Call for applications: Klaus Liebscher ­Economic Research Scholarship

The scholarship program targets Austrian and international experts with a ­proven research record in economics and finance, and postdoctoral research experience. Applicants need to be in active employment and should be interested in broadening their research experience and expanding their personal research networks. Given the OeNB’s strategic research focus on Central, Eastern and South­eastern Europe, the analysis of economic developments in this region will be a key field of research in this context.

The OeNB offers a stimulating and professional research environment in close proximity to the policymaking process. The selected scholarship recipients will be expected to collaborate with the OeNB’s research staff on a prespecified topic and are invited to participate actively in the department’s internal seminars and other research activities. Their research output may be published in one of the department’s publication outlets or as an OeNB Working Paper. As a rule, the consultancy services under the scholarship will be provided over a period of two to three months. As far as possible, adequate accommodation for the stay in Vienna will be provided. ¹

Applicants must provide the following documents and information:

• a letter of motivation, including an indication of the time period envisaged for the consultancy
• a detailed consultancy proposal
• a description of current research topics and activities
• an academic curriculum vitae
• an up-to-date list of publications (or an extract therefrom)
• the names of two references that the OeNB may contact to obtain further information about the applicant
• evidence of basic income during the term of the scholarship (employment contract with the applicant’s home institution)
• written confirmation by the home institution that the provision of consultancy services by the applicant is not in violation of the applicant’s employment ­contract with the home institution

Studies

A sleeping beauty or a dead duck?The state of capital market development in CESEE EU ­Member States

Thomas Reininger, Zoltan Walko ²

For quite some while, there have been high expectations that stronger capital markets could generate a broader range of financing sources and reduce the buildup of vulnerabilities for the corporate sector in European Union Member States in Central, Eastern and Southeastern Europe (CESEE). These expectations prompted various supportive measures by international institutions, national authorities and market participants over the past 10 to 15 years. ­However, despite these efforts, capital market developments in the region have been far from dynamic over the past decade. Capital markets continue to be substantially less developed than in the euro area and the U.S.A., judging from the balances of debt securities, listed shares and investment fund shares outstanding both in relation to GDP and as a share of total financial liabilities. Even taken together, these three types of securities account for a smaller portion of total ­financial liabilities than loans, with loan penetration levels (loans as a percentage of GDP) ­already approaching euro area and U.S. levels. Data on financial flows show narrower gaps with the euro area for funding via debt securities, but issuance is dominated by government entities. Analyzing the financial liabilities of nonfinancial corporations, we find some relevance for listed shares only in Poland and Croatia (but less of a relevance than in the euro area) and a negligible role for debt securities (with the euro being the dominant issuing currency in most non-euro area CESEE EU Member States). The predominantly bank-based nature of the financial systems of the CESEE EU Member States is also confirmed by the fact that the total ­assets of nonbank financial institutions are well below the level of domestic bank credit to the private sector, thus playing a relatively smaller role in financial intermediation than in the euro area and the U.S.A. In view of this evidence, we review the key factors which have so far prevented a more dynamic development, describe major efforts undertaken to overcome these detrimental factors and synthesize proposals by various institutions for future action to deepen local capital markets in the region, including in the context of the European Union’s capital markets union.

JEL classification: D14, D18, D31, D63, E44, G21, G28, H81

Keywords: CESEE, capital markets, financial intermediation, European Union, capital markets union

This descriptive study gives a comparative overview of the status quo of key segments of the local capital markets in CESEE EU Member States and of major developments since 2010. To complete the picture, we often distinguish between euro area members and nonmembers, and we provide comparisons with euro area and U.S. totals. We draw on a variety of data sources, such as quarterly financial balance sheets, securities statistics and securities exchange-trading statistics ­published by the ECB, the World Bank’s Global Financial Development database, the IMF’s Financial Development Index and market statistics provided by – among others – the World Federation of Exchanges and the Federation of European Securities Exchanges. Note that we did not intend to analyze in detail, e.g. econometrically, the determinants of capital market development.

In what follows, section 1 provides the big picture view using the IMF’s Financial Development Index. Section 2 adds insights from financial sector accounts data into the role of securities as a financing instrument in CESEE, for the national economies as a whole and for individual sectors. Section 3 cross-checks this information with World Bank data on the role of the nonbank financial sector in financial intermediation. Section 4 discusses structural issues of capital market development in CESEE EU Member States, covering impediments to development and efforts made so far, and highlighting potential ways forward. Section 5 provides a concluding overview.

1 The big picture view with the IMF’s Financial Development Index

A more detailed analysis of the IMF’s Financial Markets Index does not identify a general pattern in development across the three dimensions (see chart 2 and table 1). While market depth is most pronounced in some countries (Bulgaria, Croatia, ­Estonia, Lithuania and Slovakia), market access ranks first in four other countries (Hungary, Poland, Latvia and Slovenia), and market efficiency is the most advanced of the three areas in two other countries (Czechia and Romania). A more homogeneous picture arises when we compare the data with the euro area: for most CESEE EU Member States, the largest gaps with the euro area were observed for market depth and market access in 2017. Market efficiency levels were closer to euro area levels (with Hungary and Poland even outperforming the euro area), which is partly explained by the fact that this is the least developed dimension in the euro area (also compared to the U.S.A.). ⁷

Table 1: IMF Financial Development Index: Financial Markets Index

	Financial Markets Index	of which:
Depth			Access			Efficiency
1995	2010	2017	1995	2010	2017	1995	2010	2017	1995	2010	2017
	Values range between 0 (worst) and 1 (best)
Non-euro area CESEE EU Member States
Bulgaria	0.04	0.07	0.06	0.03	0.11	0.10	0.01	0.03	0.02	0.08	0.05	0.05
Czechia	0.19	0.17	0.19	0.09	0.14	0.16	0.17	0.03	0.09	0.32	0.35	0.32
Croatia	0.13	0.12	0.10	0.03	0.24	0.23	0.02	0.05	0.03	0.36	0.04	0.02
Hungary	0.24	0.58	0.34	0.04	0.28	0.18	0.51	0.53	0.51	0.19	1.00	0.35
Poland	0.32	0.34	0.34	0.03	0.22	0.23	0.35	0.42	0.45	0.64	0.38	0.36
Romania	0.01	0.05	0.09	0.00	0.04	0.05	0.00	0.01	0.01	0.01	0.12	0.21
Euro area CESEE EU Member States
Estonia	0.39	0.13	0.11	0.14	0.15	0.14	0.09	0.08	0.09	1.00	0.14	0.10
Lithuania	0.05	0.06	0.05	0.01	0.08	0.06	0.05	0.04	0.04	0.11	0.06	0.04
Latvia	0.07	0.08	0.07	0.01	0.06	0.06	0.05	0.15	0.12	0.17	0.02	0.03
Slovenia	0.46	0.32	0.10	0.02	0.24	0.10	0.72	0.66	0.14	0.73	0.05	0.06
Slovakia	0.03	0.06	0.05	0.03	0.05	0.08	0.02	0.06	0.02	0.04	0.08	0.02
EA-19	0.32	0.47	0.44	0.21	0.49	0.50	0.37	0.51	0.47	0.39	0.41	0.34
U.S.A.	0.68	0.91	0.90	0.74	0.99	0.99	0.51	0.71	0.68	0.79	1.00	1.00
Source: IMF.

