Financial Services Privatisation: Two Case Studies

How Romania‟s, and Estonia‟s, financial services sectors moved towards, and through, their respective privatisation processes provides sharply contrasting scenarios. For a long time Romania‟s following up of a promise made to the International Monetary Fund was simply an unimpressive record of dithering. By contrast, Estonia‟s performance was a generally positive account, one which was based on norms and structures which were often comparable to those in advanced industrial countries. This paper examines in detail these two national experiences.

losses exceeding Lei 250 bn were written off in Romanian enterprises, with the banks then being baled out from their weight through the issue of government deposits. In 1991Government Decision No. 447 (subsequently Law 7/1992 provided further substantial government refinancing of non-performing enterprise loans (Lei 135 bn).
Romania formally launched its mass privatisation programme in 1992 by distributing privatisation vouchers to about seventeen million citizens, with the initially expressed objective being that of letting them acquire 30 per cent of the capital of the 6300 companies which the government wanted to see privatised. But nothing exciting really followed, least of all having any livening up of capital market structures or activity.
Capital markets activity returned to Romania in 1995 after a fifty-year absence. Whatever the shortcomings of the market, its opening and the announced mass privatisation programme -which aimed to sell off within a year of its launch some 3900 companiesfreed a large part of the economy from state control. But, measured against the size of the economy, Romania had Central Europe"s smallest stock market during the 1995-1999 period. Daily trading volumes on Romania"s stock market in 1997 were a meagre $2.8 million, with nearly all of this in about 50 companies. In terms of sheer numbers however both the Bucharest Stock Exchange and Resdaq (the OTC market) were made to look impressive: a total of 5000 companies with 100 on the Bucharest exchange. (BCE, 1998) In December 1997 the Romanian Bank for Development (RDB), actually one of the best SOBs and big in trade finance, was clearly indicated as one of the first to be privatised.
Early in 1998 Romania made a promise to the IMF that as part of its national economic programme it would privatise three of its SOBs (vide Table 1). The World Bank was also demanding that at least two SOBs be sold before it would release a final $100 mn tranche of a finance sector structural adjustment loan. By most standards the country had one of the region"s most ineffective banking systems. Bank lending as a share of GDP was less than 15%, compared e.g. with 60% in the Czech Republic. The only way to improve was to import, via bank sales, foreign capital and knowhow: in short selling controlling stakes in the banks to strategic investors. The "merchandise available for sale" was indeed a mixed bag. Banc Post (post office bank) and RDB were saleable as they were relatively clean and small. Bank Post had 108 branches and outlets in about 2000 post offices, a retail presence making it attractive as a distributor of products such as insurance. Most of its business was short-term lending, often backed by export guarantees. And its management, by dint of its correspondent banking relationships, also had some international experience.
The third bank earmarked for privatisation was Banco Agricola whose asset base was almost twice that of the other two together. In the particular context of the Romanian economy (Note 3), with an extremely poor and predominantly agricultural working population eking out a bare living on the basis of state farming subsidies, this SOB was the traditional vehicle for financing, but was also loaded with bad debts. It was highly unlikely to attract interest without parliament voting a proposal to clear these.
