banco Popular de Desenvolvimento SA 1997 Tender Government sold 60 percent to a Malaysian-led consortium; bank (renamed

Banco Austral) was intervened in 2000

Mozambique Banco Austral 2002 Tender After intervention by central bank, government sold

80 percent to South African ABSA

Netherlands NMB Postbank Groep (ING Bank) 1989 IPO Original 86 percent government share had been reduced to 49 percent by

private share sales. Government sold 30 percent by IPO December 1989 to

hold 19 percent, subsequently further reduced

Nigeria FSB International Bank 1992 Tender

Nigeria Afribank Nigeria 1993 Tender

Nigeria Savannah Bank of Nigeria 1993 Tender

Nigeria Union Bank of Nigeria 1993 Tender

Nigeria United Bank for Africa 1993 Tender

Nigeria First Bank of Nigeria 1993 Tender

Norway Christiania Bank 1993 IPO Government Bank Investment Fund acquired 100 percent of bank due to the

banking crisis, sold 26 percent by IPO and 5.1 percent by private placement

December 1993 to hold 68.9 percent. Christiania Bank sold to Nrodea Group

in 2000

Norway Den Norske Bank 1994 IPO Government Bank Investment Fund acquired 87.5 percent of bank due to the

banking crisis, sold 16.5 percent by IPO May 1994, and 19.8 by secondary

offering June 1996, to hold 52.15

Norway Fokus Bank 1995 IPO Government Insurance Fund became sole owner of bank due to banking

crisis, sold 95.9 percent by IPO October 1995 to hold 4.1 percent

Pakistan Allied Bank 1991 Tender Government sold 51 percent through management buyout in February 1991,

retaining 49 percent ownership. Subsequent to restructuring in August 2004,

government holding diluted through new share issue to 12 percent

Pakistan Muslim Commercial Bank 1991 Tender Government sold 26 percent in April 1991 and a further 25 percent later in

2001, 25 percent by IPO in 1992, and 6.8 percent and 4.4 percent in

secondary offerings in 2001, and 12.8 by secondary offering in October

2002

- 38 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Pakistan Banker’s Equity (DFI) 1996 Tender Government sold 51 percent in June 1996. Bank subsequently failed and was

intervened by the State Bank of Pakistan in 1999, and placed in receivership

in April 2001

Pakistan Habib Credit and Exchange Bank

(renamed Bank Alfalah Ltd.)

1997 Tender 70 percent sold to Sheikh Nahayan bin Mubarak Al Hahyan (UEA) in July

1997, remaining 30 percent by secondary offering December 2002

Pakistan United Bank Limited 2002 Tender 51 percent sold to consortium of Abu Dhabi and Pakistani expatriate

investors in October 2002

Pakistan Habib Bank Limited 2004 Tender Government sold 51 percent in February 2004

Peru Banco Popular 1993 Tender Government sold 100 percent

Peru Interbank 1994 Tender Government sold 100 percent

Peru Banco Continental 1995 Tender Government sold to BBVA (Spain) and a Peruvian partner

Philippines Philippine National Bank 1989 SEO Government sold 10.8 percent by secondary offering May 1989, 10 percent

by secondary offering December 1995, , 35 percent in 1999 and remaining

government holding in July 2000.

Philippines International Corporate Bank 1993 Tender Government sold 94 percent.

Poland Bank Rozwoju Eksportu 1992 IPO Government sold 47.5 percent by IPO, July 1992 to hold

52.5 percent

Poland Bank Slaski 1993 IPO Government sold 40.9 percent by IPO, October 1993, 25.9 by private

placement February 1994 to ING (Netherlands), to hold 33.2 percent. Later

merged with Warsaw branch of ING to form ING Bank Slaski, 88 percent

owned by ING

Poland Wielkopoiski Bank Kredytowy Spolka

Akeyjna

1993 IPO Government sold 55.72 percent by IPO, April 1993, 25.6 percent by

secondary offering June 1994, 17.2 percent by secondary offering January

1996 to hold 5.1 percent

Poland Bank Gdanski 1995 IPO Government sold 62.7 percent by IPO, December 1995 to hold 37.3 BIG, a

domestic bank, subsequently acquired a controlling interest and merged the

bank to form BIG Bank Gdanski.