2 Digging into balance sheet data: the role of securities as a financing instrument

2.1 The role of securities in financing the economy as a whole

These statistics document (1) the generally lower level of financial penetration (i.e. outstanding balances as a percentage of GDP) in the CESEE EU Member States compared to the euro area and the U.S.A. and (2) the fact that financing through loans plays a substantially more important role than financing through ­securities in most CESEE EU Member States – at least at the level of the total economy. As securities play a much smaller role in financing the economy than in the U.S.A., the financing structure in the CESEE EU Member States resembles at best that of the euro area.

2.1.1 Securities and loans outstanding

If we look at the share of these four types of financing instruments in total ­financial liabilities, the dominant role of loans in CESEE EU Member States be­comes even clearer (see chart 4). Loans are a more relevant financing instrument in the CESEE EU Member States than in the euro area and the U.S.A., while ­investment fund shares play a much smaller role. Taken together, the share of listed shares and debt securities in total financial liabilities has been approaching the euro area average in several CESEE EU Member States, while remaining considerably lower in Bulgaria, Estonia and Latvia. From 2010 to 2018, the combined share of debt securities, listed shares and investment fund shares in total financial liabilities tended to rise in the CESEE EU Member States, predominantly on account of debt securities and investment fund shares.

For the sake of completeness, we mention that the remaining part of total financial liabilities consists mainly of (1) nonlisted shares and other equity, (2) other accounts payable including trade credits and (3) deposits taken in by banks. Besides, a substantial part of nonlisted shares and other equity stems from foreign direct investment, particularly in the case of CESEE EU Member States.

Next, we take a closer look at total debt securities and listed shares outstanding. Concerning debt securities, a breakdown of the balances outstanding by issuing sector ⁸ reveals that these balances tend to be heavily skewed toward debt securities issued by the general government (see chart 5 and table 2): In 2018, the government sector accounted for more than 75% of overall issuance, compared to around 50% in the euro area and the U.S.A. Notable exceptions were Estonia (where nonfinancial corporations were the most prominent issuers of debt securities, followed by banks and nonbank financial corporations) and Czechia (where banks were ­important issuers beside the general government).

Table 2: Debt securities and listed shares by issuing sector

		Total economy	Central bank	Banks	Nonbank­ ­financial ­corporations	Nonfinancial corporations	General ­government	Households1
		2010	2018	2010	2018	2010	2018	2010	2018	2010	2018	2010	2018	2010	2018
		Balances outstanding in % of GDP
Non-euro area CESEE EU Member States
Bulgaria	Debt securities	13.0	22.5	0.0	0.0	0.4	0.3	0.7	0.7	1.7	2.8	10.3	18.7	0.0	0.0
	Listed shares	11.3	10.9	0.0	0.0	1.1	0.7	2.1	4.7	8.1	5.5	0.0	0.0	0.0	0.0
Czechia	Debt securities	49.3	54.1	0.0	0.0	6.3	14.9	0.4	0.9	7.1	6.9	35.6	31.4	0.0	0.0
	Listed shares	20.3	11.4	0.0	0.0	4.3	3.7	0.0	0.0	16.1	7.6	0.0	0.0	0.0	0.0
Croatia	Debt securities	36.3	59.5	0.0	0.0	0.1	0.2	0.0	0.0	3.0	3.3	33.2	55.9	0.0	0.0
	Listed shares	43.0	34.7	0.0	0.0	9.5	9.1	0.7	0.3	32.8	25.4	0.0	0.0	0.0	0.0
Hungary	Debt securities	84.7	74.9	11.5	0.0	13.3	5.0	0.4	0.9	2.0	1.1	57.6	67.9	0.0	0.0
	Listed shares	20.4	18.5	0.0	0.0	5.3	7.5	0.2	0.1	14.8	10.9	0.0	0.0	0.0	0.0
Poland	Debt securities	56.8	54.4	5.2	2.5	1.1	3.5	0.2	0.6	3.2	5.2	47.1	42.7	0.0	0.0
	Listed shares	35.1	25.8	0.0	0.0	10.9	8.2	3.5	2.3	20.7	15.2	0.0	0.0	0.0	0.0
Romania	Debt securities	16.7	30.0	0.0	0.0	0.2	0.2	0.0	0.0	0.1	0.1	16.3	29.7	0.0	0.0
	Listed shares	8.0	8.1	0.0	0.0	2.0	1.9	0.0	0.0	6.0	6.2	0.0	0.0	0.0	0.0
Euro area CESEE EU Member States
Estonia	Debt securities	6.8	7.6	0.0	0.0	0.2	1.5	0.3	1.3	4.7	4.1	1.6	0.8	0.0	0.0
	Listed shares	11.3	10.4	0.0	0.0	0.0	0.0	0.0	1.1	11.3	9.3	0.0	0.0	0.0	0.0
Lithuania	Debt securities	35.9	34.5	0.0	0.0	1.4	0.0	0.4	0.1	0.4	2.4	33.8	32.0	0.0	0.0
	Listed shares	15.2	7.4	0.0	0.0	1.5	0.5	0.5	0.1	13.2	6.7	0.0	0.0	0.0	0.0
Latvia	Debt securities	13.2	33.2	0.0	0.0	1.7	0.5	0.0	1.6	0.5	0.6	11.0	30.5	0.0	0.0
	Listed shares	1.6	2.6	0.0	0.0	0.4	0.0	0.0	0.0	1.3	2.6	0.0	0.0	0.0	0.0
Slovenia	Debt securities	52.5	71.3	0.0	0.0	14.0	0.3	0.1	0.2	2.3	2.1	36.1	68.6	0.0	0.0
	Listed shares	19.3	13.9	0.0	0.0	1.7	2.7	2.1	2.7	15.5	8.5	0.0	0.0	0.0	0.0
Slovakia	Debt securities	43.1	66.6	0.0	0.0	5.4	7.6	0.2	4.8	0.1	5.8	37.4	48.3	0.0	0.0
	Listed shares	0.9	1.8	0.0	0.0	0.4	1.0	0.0	0.0	0.6	0.8	0.0	0.0	0.0	0.0
EA-19	Debt securities	164.7	156.9	0.0	0.0	54.4	35.2	30.8	31.9	9.5	11.9	70.1	77.8	0.0	0.0
	Listed shares	48.7	60.7	0.0	0.1	4.8	4.0	6.0	9.3	37.9	47.3	0.0	0.0	0.0	0.0
U.S.A.	Debt securities	212.6	202.7	0.0	0.0	4.5	1.4	88.4	68.1	26.4	30.6	91.5	101.6	1.8	1.1
	Listed shares	111.0	148.0	0.0	0.0	4.2	5.3	22.7	37.1	84.1	105.6	0.0	0.0	0.0	0.0
Source: ECB, Eurostat, OECD, authors‘ calculations.
1 Including nonprofit institutions serving households.