The EBRD, and the World Bank"s IFC, were prepared to take stakes in three Romanian banks on the basis of loan-for-shares agreements. The EBRD was very active in all the Eastern European banking sectors, and all along leading personalities in the country were confident that it would play a useful role in Romania too. (Lieven, A., & Cook, J., 1998) In its 1999 Transition Report (p. 256) thew EBRD highlighted the fact that Bancorex had been out under administration of the National Bank of Romania (NBR) at end of February 1999 when more than 70% of the bank"s loans were classified as non-performing. Source: National Bank of Romania, Annual Report, p.75 The management of Bancorex had resigned in a dispute with the government over the terms of a restructuring plan, leading to a run on the bank, with some $200 mn fleeing out of the country"s banking system. The development of a restructuring plan for Bancorex too had featured prominently amongst the "prior actions" required of the government under the IMF programme under negotiation. The State Ownership Fund owned 62% of the bank, with the rest held privately by financial investment companies (formerly private ownership funds) and some individuals. (Note 4) An Asset Recovery Agency was created to manage Bancorex"s non-performing loan portfolio, and to implement recovery action. In July 1999 Bancorex"s licence was withdrawn, and by this time the country"s overall banking system was defined in terms of the structure in Table 2 above. Besides the EBRD, interest in BankPost was also shown by the Anglo-Dutch joint venture ABN Amro Hoare Govett who were confident that they could meet government"s demand for a trade sale and equity placement (domestic and international) by end of 1998.
But, again, as was in fact also the case of the Czech Republic, the view of Western analysts of the Romanian government"s resoluteness on privatisation was anything but positive for a long term. Even as a new 1998 programme promised calls for at least 1600 companies to be privatised in that year, including three banks, uncertainty prevailed. (Note 5) The causes for this uncertainty were varied:  Reported plans to actually sell the stakes in BankPost to employees, to the post office, and to national telephone monopoly Romtel;  Expressed intentions to retain "golden shares" and lack of clarity on the size of these ;

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The little real power held by the investment banks mandated to make the privatisations beyond getting bids on board; and, of course  The usual problem of bank privatisation touching the darker side of nationalism, where politicians were reluctant to put into the hands of foreigners what they considered to be a key part of their power.
For a long time Romania"s failure to deliver on promises of economic reform earned for it a reputation of the laggard of Eastern Europe. (Note 6) The centre-right coalition that ruled from 1996 till the end of 2000 paid scant heed to budget discipline, and tolerated inflation that never went below 40 per cent. Privatisation proceeded so slowly that after a decade 80 per cent of large SOEs still remained unsold, and allegations of corruption tainted many that were made. Between 1997 and 2000 GDP fell by 13 per cent. One could hypothetically argue that it was the problem of coordination among institutions in the privatisation process which hampered national economic progress for a very long time and this when there were, from 1997 onwards, several indicators of an increased pace of legislation and marketing measures(Note 7) related to the process.
Certainly Romania"s extremely bleak economic situation in 1998 and 1999 had "at the root of the whole mess a state banking sector that could soon come apart at the seams". (BCE, 1999) Similar to, for example, Pakistan, Russia, and the Ukraine, it was hovering on the brink of defaulting on Eurobond loan repayments even assurprisingly contrary to IMF rulesit kept repaying big chunks of them. This too can in a way be interpreted as the country clinging on to post-communist economic practices, when in fact the country, along with Czechoslovakia but different to most other new post-communist governments, did not inherit large external debts from the predecessor governments. (Aldcroft, D. H., & Morewood, S., 1995) The EBRD Transition Report for 2000 saw the July 1999 closure of Bancorex as helping to improve the financial performance of the banking system. The share of non-performing loans fell by 50 per cent between May and December 1999, but continued government support to weak enterprises added a further US$ 1.3 bn (equivalent to 3.8% of GDP) to the domestic debt. As tighter enforcement of Basle and EU-standard regulation bit in, several private banks started to fail, but still this exit process was slow. The Romanian Religion"s Bank was put under special supervision in May 2000 after it was unable to raise capital.
The scenario continued to worsen. In May 2000 the largest Romanian investment fund (FNI) too collapsed after mismanagement and fraudulent practices as well as poor regulatory oversight. The failure of FNI also involved the state-owned Savings Bank (CEC) which was a shareholder in FNI"s management company, and which had invested in FNI certificates and issued a guarantee for investments in it. This collapse put pressure on the largely unregulated "popular banks", which were mostly credit cooperatives not having any deposit insurance protection for their depositors. Banca Popular Romana, the largest of such cooperatives ceased to operate in June 2000 when it could not meet deposit withdrawal requests.