Poland Bank Przemysolowo 1995 IPO Government sold 50.1 percent by IPO, January 1995 to hold 49.9. 37 percent

sold by tender to Bayerische Hypo-und Verinsbank in 1988, which acquired

a controlling interest in 1999

Poland Bank Handlowy 1997 IPO Government sold 95 percent by IPO, June 30 1997 to hold

5 percent. Citibank acquired in 2000 88percnt through the purchase of shares

from original core investors (Zurich Insurance, Sparebanken Sverige and JP

- 39 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Morgan) as well as widely held shares

Poland Bank Kedytowty 1997 IPO Government sold 67percent to hold 33 percent. Bank Austria acquired

control in 2000, merging the bank with Bank Austria Creditanstalt Poland

Poland Bank Pekao 1999 Tender-IPO Government sold 52 percent to foreign bank led consortium, 14 percent to

employees. Secondary offerings in 2000 divested government holding to less

than 5 percent, with UniCredito Italiano holding a controlling stake

(53 percent)

Poland Bank Zachodni 1999 Tender Government negotiated sale of 80 percent to Allied International Bank

(Ireland)

Portugal Banco Totta e Acores 1989 IPO Government sold 49 percent by IPO, July 1989, 31 percent by secondary

offering July 1990, to hold 20 percent

Portugal Banco Português do Atlântico (BPA) 1990 IPO Government sold 33 percent by IPO, October 1990, 25.8 percent by

secondary offering April 1992, 17.5 percent by secondary offering July

1993, and 7.5 percent by secondary offering June 1994 to hold 16.2 percent

Portugal Banco Espírito Santo e Comercial de Lisboa

(Besci)

1991 IPO Government sold 40 percent by IPO, July 1991, 60 percent by secondary

offering February 1992

Portugal Banco Internacional do Funchal (Banif) 1992 IPO Government sold 68 percent by IPO, March 1992, 32 percent by secondary

offering November 1992

Portugal Crédito Predial Português 1992 IPO Government sold 100 percent by IPO, December 1992

Portugal Banco Pinto & Sotto Mayor 1994 IPO Government sold 80 percent by IPO, November 1994, 20 percent by

secondary offering April 1995

Portugal Banco de Fomento e Exterior 1995 IPO Government sold 19.5 percent by IPO, January 1995 to hold 80.5 percent

Romania Banca Romana Pentru Dezvoltare 1998 Tender Government sold 41 percent share

Romania Banc Post 1999 Tender Government sold 42 percent share

Romania Banca Agricola 2001 Tender Government sold 98 percent to a consortium including Raiffeisen

Zentralbank (Austria)

Romania Romania Commerical Bank 2004 Agreement to sell 25 percent to EBRD and IFC in 2003, interim step to full

privatization

Senegal Banque Senegalo-Tunisienne 1999

Slovakia Slovenska Sprtitelna 2000 Tender Government sold 87 percent to Erste Bank (Austria)

Slovakia Vseobecna Uverova Bank 2001 Tender Government sold 94.5 percent to Banca Intesa (Italy)

- 40 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Spain Argentaria 1993 IPO Government sold 24.9 percent by IPO March 1993, 24.2 percent by

secondary offering November 1993, 24.8 percent by secondary offering

March 1996, remaining 26.7 percent by secondary offering 1998

Sri Lanka National Development Bank 1997 IPO Government sold 97 percent by IPO.

Sweden Stadshypotek AB 1994 IPO Government sold 65.5 percent by IPO, October 1994, divesting the balance

by 1998

Sweden Nordbanken 1995 IPO Government sold 34.5 percent by IPO, October 1995 and by 2004 held

18.5 percent in the Nordea Group (former Norbanken)

Tanzania CRBD (1996) Limited 1996

Tanzania National Bank of Commerce (1997) 2000

Turkey Bank Express 2002 Tender Bank taken over by SDIF in 1998 (deposit insurance agency) in crisis, sold

to Teken Holding, June 30, 2002.