To complete the picture, we perform a currency breakdown of debt securities outstanding, based on the ECB’s securities statistics. However, it should be noted that financial balance sheet data on financial instruments and the ECB’s securities statistics are not strictly comparable, resulting in substantial differences between the published values in a few cases. ⁹ At the end of 2018, the outstanding balances of debt securities were dominated by issues in the national currencies in almost all CESEE EU Member States. The two notable exceptions were Bulgaria and Croatia. In Bulgaria, the overwhelming majority of debt securities issued was denominated in euro (which is not surprising given the euro-based currency board operated in that country), while in Croatia nearly half of the outstanding volume was denominated in euro (possibly encouraged by the tight peg of the kuna to the euro) and about a quarter in other foreign currencies. In other non-euro area CESEE EU Member States, debt securities denominated in euro accounted for up to a third of the outstanding balances, and up to around 10% were denominated in other foreign currencies. Clearly, foreign currency issuance was less widespread among the CESEE EU Member States participating in the euro area, except for Lithuania.

For listed shares, a breakdown by issuing sector also finds evidence of substantial concentration, with nonfinancial corporations accounting for the bulk of the balances outstanding in the CESEE EU Member States, same as in the euro area and the U.S.A. Unlike in the euro area and the U.S.A., a significant portion of total listed shares outstanding was also attributable to banks, partly even (subsidiaries of) foreign parent banks, in 2018 (see table 2). The only exception are the Baltics and Bulgaria, with Bulgaria moreover being the only country in which nonbank financial corporations accounted for a notable portion of the outstanding amount in 2018.

On the currency structure of listed shares outstanding, the ECB’s securities statistics indicate that listed shares are almost exclusively denominated in the national currencies.

More generally, the ECB’s securities statistics on listed shares confirm the picture painted by the financial balance sheet data by showing that equity market ­capitalization ¹⁰ decreased in the majority of CESEE EU Member States ¹¹ from 2010 to 2018 (see table 3). To some extent, this decrease reflected declines in equity prices. However, in half of the CESEE EU Member States we also observe a drop in market capitalization deflated by the respective main equity index. Moreover, the number of listed companies fell in most of the countries in the sample from 2010 to 2018. This may not necessarily have been a significant phenomenon, though, in so far as it reflects merely the delisting of companies which were hardly ever traded or otherwise active in the stock exchange.

Table 3: Equity market size and trading activity

	Equity market capitalization in % of GDP	Number of companies with listed shares	Equity market capitalization in % of GDP	Value traded in % of GDP	Turnover velocity
	2010	2018	2010	2018	2010–2018
Non-euro area CESEE EU Member States
Bulgaria	14.5	24.4	390	274	15.2	1.3	0.1
Czechia	20.4	11.4	27	54	14.9	4.9	0.3
Croatia	42.3	34.9	240	127	38.3	0.9	0.0
Hungary	20.8	18.9	52	43	16.7	9.1	0.5
Poland	39.3	28.2	585	851	33.0	13.8	0.4
Romania	7.8	8.9	69	87	10.0	1.4	0.1
Euro area CESEE EU Member States
Slovenia	19.3	13.9	72	31	14.3	1.0	0.1
Slovakia	5.0	6.2	165	58	6.0	0.1	0.0
Euronext	68.7	86.0	1.135	1.208	80.0	72.9	0.9
U.S.A.	115.3	148.5	..	..	137.3	214.0	1.6
Source: ECB, Eurostat, Federation of European Securities Exchanges, World Bank (WDI), World Federation of Exchanges, authors‘ calculations.

The size of stock markets (measured as equity market capitalization as a percentage of GDP) does not necessarily correlate with trading activity. In terms of size, the Zagreb Stock Exchange (Croatia) led the league among the CESEE EU Member States both in 2018 and on average in the 2010–2018 period. However, equity trading activity in the Zagreb Stock Exchange was comparatively low, being the third-lowest in the region in 2018 and the second-lowest over the 2010–2018 period (see table 3). Trading activity in this sample of countries was highest in the stock exchanges in Warsaw, Budapest, Prague and Bucharest, expressed both as trading volumes in percent of GDP and as turnover velocity (i.e. as a ratio of market capitalization). However, even in the two most liquid equity markets in the CESEE EU Member States, namely Hungary and Poland, trading activity was substantially lower than in Euronext ¹² or the U.S.A.

2.1.2 Volume of transactions in financing instruments

However, net issuance of debt securities eased in almost all CESEE EU countries over the past few years, as the net incurrence of liabilities in debt securities as a percentage of GDP was lower during 2016–2018 than in the longer period of 2010–2018. In several CESEE EU Member States, this development reflects the lower issuance volume of government debt securities as a result of fiscal consolidation. The declining net issuance of debt securities contrasted with a rising net incurrence of loan liabilities in most countries of the region.

Based on financial flows, the CESEE EU economies compare better with the euro area than on the basis of outstanding volumes. ¹³ Financial transactions in debt securities were larger as a percentage of GDP in nearly half of the CESEE countries than in the euro area – both during 2010–2018 and 2016–2018 – yet still reaching only a tenth of the U.S. level. (Similarly, transactions in loan liabilities as a percentage of GDP surpassed the euro area average in five CESEE EU countries in the 2016–2018 period.)

For completeness, we note that in the 2010–2018 period funding from sources other than those discussed here – including unlisted shares, trade credit and ­deposits – was far more important on balance in almost all countries, including the euro area and the U.S.A., reaching a share in total funding substantially above 50%. The only exceptions were Slovakia and Slovenia where the share of these other funding sources was about 45% and 20%, respectively.

Next, we look at the structure of new net funding via debt securities by issuing sector. Like outstanding volumes, the net incurrence of debt securities liabilities was concentrated on debt securities issued by general government entities in the CESEE EU Member States as well as in the euro area and the U.S.A. (see chart 7). The two most notable exemptions were Czechia (where banks and nonfinancial corporations issued above all debt securities to raise funds during the past few years) and Slovakia (where nonbank financial corporations accounted for most of debt securities net issuance during 2016–2018).