Even as the central bank stepped in, in July 2000, to take over the authorising, regulating, and monitoring of funds, suspending the issue of all new such licences, it was the turn of the State Ownership Fund (SOF) itselfthe country"s main privatisation authorityto reach the end of the road in September 2001. It too was in a mess. It still held many shareholdings in 1047 firms that needed to be privatised, or closed. But, worse than that, several of its past divestitures were coming back to haunt it in the shape of controversy and corruption accusations. And these included some of the biggest amongst its past sales. (Note 8) Under attack from all quarters it closed down with the remaining SOEs sinking deeper and deeper into debt, and in early 2001 was replaced by a new body, the Authority for Privatisation and Management of State Assets (APAPs).
When Adrian Nastase came in as Prime Minister at the end of 2000 he showed no hesitancy in declaring his intentions to jump-start the country"s stalled privatisation programme. His first big promises were to jointly go for deficit reduction and privatisation, hoping to end a decade of dithering over reform. At end-2000 SOBs accounted for 38% of registered capital, and held about half of the domestic market in terms of assets. (ECB, 2001) In the first nine months of 2001 GDP was up 5 per cent, industrial production grew by 10%, and inflation dropped to below 10%. Besides selling Sidex (a large steel mill on the Danube) to the LNM Group (the Anglo-Indian conglomerate which owned the world"s fourth largest steelmaker) he vowed to move ahead with plans to find by early 2002 a strategic investor for Banca Commerciale Romana, which was then Romania"s largest bank.
In April 2001 Banca Agricola was privatised to a consortium which included Raiffeisen Bank and the Romanian American Enterprise Fund. After that privatisation only three banks remained state-owned. The Banca Agricola privatisation brought a situation where overall more than two-thirds of total assets of the banking system were now in private hands and about 55% were foreign owned (c.f. with a situation of 78% being state-owned at end-December 1998). Of the three remaining SOBs the most attractive to investors was Banca Commerciala Romana (BCR), which held 30 per cent of total banking system assets and total loans to customers. In 2001 the usual appointment of an apposite privatisation commission for this bank was made, but, again, government dithered and moved the plan to complete the sale to before the end of 2002. The strategic ownership structure of Romania"s banking sector in 2001 then stood as follows (Table 4). Again, in the case of the former savings bank CEC, dithering continued on whether it would be given pure commercial bank status in the subsequent years, whilst Eximbank still needed "surgical" restructuring before privatisation could even start. But even as this hesitation persisted, the branches of foreign banks in Romania (Note 9) operating in terms of legislation that now allowed them to enter the market under the same conditions as the domestic banks (NBR, 1992)these were now very effectively making their presence on the market.
But this factor, "the market", was now carrying with it a public, political, indeed psychological connotation totally different to the past. By 2004 Romania, along with neighbouring Bulgaria, was deeply involved in negotiations for entry into the European Union. The country"s accelerating privatisation drive was seen, and actively pursued, in terms of the necessity that the country be pronounced by the EU as actively seeking to satisfy that criterion (one of four) of the Copenhagen requirements, viz that of the country being a "functioning market economy" (Note 10). Some 70 per cent of Romanian GDP was now being created by the private sector, and that earned it the status of a market economy.
German Chancellor Gerhard Schroeder, with what could be described as perceptible political astuteness, held that it would be considered as a functioning market economy "if privatisation continues at the pace seen recently". (Reuters, 2004) Such urging on was conceivably motivated not solely by any wish to see EU expansion, but also by perceived prospects of more German involvement with an (eventually) totally privatised Romanian economy. Even as Schroeder spoke, the German bank KfW was active in asserting a financing presence in relation to significant deals worth some € 800 million for German firms (Note 11) in the Romania market. In some sense Romania had "arrived"!