Turkey Demirbank 2001 Tender Bank taken over by SDIF in 2000 (deposit insurance agency) in crisis, sold

to HSBC, September 20, 2001.

Turkey Sumerbank 2001 Tender Five banks taken over by SDIF 1999–2001, merged into Sumerbank, which

was sold to OYAK Group

August 9, 2001

Turkey Sitebank 2001 Tender Share transfer agreement with Novabank

December 20, 2001

Turkey Tarisbank 2002 Tender Acquired by Denizbank October 21, 2002, merged with Denizbank

December 27, 2002

Ukraine Bank Ukraina 1993–94 Shares distributed, mainly to employees, government continued to influence

management

Ukraine Prominvetbank 1993–94 Shares distributed, mainly to employees, government continued to influence

management

Ukraine Ukrsotsbank 1993–94 Shares distributed, mainly to employees, government continued to influence

management

Uganda Uganda Commercial Bank 1997 Tender 49 percent sold to Westmont Land Asia

Uganda Cooperative Bank Limited 1999

Uganda Uganda Commercial Bank 2002 Tender Majority sold to Stanbic (South Africa), after intervention by central bank

following the failure of the first privatization attempt

Venezuela Banco de Venezuela 1996 Nationalized during 1994–95 crisis, sold to Santander (Spain)

Venezuela Banco Consolidado 1996 Nationalized during 1994–95 crisis, sold to a Chilean investment group

- 41 - APPENDIX I

Bank Privatizations

(Mid-1970s – 2003)

Country

Bank

Year of

Privatization

Method(s)

Details

Venezuela Banco Tequendama 1996 Nationalized during 1994–95 crisis, sold to Peruvian investors

Venezuela Banco Popular 1996 Nationalized during 1994–95 crisis, merged with Banco Andidio and sold to

Banco Provincial

Venezuela Banco Andino 1996 Nationalized during 1994–95 crisis merged with Banco Popular and sold to

Banco Provincial.

Venezuela Banco República 1996 Nationalized during 1994–95 crisis, sold to Colombian investors

Zimbabwe Commercial Bank of Zimbabwe 1997 IPO Government sold 80 percent by IPO September 1997

Sources: Information on privatizations has been complied from a review of the bank privatization literature, publicly available IMF Staff Country Reports and Financial Sector Stability

Assessments, press reports, and various occasional papers. Details on privatizations are often not readily available, and various sources often provide conflicting details. The author would be

especially grateful for information to complete or correct the cases noted, and for details of additional bank privatizations.

- 42 - APPENDIX II

Privatization and Crisis Dates

Appendix II below presents bank privatization data from Appendix I juxtaposed against the

dates of banking crises. There are a total of 39 countries, among the 65 total countries

included in Appendix I, that have experienced banking crises with specific dates as identified

in the banking crisis literature.

There is no universal definition of banking crises, and determining the start and end date of

crises requires judgment (for a discussion of the issues, see Bell and Pain (2000)). To

determine the dates of banking crises, Bell and Pain’s chronology of banking crisis drawn

from seven studies (excluding the Hardy and Pazarbasioglu cases of “distress”) was

expanded to include the Caprio and Klingebiel (2003) data set (excluding borderline and

nonsystemic crises), and the determination of government intervention from De Nicolò and

others (2003).

Crises lacking specific dates were excluded, and for those where different

sources provide different dates, a consensus date was adopted which generally encompassed

the longest indicated period of crisis.

“Crisis 1” has the broadest inclusion, being defined as any crisis identified by specific dates

in at least one of the studies. Because of the subjective nature of identifying crisis, “Crisis 2”

adopts the more stringent requirement that the crisis must be identified by at least two of the

studies. While this does reduce by 10 the number of identified crises, it does not substantially

change the finding that privatization preceding the onset of a crisis by five years or less is

rare, that privatizations are common concurrently or within three years of the end of a crisis,

and that divestiture of banks nationalized as part of crisis management accounts for only a

small portion of post-crisis privatization.

The approach followed by De Nicolò and others (2003) provides more certainty regarding

the existence of a crisis, as extraordinary government intervention in the banking system is

more readily observable than other indicators of systemic crisis. However, because the

available data only identifies intervention within a period of years, in its current form the De

Nicolò and others data can only be used to confirm the existence of a crisis when specific

dates are provided in other sources.

