Bank Industry Business Modeling in Economies of Transition

This study examines business models of banking industry in transition economies. Specifically, how different components of business models affect risk and efficient operation of banks. Using quarterly bank data over period of 2008–2019 years and covering 97 banks across 17 recently switched from planned to free market economies, we found that banks in transition economies have overall weak business models. Through application of Generalized Methods of Moments (GMM) system, we found that substantial liquidity is the only significant factor affecting both financial stability and performance measures of banks in transition. We test robustness of the main findings applying the GMM across five different sub-samples.