Estonia
This Baltic economy"s banking privatisation was a very different story to tht of Romania, evolving indeed with a different conceptual approach. Eesti Pank (EP) Estonia"s central bank (Note 12) claims that Estonia "was the country where the very first privately owned commercial banks in the former USSR (and probably even the very first in the whole of Eastern Europe) were founded in the late Eighties. By the time of the 1992 monetary reform most of the country"s 40+ banks were privately owned institutions that were not successors of any former state owned structures" (Kaja Kell, 1999). The EBRD places the number of commercial banks which were established between 1989 and 1992 at 42, adding that these were mostly small and undercapitalised (EBRD, 1994).
In some cases various Estonian state institutions had obtained minority holdings of these new commercial banks" shares. Eesti Pank statistics then considered bank shares held by government owned enterprises as state-owned shares. But what could conceivably be considered as a generally positive sounding scenario hides a lot.
The 1992 to 1995 years were "crisis" years for Estonian banking. (Note 13) It was a period when insolvent commercial banks held some 41% of the banking system"s assets. The licences of five banks were revoked, two major banks were merged and nationalised, and another two large banks were merged and converted into a loan recovery agency. Although in early 1994 it seemed as if problems had been resolved, yet another two large banks were found to be insolvent, and again merged and converted to the national loan recovery agency.
It was palpably clear that the loss of trade with the Soviet Union which had happened in 1990 had caused a terms of trade shock for the country. Monetary policy was tightened, a currency board instituted, and 1992 and early 1993 was a sharp recession period. Did the recession bring the banking crisis, or did the banking problems of the country exacerbate the downturn? This is a debate which is still out amongst that country"s banking historians.
The new currency board arrangements protected monetary policy from expansion in sequence to the banking problems. As the economy relied more heavily on cash payments, the currency-to-deposit ratio rose, and the money multiplier, fell. The exchange rate, pegged to the Deutsche Mark, was not affected.
At the start of this crisis period Estonia"s banking system was a concentrated one. There was no direct foreign competition, and only joint ownership was permitted. With such non-diversification the banks often extended insider loans to owners. Credit assessment skills were underdeveloped, and weak accounting systems, plus inadequate loan classification and bad debt provisioning practices, were prevalent. Consonant with its already mentioned policy of direct, but always well thought out, involvement in the region"s banking systems, the EBRD became a minority shareholder in the Estonian Investment Bank in 1993. EP was the majority owner of this bank whose main role was the provision of currency loans to Estonian firms. In that year the American Baltic Bank started operations (Note 15), but several Russian and Ukranian banks" approaches for licences were being back-peddled as political resistance to Russian influence over the Estonian economy prevailed. Fear against possibility of involvement in money laundering, and fraud, from these sources was also high.
The IMF considered the licensing structures for banks as existing in Estonia between 1992-1995 as weak. Capital requirements for new banks were inadequate, and other prudential regulations were lacking. Supervision was inadequate and allowed for reckless fast growth, risky portfolios, and other mentioned shortcomings. (Lindgren, C. J., Garcia, G., Saal, & M. I., 1996) An anti-regulation culture pervaded amongst many bankers and other economic operators, and for a long time during the period of banking problems in the early 1990s no system of deposit insurance was in place, and depositors simply suffered losses when banks failed. (Note 16) But 1993 must also be considered as having been a year where valuable bases for a later effective regulatory environment were laid down: it was the year when new banking regulations were brought in, a securities market law was enacted, a Securities Commission established, competition law passed and a competition agency established, and some utilities regulation (e.g. a new law on the electricity sector) was enacted.
A few months after the establishment of Hoiupank, four banks were invited to participate in a competitive tender to subscribe to new shares being issued. That October 1992 call brought in Hansapank as a strategic investor. The share capital was gradually increased after that, and by end 1995 EP only held 24.1% of the shares. This savings bank is the only bank in Estonia where one comes across privatisation in the restricted sense of privatising of former socialist structures.