- 43 - APPENDIX II

Bank Privatization and Banking Crises

(Mid-1970s – 2003)

Country Bank Year of Privatization Crisis Dates 1 Crisis Dates 2

Argentina Chaco 1994 1980–82; 1989–90; 1994–95;

2001–present

1980–82; 1989–90;

1994–95; 2001–present

Argentina Entre Rios 1994

Argentina Formosa 1995

Argentina Misiones 1995

Argentina Rio Negro 1996

Argentina Salta 1996

Argentina Tucuman 1996

Argentina San Luis 1996

Argentina Santiago del Estero 1996

Argentina San Juan 1996

Argentina Mendoza 1996

Argentina Municipal de Tucuman 1997

Argentina Jujuy 1998

Argentina Santa Fe 1998

Argentina Santa Cruz 1998

Argentina Chaco 1994

Brazil Baneb 1999 1985, 1994–99 1985, 1994–99

Brazil Credireal 1997

Brazil Banestado 2000

Brazil Bandepe 1998

Brazil Banerj 1997

Brazil Minas Gerais 1998

Cameroon Standard Chartered Bank 1994 1987–93; 1995–98 1987–93; 1995–98

Chile 19 banks 1975 1981–87 1981–87

Congo, Democratic Republic Union Zairoise de Banques 1995 1991–92; 1994-present 1991–92; 1994–present

Côte d'Ivoire BIAO 2000 1988–91

- 44 - APPENDIX II

Bank Privatization and Banking Crises

(Mid-1970s – 2003)

Country Bank Year of Privatization Crisis Dates 1 Crisis Dates 2

Côte d'Ivoire BICICI 2002

Croatia Dubrovacka Bank 1994 1996

Croatia Dubrovacka Bank 2002

Croatia Privedna Banka 2000

Croatia Rijecka Banka 2000

Croatia Splitska Banka 2000

Croatia Zagrabacka Banka 1996

Denmark Girobank 1993 1987

Finland Savings Bank of Finland 1994 1991–94 1991–94

Ghana Merchant Bank 1995 1982–89

Ghana Social Security Bank Limited 1995

Ghana National Investment Bank 2000

Ghana Ghana Commercial Bank 1996

Guyana National Bank of Industry and

Commerce

1997 1993–95 1993–95

Hungary Budapest Bank 1995

Hungary Foreign Trade Bank 1996

Hungary Magyar Hitel Bank 1995-96

Hungary National Savings and

Commercial Bank (OTP)

1997

Hungary Kereskedelmi and Hitel Bank 1997

Hungary Postabank

Hungary Realbank

Indonesia Bank Central Asia 2001 1992–94; 1997–03 1992–94; 1997-03

Indonesia Bank Niaga 2002

Indonesia Bank Danamon 2003

- 45 - APPENDIX II

Bank Privatization and Banking Crises

(Mid-1970s – 2003)

Country Bank Year of Privatization Crisis Dates 1 Crisis Dates 2

Israel Bank Hapoalim 1993 1983–84 1983–84

Italy Banca Commerciale Italiana 1981 1990–94 1990–94

Italy Mediobanca 1988

Italy Credito Italiano 1991

Italy Banca Commerciale Italiana 1994

Italy Istituto Mobilaire Italian spa 1994

Jamaica National Commercial Bank 1986 1994–00 1994–00

Kenya Kenya Commercial Bank Ltd 1988 1985–89; 1993–95 1985–89; 1993–95

Korea Citizens National Bank

(Kookmin)

1994 1997–02 1997–02

Korea Korea First Bank 1999

Korea Cheju Bank 2002

Korea Seoul Bank 2002

Latvia Unibank 1995 1995–96 1995–96

Latvia Savings Bank 1997

Lebanon Banque Nationale du

Développement de l'Industrie et

du Tourisme

1994 1988–90 1988–90

Lebanon Crédit Libanais 1997

Lithuania Development Bank 2000 1995–96 1995–96

Lithuania Savings Bank 2001

Lithuania Agricultural Bank 2002

Macedonia, former Yugoslav

Republic of

Stopanska Bank 2000 1993–94 1993–94

- 46 - APPENDIX II

Bank Privatization and Banking Crises

(Mid-1970s – 2003)