2.2 The role of securities in financing individual economic sectors

2.2.1 Securities issued by banks

Table 4: Share of securities in total financial liabilities

	Banks	Nonbank financial ­corporations	Nonfinancial corporations	General government
		2010	2018	2010	2018	2010	2018	2010	2018
		% of total financial liabilities of issuing sector
Non-euro area CESEE EU Member States
Bulgaria	Debt securities	0.4	0.3	2.8	1.5	0.5	0.9	41.1	57.6
	Listed shares	1.1	0.7	8.3	10.6	2.3	1.8	0.0	0.0
	Investment fund shares	0.1	0.0	2.3	3.3	0.0	0.0	0.0	0.0
Czechia	Debt securities	6.1	10.3	1.0	1.4	3.4	3.7	71.8	69.1
	Listed shares	4.1	2.6	0.0	0.0	7.8	4.1	0.0	0.0
	Investment fund shares	1.1	0.1	8.1	13.5	0.0	0.0	0.0	0.0
Croatia	Debt securities	0.1	0.2	0.0	0.0	1.0	1.2	28.5	40.9
	Listed shares	7.7	8.2	1.7	0.5	11.5	9.1	0.0	0.0
	Investment fund shares	1.6	1.6	6.9	7.7	0.0	0.0	0.0	0.0
Hungary	Debt securities	10.4	5.4	0.2	0.8	0.8	0.4	65.3	73.3
	Listed shares	4.2	8.0	0.1	0.1	5.7	4.3	0.0	0.0
	Investment fund shares	4.0	0.9	5.4	13.7	0.0	0.0	0.0	0.0
Poland	Debt securities	1.3	3.9	0.5	1.2	2.0	3.3	72.6	58.9
	Listed shares	12.8	9.3	7.7	4.9	13.3	9.8	0.0	0.0
	Investment fund shares	0.1	0.0	17.8	27.9	0.0	0.0	0.0	0.0
Romania	Debt securities	0.3	0.4	0.1	0.0	0.0	0.1	36.9	59.6
	Listed shares	3.0	4.0	0.2	0.1	3.1	3.9	0.0	0.0
	Investment fund shares	0.9	0.0	13.3	22.0	0.0	0.0	0.0	0.0
Euro area CESEE EU Member States
Estonia	Debt securities	0.2	1.5	0.7	1.7	1.6	1.4	7.7	3.7
	Listed shares	0.0	0.0	0.0	1.4	3.8	3.1	0.0	0.0
	Investment fund shares	0.0	0.0	8.9	5.1	0.0	0.0	0.0	0.0
Lithuania	Debt securities	1.5	0.1	2.1	0.5	0.2	1.3	63.0	76.0
	Listed shares	1.6	0.8	2.8	0.5	7.1	3.8	0.0	0.0
	Investment fund shares	0.1	0.0	3.0	7.2	0.0	0.0	0.0	0.0
Latvia	Debt securities	1.1	0.6	0.0	2.9	0.2	0.3	16.3	54.3
	Listed shares	0.2	0.0	0.0	0.0	0.6	1.4	0.0	0.0
	Investment fund shares	0.4	0.0	3.1	2.2	0.0	0.0	0.0	0.0
Slovenia	Debt securities	10.1	0.4	0.3	0.6	0.9	1.1	62.1	73.8
	Listed shares	1.2	3.2	4.4	6.9	6.3	4.5	0.0	0.0
	Investment fund shares	0.0	0.2	12.7	13.0	0.0	0.0	0.0	0.0
Slovakia	Debt securities	6.7	8.3	0.8	12.4	0.1	3.9	56.6	53.0
	Listed shares	0.4	1.1	0.0	0.0	0.4	0.5	0.0	0.0
	Investment fund shares	3.2	0.0	12.1	19.8	0.0	0.0	0.0	0.0
EA-19	Debt securities	16.9	13.4	11.4	8.7	3.4	3.8	69.6	69.3
	Listed shares	1.5	1.5	2.2	2.5	13.8	14.9	0.0	0.0
	Investment fund shares	3.6	3.8	22.6	25.7	0.0	0.0	0.0	0.0
U.S.A.	Debt securities	3.9	1.2	24.8	19.1	9.2	8.7	70.3	72.7
	Listed shares	3.7	4.5	6.4	10.4	29.4	30.0	0.0	0.0
	Investment fund shares	16.1	12.5	16.9	20.0	0.0	0.0	0.0	0.0
Source: Eurostat, OECD, authors‘ calculations.

The issuance of debt securities in euro (beside the given national currency) was common among banks in non-euro area CESEE EU Member States. By contrast, banks in euro area CESEE EU Member States rather avoided debt securities issuance in foreign currencies, with the exception of Latvia (see chart 9 and table 5).

Table 5: Currency structure of debt securities

	Banks	Nonbank financial corporations	Nonfinancial ­corporations	General ­government
		2010	2018	2010	2018	2010	2018	2010	2018
		% of total debt securities issued by sector
Non-euro area CESEE EU Member States
Bulgaria	National currency	12.1	12.7	12.2	17.8	3.7	9.8	37.5	22.7
	Euro	87.9	87.3	87.8	79.4	96.3	90.1	38.5	77.3
	Other foreign currencies	0.0	0.0	0.0	2.7	0.0	0.1	23.9	0.1
Czechia	National currency	81.2	70.4	90.5	32.5	11.7	33.2	81.5	89.7
	Euro	15.5	29.5	9.5	67.5	79.0	52.8	17.1	9.9
	Other foreign currencies	3.3	0.1	0.0	0.0	9.3	14.0	1.3	0.4
Croatia	National currency	43.1	42.2	100.0	18.5	10.4	23.1	29.9	33.0
	Euro	56.9	57.8	0.0	81.5	66.7	44.1	38.2	44.2
	Other foreign currencies	0.0	0.0	0.0	0.0	23.0	32.9	31.9	22.9
Hungary	National currency	49.0	64.2	100.0	96.7	11.6	32.1	66.7	79.8
	Euro	50.4	20.6	0.0	2.4	83.1	65.5	20.2	6.9
	Other foreign currencies	0.6	15.2	0.0	1.0	5.3	2.4	13.1	13.4
Poland	National currency	85.7	59.6	100.0	96.9	72.8	79.8	76.8	76.6
	Euro	7.4	37.9	0.0	2.0	23.2	19.9	15.1	15.9
	Other foreign currencies	6.9	2.5	0.0	1.1	4.0	0.3	8.1	7.4
Romania	National currency	85.0	93.7	0.0	100.0	0.0	53.0	64.4	54.9
	Euro	15.0	6.3	0.0	0.0	0.0	47.0	35.6	35.1
	Other foreign currencies	0.0	0.0	0.0	0.0	0.0	0.0	0.0	10.0
Euro area CESEE EU Member States
Estonia	National currency	100.0	100.0	100.0	98.0	94.7	99.5	100.0	98.5
	Euro	0.0	..	0.0	..	0.0	..	0.0	..
	Other foreign currencies	0.0	0.0	0.0	2.0	5.3	0.5	0.0	1.5
Lithuania	National currency	62.5	100.0	100.0	100.0	14.0	100.0	10.0	69.4
	Euro	32.1	..	0.0	..	86.0	..	53.2	..
	Other foreign currencies	5.4	0.0	0.0	0.0	0.0	0.0	36.7	30.6
Latvia	National currency	6.7	75.9	0.0	70.4	62.8	100.0	58.6	88.7
	Euro	79.7	..	0.0	..	37.2	..	41.4	..
	Other foreign currencies	13.6	24.1	0.0	29.6	0.0	0.0	0.0	11.3
Slovenia	National currency	100.0	100.0	100.0	100.0	100.0	100.0	100.0	90.4
	Euro	..	..	..	..	..	..	..	..
	Other foreign currencies	0.0	0.0	0.0	0.0	0.0	0.0	0.0	9.6
Slovakia	National currency	97.2	98.7	100.0	96.7	100.0	98.9	100.0	93.9
	Euro	..	..	..	..	..	..	..	..
	Other foreign currencies	2.8	1.3	0.0	3.3	0.0	1.1	0.0	6.1
EA-19	National currency	82.2	74.6	83.7	70.9	81.5	82.9	97.6	97.8
	Euro	..	..	..	..	..	..	..	..
	Other foreign currencies	17.8	25.4	16.3	29.1	18.5	17.1	2.4	2.2
Source: ECB, authors‘ calculations.