EP is particular in distinguishing Hoiupank from the category of privately held problem banks which would first have been acquired by state structures and then sold at a later date. (Note 17) Bonin (1998, p 126) describes Hanspank"s presence in Estonia as "a rare successful case of indigenous bank development within the four year old Estonia financial market. Not only did it become the largest domestic bank, but by acquiring 30 per cent of Hoiupank it dominated the market. Since Estonia was the most open financial market of the region"s EITs (probably mainly because of the mentioned currency board) external competition could still prevent a monopolistic situation.
Special characteristics in fact made Estonia"s financial markets (particularly the retail and interbank markets) different from those in other CEECs. In essence these were: Estonian official policies placed no specific restrictions on foreigners making approaches for local businesses, but at evaluation stage strong study of an "entire bid" would take employment and investment size into consideration (EBRD, 1994). Between 1993 and 1995 FDI into the country moved up from $ 153 mn to $ 249 mn in 1994, and down to $ 196 mn, but at that level was still one of the highest per capita inflows in the region.
A useful result from EP, and from the government"s measures after the November 1992 crisis -(in essence merging of key banks, absorption of bad loans by government to cover liquidity shortfalls, and bank behaviour reorientation towards risk analysis and diversification, and away from speculation)was customer shift patterns and more careful selection of banks. This both strengthened competition, as well as pushed the reformed banks to levels of confidence where external perception of Estonian banksparticularly in the eyes of Latvian and Lithuanian banksincreasingly became that these were arrogant banks. But Estonia had implemented the most austere financial reform in the region (Note 19), reformed its banking three to four years ahead of its neighbours, and its banks had emerged as high-tech and hungry for international expansion.
A stock exchange (of sorts, it must be said!) was opened in Tallinn in 1996. It traded only five stocks at inception, but the step did indicate an important development in Estonian financial market reform, increasing transparency and opening equity investment to Western investors. The first year of this exchange was a hard and testing period.
Investors were clearly worried about the fast pace of economic growth and a widening current deficit.
In one week in October 1997 the Talinn stock exchange plummeted a full 22%, and again a further 60% in November 1998, and speculative pressure against the kroon was only resisted through continued expression by the central bank of its determination to support the currency board regime, which had fixed the rate to the D-mark at 8:1 for the full previous five years.
But even after the Estonian stock exchange had managed to bounce back late in 1997, it was only several years later that the real local interest in the exchange got into its stride. Up to around 1998 the Estonian capital markets remained small, and the only traded securities were central bank (EP) short-term bills. The first Estonian Eurobond issue by Eesti Uhispank in February 1999, appeared to do little to liven up securities market activity, and the EBRD, in its Transition Report for 2001 (p 138), was still expressing the hope that the consolidation of the Tallinn and Helsinki stock exchanges, the introduction of new securities legislation, and the development of domestic pension funds, would spur expansion of such security activity.
In Estonia, (unlike for example in Hungary), the central bank had strong statutory discretion over bank insolvency. But what is also cited in international policy debate is that its 1992 handling of the earlier mentioned bank failures was effectively a hands-off approach that paid off spectacularly. One reason which is today quoted by old, or experienced, Estonian bankers as a possible explanation for this is that, as some of the country"s large commercial banks were inherited from the Soviet era as Estonian branches of the Soviet specialised banks, and as some of these had become partly owned by private Russian structures as their own parent banks went through an ownership transformation, for these reasons treating them severely would have had a strong political dimension, and a more laissez-faire attitude was "easier" to implement by the Estonian authorities.
Privatisation policy was therefore very substantially different in Estonia when compared to other CEECs. The predominant approach can be described as having been that of state structures only intervening to acquire privately held problem banks, to then sell them off later. The central bank became a holder of various small problem banks" assets over the years until these were all acquired by Eesti Uhispank (Union Bank) in early 1997.