Country Bank Year of Privatization Crisis Dates 1 Crisis Dates 2

Madagascar BNI-Credit Lyonnais

Madagascar

1991 1998

Madagascar National Bank of Commerce

(BFV)

1998

Madagascar Bank for Rural Development

(BTM)

1999

Mexico Banamex 1991 1982; 1994–97 1982; 1994–97

Mexico Bancomer 1991

Mexico Bancreser 1991

Mexico Banorie 1991

Mexico Banpais 1991

Mexico BCII 1991

Mexico Confia 1991

Mexico Cremi 1991

Mexico Mercantil 1991

Mexico Atlantico 1992

Mexico Bancen 1992

Mexico Banoro 1992

Mexico Banorte 1992

Mexico Comermex 1992

Mexico Internacional 1992

Mexico Promex 1992

Mexico Serfin 1992

Mexico Somex 1992

Mozambique Banco Comercial de

Moçambique SARL

1996 1987–95

Mozambique Banco Popular de

Desenvolvimento SA

1997

Mozambique Banco Austral 2002

- 47 - APPENDIX II

Bank Privatization and Banking Crises

(Mid-1970s – 2003)

Country Bank Year of Privatization Crisis Dates 1 Crisis Dates 2

Nigeria FSB International Bank 1992 1991–94 1991–94

Nigeria Afribank Nigeria 1993

Nigeria Savannah Bank of Nigeria 1993

Nigeria Union Bank of Nigeria 1993

Nigeria United Bank for Africa 1993

Nigeria First Bank of Nigeria 1993

Norway Christiania Bank 1993 1987–93 1987–93

Norway Den norske Bank 1994

Norway Fokus Bank 1995

Peru Banco Popular 1993 1983–90 1983–90

Peru Interbank 1994

Peru Banco Continental 1995

Philippines Philippine National Bank 1989 1981–87 1981–87

Portugal Banco Totta e Acores 1989 1986

Portugal Banco Português do Atlântico

(BPA)

1990

Portugal Banco Espírito Santo e

Comercial de Lisboa (Besci)

1991

Portugal Banco Internacional do Funchal

(Banif)

1992

Portugal Crédito Predial Português 1992

Portugal Banco Pinto & Sotto Mayor 1994

Portugal Banco de Fomento e Exterior 1995

Romania Romanian Bank of Development 1999 1990–02

Romania Banc Post 1999

Romania Banca Agricola 2001

Romania Romania Commerical Bank 2004

- 48 - APPENDIX II

Bank Privatization and Banking Crises

(Mid-1970s – 2003)

Country Bank Year of Privatization Crisis Dates 1 Crisis Dates 2

Senegal Banque Senegalo-Tunisienne 1999 1983–91 1983–91

Spain Argentaria 1993 1977–85 1977–85

Sweden Stadshypotek AB 1994 1990–93 1990–93

Sweden Nordbanken 1995

Tanzania CRBD (1996) Limited 1996 1988–96 1988–96

Tanzania National Bank of Commerce

(1997)

2000

Turkey Bank Express 2002 1982, 1991, 1994, 2000-02

1982, 1991, 1994, 2000-02

Turkey Demirbank 2001

Turkey Sumerbank 2001

Turkey Sitebank 2001

Turkey Tarisbank 2002

Ukraine Bank Ukraina 1993–94 1997–98

Ukraine Prominvetbank 1993–94

Ukraine Ukrsotsbank 1993–94

Uganda Uganda Commercial Bank 1997 1990–02 1990–02

Uganda Cooperative Bank Limited 1999

Uganda Uganda Commercial Bank 2002

Venezuela Banco de Venezuela 1996 1993–96 1993–96

Venezuela Banco Consolidado 1996

Venezuela Banco Tequendama 1996

Venezuela Banco Popular 1996

Venezuela Banco Andino 1996

Venezuela Banco República 1996

- 49 -

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