BP suggests that state-controlled banks can indeed play an important counter-cyclical role during crises by supporting lending to the economy. It also highlights the benefits of a diversified bank ownership structure. Foreign banks are likely to play a positive role in supporting financial deepening and mitigating endogenous crises, but domestically owned banks may come in handy when the sector is hit by exogenous crises.
For state-controlled banks to be successful, however, they need to be professionally managed, commercially oriented, open to free-market competition, and subject to hard budget constraints. Taking state-controlled banks public can help meet some of these conditions. PKO BP’s stock market listing promoted adoption of international accounting standards, reduced political pressures and imposed market discipline. But market discipline alone is not likely to be sufficient; state-controlled banks are likely to perform well in countries with a well embedded culture of transparency, accountability, and responsibility. Achieving these, however, is far from straightforward.
This blog post reflects the personal views of the author and does not represent the position of the World Bank Group.