In late 1998 the central bank (which had held no significant blocks of bank shares for the previous year) had to take over the majority (58%) of the shares of Optiva Bank which then held an approximate 6.5% market share. Plans were already in hand to sell them off by late 1999 or early 2000. Table 5 below shows that at end of 1998 the government only owned 14.3% of total ownership of Estonian credit institutions. Hansabank (Estonia"s largest commercial bank), Estonia Savings bank (third largest, and largest as retail bank), Talinna Pank (fifth largest bank) (Note 20). Forekspank (another large commercial bank), and Uhisbank, all of these institutions had by 1998 become very ambitious institutions in the region. By international standards they were still small (and in certain respects backwards) but the benefits of early reform had placed them in a situation where they were even being looked upon with some hope (Schultz, T., 1996) that their discipline and propensity towards international expansion would possibly help sort out some of the chaos in the region"s banking.
The evolution of ownership of Estonian banking between 1993 and 1998 emerges very clearly from the following Table 6. Source: Eesti Pank, 1999 1997 was an extraordinarily good year for Estonian banks. These were now institutions which had embraced cutting-edge technology in their desire to become effective and profitable western style institutions. Paper cheques were never really introduced in Estonia: the PC, internet, telephone banking, and bank cards (Note 21), were the generally used fund flow systems, and when the banks in 1997 borrowed abroad at favourable rates, costs for domestic consumers fell. Bank assets and credit grew rapidly in that year, and record profits were made from securities trading. But the expansion of domestic credit financed by foreign borrowing raised concerns of economic overheating.
In 1999 the Estonian finance ministry granted the country"s first-ever pension fund licence to Hansa Asset Management, a subsidiary of Hanspank. Inflation-boosting tax incentives to industrial investors and corporates attracted counter central bank intervention on the banks to raise CA ratios. ( BCE, 1999) From 12 in 1997 the number of licensed banks dropped to five.
Over the 1998-99 years a number of banks merged. Hanspank joined with Hoiupank. Unispank joined with Talinna Pank, and Swedbanken acquired an influential stake in Hansabank (just under 50%). Skandinaviska Enskilda Banken (also Swedish) acquired a significant minority stake in Ohispank (36%), and a number of banks also closed. In late 1998 the central bank had recapitalised Forkesbank which had been going through a troubled patch, and then merged it with the Estonian Investment Bank. Early in 1999 in the aftermath of the Russian crisis, Evea Pank and ERA Pank (which actually owned 35% of Evea Pank) were declared bankrupt.
In June 2000 the central bank agreed with the Finnish Sampo Finance for the sale of its 58% stake in Optiva Pank, then the third largest Estonian bank. Under this privatisation deal Sampo Finance paid a total of Ek 214 mn (approx € 14 mn), but also wrested a partial indemnity from EP to cover the quality of Optiva"s assets. Sampo also offered to purchase the rest of the Optiva shares owned by minority shareholdersincluding the 19% stake of Eesti Uhispank, then the country"s second largest bankfor a price of Ek 7.8 per share.
With the sale of Optiva Pank the Estonian government and central bank reached the stage whereexcepting some small residual holdings of less than 1 percentthe state had no more shares in the banking sector. A decade of single-minded reforms had not only brought its banks to age on the domestic front, but also in the region. Hansabank Latvia, the name given to Deutsche Lettische Bank -after Estonian Hanspank had bought it out in mid-1996 -by 1999 became Latvia"s sixth largest bank. And it was now planning a subsidiary also in Lithuania. Hoiupank also bought the small Moscow-based bank FABA in September 1997.