2.2.2 Securities issued by nonbank financial corporations

Debt securities issuance in euro (beside the national currency) was very common among nonbank financial corporations in some non-euro area CESEE EU Member States (Bulgaria, Czechia and Croatia) but negligible in others (Hungary, Poland and Romania; see table 5). Like in the case of banks, nonbank financial corporations in euro area CESEE EU Member States rather avoided issuance in foreign currencies, again except for Latvia.

2.2.3 Securities issued by nonfinancial corporations

Nonfinancial corporations in most non-euro area CESEE EU Member States preferred debt securities issuance in euro (in Croatia also in other foreign currencies) to issuing debt in their national currency (see chart 11 and table 5). Only in Romania and Poland was the share of foreign currency-denominated debt securities below 50%, at about 45% and 20%, respectively. In the euro area CESEE EU Member States, almost all debt securities issued by nonfinancial corporations and outstanding at end-2018 were denominated in euro, reflecting the avoidance of issuance in foreign currency like in the case of banks and nonbank financial corporations.

2.2.4 Securities issued by general government entities

The currency structure of general government debt securities (see chart 12 and table 5) strongly resembles that of the total economy, which is not surprising, given that the total outstanding volume of debt securities was dominated by general govern­ment debt instruments.

3 Cross-checks with World Bank data: the role of the nonbank financial sector in financial intermediation

Data collected by the World Bank (Global Financial Development database) indicate that the nonbank financial institution sector – such as mutual funds, insurance companies and pension funds; corresponding roughly to the sector of nonbank financial corporations discussed above – is much less developed in the CESEE EU Member States than in the euro area, which itself looks less developed than the U.S. market. Moreover, in contrast to the euro area and the U.S.A., the total ­assets of nonbank financial institutions are smaller – in many countries markedly smaller – than domestic bank credit to the private sector (see chart 13), corroborating evidence from financial balance sheets about the predominantly bank-based nature of the CESEE EU Member States’ financial systems.

Within the nonbank financial institution sector, mutual funds account for the smallest portion of this sector’s total assets in most CESEE EU Member States. Also, the gap of mutual funds in the assets-to-GDP ratio vis-à-vis the euro area is substantial and larger than in the case of insurance companies or pension funds. The only exception is Hungary, where mutual fund assets as a percentage of GDP are much larger than elsewhere in the region and are also closer to the euro area, despite a still substantial gap. Mutual fund assets as a percentage of GDP expanded between 2010 and 2016 (latest available data) across the region, but due to the substantial rise in the corresponding euro area ratio, the gaps widened further.

Insurance corporations’ assets as a percentage of GDP were also substantially smaller in CESEE EU Member States than in the euro area in 2016, although, as mentioned above, the gaps were much smaller than for mutual funds. The gaps with the euro area narrowed from 2010 to 2016, mostly due to the decrease of the assets-to-GDP ratio in the euro area, while the corresponding ratios roughly stagnated or rose modestly in the CESEE EU Member States.

Pension funds’ assets-to-GDP ratio rose markedly in most CESEE EU Member States (except for Poland and Hungary) from 2010 to 2016, thus coming closer to euro area levels. Differences in the size and development of this sector across the region have reflected policy choices affecting the pension systems. Specifically, pension fund assets expanded most dynamically in those countries which operate mandatory second-pillar funded pension schemes or have recently started operating such schemes. The expansion was less pronounced in countries where second-pillar pension funds are not mandatory (e.g. Czechia, Lithuania, Slovenia or Slovakia). Pension fund assets even decreased substantially as a percentage of GDP in Hungary and Poland, where pension reforms were reversed, and pension fund ­assets were nationalized partially (Poland in 2014) or almost completely (Hungary in 2011) a few years ago.

Alternative financial sources are also substantially less widespread in the ­CESEE EU Member States than elsewhere in the EU. Gross private equity investments reached an aggregated amount of at most 0.2% of GDP in the region over the period from 2007 to 2018, compared to the European average of nearly 0.4%. The biggest annual average inflows (as a percentage of GDP) were registered in Czechia, Estonia, Poland, Serbia and Hungary. Considering also annual divestments by private equity firms, cumulative net private equity investments were highest in Estonia and Serbia (0.14% of GDP), followed by Poland and Latvia (0.11% of GDP), but still falling short of the European average (0.15%). Other forms of early stage financing are even less common in the CESEE EU Member States. For instance, business angel investments reached 0.05% of GDP in the ­region in 2017. The online alternative finance market (such as peer-to-peer lending, crowdfunding, minibonds, profit-sharing, etc.) is also generally rather small (up to 0.03% of GDP in 2017), with the notable exception of the three Baltic countries (0.15%–0.34% of GDP).