Source: Eesti Pank 2002
The last act in the Estonian state"s total withdrawal from ownership of financial market structures was the May 2001 sale of its majority shareholding in the Talinn Stock Exchange to the owners of the Helsinki Stock Exchange. The EBRD described this as "consolidation" of the two exchanges, and expressed the view that, together with new securities legislation and the development of pension funds, this measure "should spur the expanding of securities activities". ( EBRD, 2001) At the end of 2000 the Talinn exchange market"s capitalisation stood at € 1.9 billion, compared to € 318 billion and € 32.9 billions of, respectively, the Helsinki and Warsaw exchanges. And at the end of 2001, in terms of CEEC strategic ownership status, Estonia"s banks ranked, and were owned as follows: The pragmatic measures and structures which small Estonia had followed in its bank privatisations set-ups, and these as a vital element of its economic transition, have been described as Thatcherite in approach.(Note 22) It had been an approach which brought the country to a stage where totrally new concerns were now occupying its authorities from 2001 onwards. These were all related to the declared objective of getting the country into the EU. (Note 23) The country"s new priorities on the financial sector now included, inter alia, the building of a well-functioning securities market, where visibility and market liquidity would be regular features, and the bringing into effective operation an integrated financial supervisory structure, covering not only banking but also securities activities and insurance.(Note 24)

Post-Reform Evolution and Conclusions
(a) These indeed vastly different accounts of how Romania"s and Estonia"s financial services sectors moved from under total state ownership into the private sector, inevitably brought in their wake sharp contrasts in EBRD economic classifications in 2001 for the two countries" progress on large-scale enterprise privatisation, on (specifically) banking reform, on interest rate liberalisation, on securities market operating, and on non-bank financial institution reform. These classifications are shown in Table 9, and further interpreted below.

Securities markets and non-bank Financial institutions 2 3
Source: EBRD Transition Report, 2001 (b) The 3+ grading which Romania earned in respect of the privatisation process of its larger enterprise sector, meant that a level of over 25 per cents of the assets of these enterprises had moved into private hands, or was in the process of being privatised. The process in the latter case was considered as having reached a stage where the state had effectively ceded its ownership rights, but major issues regarding corporate governance remained.
For the same process, the 4 grading earned by Estonia reflected the fact that the percentage of such privatised assets was over 50 per cent, and that significant corporate governance progress had taken place in these enterprises.
(c) By 2001 Romania was considered by the EBRD as having made "substantial" progress in establishing bank solvency, and in the creation of a framework for prudential supervision and regulation. The country now had full interest rate liberalisation, with only restricted situations of preferential access to cheap refinancing. The 3-grading also reflected the EBRD"s view that the levels of lending to private enterprises, and of the presence of private banks, were significant.
On the other hand, Estonia"s now higher gradings meant that the standards and performance norms in that country"s banking system were those equivalent to advanced industrial economies, with full convergence of banking laws and regulations towards the standards of the Bank of International Settlements (BIS). In the eyes of the EBRD, Estonia now had a banking system where banking competition functioned well and was prudently supervised. Significant term lending to private enterprise, and substantial financial deepening, had also become welcome aspects of the privatised Estonian banking sector.
(d) Romanian, and Estonian, securities markets, and the role and levels of activity of non-financial institutions, showed a number of areas where in both countries progress was slow. The formation and development of securities exchanges, and similarly so that of market-makers and brokers, was a long uphill struggle in Romania. Trading in government paper and in other securities was at low levels, and public perception of such business was no doubt effected by the existing rudimentary framework for issuance and trading in securities.
In Estonia the issuing of securities by private enterprises was more substantial. The market was better protected through the existence of formal share registries, secure clearance and settlement procedures, and an acceptable level of protection of minority shareholders" rights. Estonia also earned a positive grading from the EBRD for an acceptable associated regulatory framework covering emerging non-bank financial institutions, such as investment funds, private insurance and pension funds, and leasing companies.
These differing pictures of the manner of SOB privatisation in these two formerly soviet-controlled countries could possibly suggest, by way of a very general conclusion that in both countries FSI privatisation was at a certain point accepted with the necessary positive and correct culture. As seen they however had had substantially different starting-off bases and evolutionary patterns. (Note 25)