4 Structural issues of capital market development in CESEE EU ­Member States

4.1 Impediments to capital market development

First, there are historical reasons and legacy issues. ¹⁴ The first issue in this context has its roots in the period of socialism, when nonfinancial companies that were state-owned and administratively linked to the government had a comparatively strong debtor position, while banks were formed for their benefit and partly even by them. Thus, loan decisions were not the result of banks’ assessment of creditworthiness. Rather, they reflected the arrangement of companies and government authorities using financing entities. These practices contributed to the legacy of a culture of informality and lack of transparency and openness in society with respect to financing decisions. Companies have thus been hesitant to expose themselves to constant disclosure requirements and investor control following a stock exchange listing. Hence, for instance, in some countries, firms were listed initially in line with legal requirements but then delisted as soon as legal requirements al­lowed it. However, one might argue that this legacy would not inhibit the emergence of stronger private equity markets.

Hence, it is important to recall the following second legacy issue that stems from the final stage of the centrally planned system and the years of transformation: a low level of trust, particularly on the side of investors. People’s financial confidence was eroded by very high inflation coupled with (initially suppressed) currency crises and then banking crises. Add to this disappointing experiences with problematic forms of (coupon) privatizations and financial fraud like e.g. ­pyramidal schemes in the early 1990s. In the banking sector, the entrance of foreign-owned banks decisively contributed to stabilization and the stepwise build­up of confidence in many countries, luring “mattress money” in foreign currency into foreign currency deposits and, finally, local currency deposits. Following partly clearly excessive and imprudent foreign currency lending before the Great Financial Crisis, the avoidance of a severe banking crisis, thanks to public support in parent banks’ home countries and ample liquidity provision by the ECB, strength­ened public confidence further, implying a large increase of domestic local currency deposits. By contrast, following the problems in the 1990s, there was no comprehensive “quick fix” for the capital markets like that for the banking sector in most countries. However, in some countries, capital markets got some boost from the establishment of pension funds in the context of systemic pension reforms. Then, during the Great Financial Crisis, stock market investors, mostly foreign and domestic institutional investors, but also some domestic retail investors, were badly hit. Moreover, in some countries, systemic pension reforms were reversed, mostly due to fiscal policy considerations considering the European Union’s fiscal framework, which supported funded pension schemes only partially and temporarily. These reversals implied a substantial downsizing of pension funds and a weakening of capital market liquidity. Above all, it did not encourage trust in capital market investments in the private sector as an alternative to bank deposits.

Second, building capital markets takes time. It is now only around 20–25 years that CESEE countries started to implement the legal framework for effective capital markets. Despite substantial progress, for example, in the area of insolvency regulation, key indicators such as the length of insolvency procedures or recovery rates still lag behind the EU average in the majority of CESEE EU Member States. In the same vein, the protection of minority investors and corporate transparency are comparably worse in some countries than in the EU on average. The same applies to the regulation of securities exchanges, at least according to data from 2017 when the World Economic Forum last included this indicator in its Global Competitiveness database.

Third, levels of capital market development correlate positively with levels of economic development. On the demand side, more advanced economies tend to have more companies that reach the critical size or have sufficiently large growth potential in order to be interesting candidates for local stock markets or bond issuance. On the supply side, higher levels of disposable income allow bigger capacities to save and accumulate a larger proportion of those savings in the form of more sophisticated financial assets. Moreover, in the early phase of transition, which was characterized by high inflation and high exchange rate volatility or episodes of sudden large devaluation/depreciation, economic agents in CESEE countries suffered from the “original sin,” i.e. the lacking opportunity to borrow abroad in their domestic currency, or from the unavailability of long-term borrowing, even domestically. This was detrimental for the development of capital markets and caused delays and setbacks.

Fourth, size matters. Small economies and small populations reduce economies-of-scale effects, meaning higher relative costs for establishing capital market infrastructure and related regulatory and legal system development. Moreover, with euro adoption being a strategic economic policy target for most CESEE EU Member States, ¹⁵ the prospective future participation in the common capital markets of the euro area may have discouraged a proactive development of local markets for only a “transitional period.”

Small markets also tend to suffer from the lack of liquidity (as suggested by the comparably low stock market turnover velocity rates), which remains a significant disincentive both for potential issuers and investors in the CESEE region. There is a vicious circle in that insufficient liquidity levels prevent investors from entering the market, which in turn prevents liquidity from rising. Insufficient liquidity and the lack of a sufficiently large local investor base may drive companies to foreign capital markets, although there is a substantial domestic bias in equity and debt ­issuance (owing to e.g. language barriers, documentation requirements), or more often to bank loans.

Fifth, the demand for capital has been driven by specific characteristics. Thus, the involvement of foreign companies has been crucial in the transformation of the economies in the CESEE region into market economies. Consequently, FDI-related capital plays an important role as a form of financing of (especially larger) nonfinancial corporations in the region. Financing needs can often be met with FDI equity or intercompany lending from foreign parent companies. Moreover, in foreign-owned companies financing decisions are often taken and implemented at the group level by the foreign headquarters, thus making local financing unnecessary. In addition, as pointed out above, the local banking sectors in CESEE are predominantly foreign-owned, so that banks can rely on parent bank financing (both in form of capital injections and parent bank credit) to complement the local deposit base.

By contrast, SMEs, which account for a substantial portion of value added and employment in the CESEE EU Member States (generally a bigger portion than in the EU as a whole), rather shy away from capital markets due to the complexity of information and cost requirements, covering their external financing needs predominantly by bank loans. Obviously, for individual companies, listing equities on stock exchanges or publicly issuing bonds and complying with related legal requirements, involve substantial costs. These costs may be prohibitive especially for smaller companies, keeping them away from capital markets altogether. Correspondingly, according to a great majority of SMEs in the CESEE region, the costs and regulatory constraints of being listed outweigh potential benefits, particularly in an environment where domestic bank loans are available in abundance.

In recent years, the environment of high liquidity and low interest rates may have fueled search-for-yield attitudes among capital investors willing to supply ­capital, but it provided also rather easy access to bank financing for nonfinancial corporations and hence reduced their incentive to venture into the corporate bond market to gain some interest advantage. However, this may change in the wake of the COVID-19 crisis in as far as banks could tighten their lending standards in view of the uncertainties, the economic recession and probably rising provisions for nonperforming loans.

Sixth, capital market development has also been impeded by specific supply-side characteristics. Thus, investor preferences may also play a role in the relatively slow development of capital markets in the CESEE EU Member States. Institutional investors in several countries in the region have a preference for domestic sovereign bond holdings while households hold a larger share of their financial assets in cash and bank deposits than in the EU as a whole. This issue may be in part related to the fact that financial literacy levels tend to be lower in the CESEE EU Member States than in more advanced EU Member States with deeper capital markets. In addition, given higher owner-occupancy rates in the CESEE EU Member States than in the EU average, presumably a bigger part of households’ overall wealth is locked up in real estate (rather than in financial assets) in the CESEE EU Member States than elsewhere in the EU. Finally, foreign portfolio investors may prefer the shares of a foreign parent company to the domestically listed shares of a subsidiary.

To sum it up, let us quote from a member survey conducted by the CFA Institute, an independent global association for investment management professionals, in early 2018 among 263 investment professionals (portfolio managers, risk managers, consultants, analysts, senior executives) from eight CESEE countries. ¹⁶ The survey sought to identify the main factors preventing growth of capital markets and identify possible solutions to foster deeper and more integrated markets in the ­region. Above all, the respondents shone a light on the scarce supply of listed shares and debt securities, low retail investor demand and administrative burdens that discourage companies from seeking public listings. Further down the list ranked low institutional investor demand, the low level of investor protection and uncertainty about the impact of certain EU regulations and directives. Low levels of ­investor confidence were another factor considered to restrain financial market development in CESEE, with only 38% of respondents having trust in their local market. Nevertheless, respondents did note an improvement in investor protection standards and transparency in their local capital markets compared to the situation five years earlier.

4.2 Efforts already taken to alleviate hindrances

4.2.1 EBRD activities

According to an internal assessment of the initiative prepared in 2017, the EBRD has indeed dedicated considerable effort and skill to delivering specific transactions and technical cooperation projects, resulting in discrete accomplishments in numerous cases. For example, the EBRD contributed to legislative and regulatory improvements through policy dialogue and technical assistance, helped develop benchmark indices, invested in corporate bonds, listed equities and stock exchanges in the region, issued bonds denominated in local currencies on local and international markets and sponsored SEE Link, a regional infrastructure platform for trading securities listed on stock exchanges in six CESEE countries. ¹⁷ At the same time, the assessment came to the rather critical conclusion that there “appears to be a significant disconnect between, on the one hand, the Bank’s high but undefined strategic ambitions for the complex task of transforming LCMs and, on the other, its limited actual capacity to accomplish this given choices it has made about resourcing, prioritization, organization and collaboration with other institutions.”

Therefore, drawing on these lessons, in late 2018 the EBRD’s Board of Directors approved an adapted LC2 Strategy for 2019–2024, setting out in detail how the EBRD would support local currency and capital markets development in its countries of operation. It has been envisaged that LC2 will, for one, facilitate the transition from policy dialogue to investments by the EBRD to support the local currency and capital market development process. Furthermore, efforts will be concentrated on increasing the share of EBRD investments in local currencies and on identifying and supporting sequenced reforms in local capital markets based on four defined priority areas (upgrading the capital markets policy framework, enhancing the legal and regulatory environment, improving capital market infrastructure, and expanding the product range and the investor base).

4.2.2 National authorities’ strategies

National governments – alone or in cooperation with stock exchanges – have also been developing financial and investor education programs to raise awareness of the potential benefits of capital markets and increase financial literacy (e.g. in Latvia, Lithuania, Hungary, Croatia, Czechia, Slovakia). Most CESEE countries have also embarked on pension reforms, introducing second and third pillar-funded pension systems with often mandatory participation (at least in the second pillar). Reforms of the insolvency regimes to reduce complexity and time to resolve insolvencies and raise recovery rates have likewise been beneficial to capital market developments. Also, some countries (e.g. Poland, Hungary) have started public schemes to offer financial support for SMEs in preparing their initial public offerings. Some CESEE countries have introduced public support and a favorable regulatory regime to improve the availability of venture capital, which is especially important for financing start-ups and innovative companies. In some cases, tax legislation has been modified to create incentives for issuers and investors. In Hungary, the central bank bought a majority stake in the Budapest stock exchange (BSE) in 2015, with the explicit aim of implementing a variety of strategic innovations and providing issuers and investors proper incentives.

However, beyond the generally supportive activities for capital market development over the past two decades, national authorities have taken also measures that have weakened or may weaken capital market development. In Poland and Hungary, the reversal of previous systemic pension reforms, leading to the partial (Poland) or almost complete (Hungary) nationalization of the assets of mandatory second-pillar pension funds, has weakened the institutional investor base. Also, deliberate measures to make government securities more attractive for retail investors (e.g. by preferential above-market interest rates, tax exemption for interest income, broad marketing channels – like in Hungary since mid-2019) may create undue competition for other, “nonprivileged” forms of investment (like corporate bonds, equity or investment fund shares).

4.2.3 Market participants’ initiatives

Furthermore, in order to improve the supply of tradable instruments for investors and to ease access to the capital market for smaller companies, stock exchanges in several countries of the CESEE region have launched dedicated stock market segments for SMEs and bond markets for smaller issuers. These offer lighter listing requirements and lower compliance costs and listing fees, to improve the access of smaller companies to capital markets.

4.3 Potential ways forward

• Continue to develop national capital market strategies.
• Foster a friendly business environment, e.g. stable legal and judiciary system and efficient administration. Ensure the rule of law for all market participants. Continue to improve insolvency frameworks to give viable companies a second chance to restructure and offer investors more certainty.
• Establish a sound and harmonized regulatory and supervisory environment for financial markets with strong institutions (eventually through the establishment of a common EU regulatory body). The introduction of common standards would reduce investment costs, boost cross-border investments, improve the level of transparency and enhance investor protection. Common rules across markets would also help narrowing differences in market liquidity.
• Support the implementation of EU-wide regulatory requirements. In view of ongoing regulatory changes affecting the banking sector (e.g. modified minimum requirements for own funds and eligible liabilities (MREL)), there are concerns that local bond markets in several CESEE EU Member States are not ­sufficiently deep and liquid to allow for the smooth absorption of required issuance volumes. Moreover, there are concerns that increased bond issuance by banks established in the CESEE region to raise bail-in-able funds may counteract efforts to develop local bond markets for nonfinancial corporations by crowding out nonfinancial corporations’ bond issuance in so far as investor demand does not strengthen sufficiently. As a result, support by international financial institutions in the placement of such bank bonds has been called for. In this vein, the EBRD actively participated in the placement of such bank bonds in Romania in December 2019, by acting as an investor itself and by mobilizing other investors.
• Ease investment regulations of local institutional investors to allow them to invest in a wider range of asset classes (e.g. venture capital, unlisted securities, real estate funds, etc.).
• Strengthen financial literacy among investors, particularly retail investors, so that they better understand capital markets and become aware of potential benefits as well as risks involved by diversifying away from bank deposits and loans. Enhance financial literacy also among (potential) issuers, particularly in the SME segment.
• Develop a local base of issuers. Encourage state-owned enterprises to raise funds through the local capital market by issuing bonds or listing equity. Privatize state-owned enterprises through the local stock exchange.
• Offer targeted assistance to SMEs in their access and participation in the capital market to compensate for excessive costs to prepare initial public offerings and comply with capital market-related administrative and legal requirements (e.g. prospectus, regular public financial reporting, analytical research reports).
• Promote alternative financing for SMEs via instruments like venture capital, private equity, private placements, minibonds or equity crowdfunding.
• Start-ups and high-tech companies, which are essential for economic development beyond the “middle-income trap,” are said to have rather low asset turnover (due to, for instance, long research and development phases) and have quite often had difficulties getting bank loans. Fostering private equity funds and ­venture capital would support these companies and thus strengthen economic development. During the recovery after the corona crisis, the low interest rate environment will probably prevail for longer and policymakers should make use of the tide from safe-haven flows toward a renewed search for yields, thus benefiting these alternative forms of investment as well.
• Meet the growing demand for green finance. In the coming years, policymakers could use the increased demand for green finance to channel funds into ecologically advanced companies through programs that incentivize, screen and rate such companies.
• Adopt supportive tax measures. Simplify the tax system, including with respect to capital gains and withholding tax. Consider tax incentives for investors in ­order to attract savings to capital markets, and for certain capital market vehicles for funding to SMEs (e.g. venture capital, private equity). Implement favorable tax treatment and easier tax procedures for companies going public to offset high costs that listed companies and to-be-listed companies must incur in relation to higher transparency and regulatory requirements.
• Increase economies of scale by enhanced regional cooperation among governments, market participants and market infrastructure providers, e.g. by expanding existing geographical alliances to non-allied markets and deepening their ­integration. Create new stock market segments dedicated to listing and trading foreign equities in order to broaden the scope of instruments available to local investors. Facilitate listing on other EU markets for local issuers. Develop cross-border cooperations of national central security depositories to support cross-border trading by simplified clearing and settlement procedures.
• Tackle the impact of COVID-19 on banks’ balance sheets rather sooner than later. The corona-induced recession will probably leave banks with higher volumes of nonperforming loans (NPLs). In the years of NPL work-out following the Great Financial Crisis, capital investors specialized in NPL investments have already penetrated the CESEE region. Often, these are foreign-based, e.g. London-based, investors that focus on specific industries across countries. In cooperation with these investors, NPL trading platforms could be used as a loan price determination tool that should be more efficient than outright sales to single investors.

5 Conclusions

Three decades after the start of economic transition, capital markets in the CESEE EU Member States continue to be substantially less developed than in the euro area and the U.S.A., judging from the balances of debt securities, listed shares and investment fund shares outstanding. In the case of listed shares outstanding, the volume-to-GDP ratio even declined in most countries of the region over the past few years. Progress has been just as mixed across countries and uneven across time using a longer horizon of 25 years. However, based on financial flows, fund­ing via debt securities in the CESEE EU Member States compares considerably better with the euro area than based on stock data. Nevertheless, this result stems almost exclusively from the issuance of government debt securities.

Looking at the financial liabilities of the total economy as a percentage of GDP, the comparably limited role of debt securities and even more so of listed shares and investment fund shares is apparent. By contrast, loan penetration levels already come closer to the euro area and the U.S.A. Concerning the structure of liabilities, the dominant role of loans in CESEE EU Member States becomes even clearer: loans in the CESEE EU Member States account for a larger portion of total financial liabilities than debt securities, listed shares and investment fund shares taken together, while in the euro area (and even more so in the U.S.A.) loans play a less important role than these securities together. In sharp contrast to the euro area and the U.S.A., debt securities outstanding in the CESEE EU Member States are dominated by general government papers. Concerning listed shares, nonfinancial corporations account for the bulk of issuance in all three regions. Listed shares ­issued by financial corporations are dominated by banks, often subsidiaries of foreign parent banks, in the CESEE EU Member States and by nonbank financial institutions in the euro area and the U.S.A. With respect to listed shares, CESEE EU Member States lag behind more developed countries not only in terms of ­market depth but also market efficiency and liquidity, as suggested by substantially lower turnover velocity.

Looking at the financial liabilities of nonfinancial corporations only, listed shares had some relevance in this sector’s funding structure only in Poland and Croatia, but still falling short of their role in the euro area. The role of debt securities issued by nonfinancial corporations was negligible (like in the euro area), with the euro being the currency of denomination of choice in most non-euro area CESEE EU Member States.

Finally, development gaps are also substantial with respect to the role of nonbank financial institutions, such as mutual funds, insurance companies and pension funds in financial intermediation, while the market size of alternative financing sources (e.g. private equity, business angels, online alternative financing) is negligible. Moreover, in contrast to the euro area and the U.S.A., the total assets of nonbank financial institutions are smaller – in many countries substantially smaller – than domestic bank credit to the private sector, confirming the predominantly bank-based nature of the CESEE EU Member States’ financial systems.

Further to the overall finding of gaps between the CESEE countries and the euro area, we also found substantial heterogeneity across the CESEE region with respect to the overall development of capital markets, the role of securities in the financing of both the total economy and individual institutional sectors and the currency structure of debt securities.

Expecting that the development of capital markets could generate substantial additional financing opportunities for the corporate sector, international institutions, national authorities and market participants have taken various supportive measures over the past 10 to 15 years. These have included the launch of national capital market strategies, measures to promote financial literacy, support for SMEs in going public, new market segments on stock exchanges with lighter regulatory requirements designed specifically for smaller companies, regional cooperation of stock exchanges, etc. We discussed several historical and structural reasons why capital markets in CESEE continue to play a rather marginal role in financing the private sector. Among these figure inter alia the legacy of informality, the disappoint­ment with certain privatization procedures, the small size of most CESEE econ­omies, the dominance of FDI, higher owner-occupancy rates locking a larger part of household wealth in real estate, the stock market bust during the Great Financial Crisis discouraging retail equity investors and also national measures that ­weakened capital markets development, such as for example the dismantling or partial dismantling of private pension funds in Hungary and Poland in line with new fiscal rules and policy considerations. Assessing or estimating the effects of the various measures to promote capital markets in the individual CESEE countries and gauging to what extent this might explain the heterogeneity within the region would go beyond the scope of this overview and remains a challenge for other authors.

The still fairly limited state of development of CESEE capital markets suggests that more remains to be done if one wants to increase the contribution of capital markets to financing domestic investment. In recent years, various institutions have suggested a wide range of measures to prop up capital markets in the region. These proposals include the launch of additional national capital market strategies, improvements in the business environment (e.g. judiciary, government administration, rule of law), enhancements to the regulatory and supervisory frameworks (including at the regional level) and support for the implementation of EU-wide regulatory requirements (e.g. related to MREL). Moreover, the strengthening of financial literacy among (retail) investors, and also among potential (SME) issuers, the development of the local investor and issuer base, including by tax incentives and targeted assistance especially for SMEs, start-ups and high-tech companies, as well as the regional cooperation of national governments and stock exchanges to increase economies of scale rank prominently among the suggestions. Taking the opportunities of green finance proactively and tackling the impact of COVID-19 on banks’ balance sheets via NPL trading platforms linked to specialized capital investors remain current challenges. Such measures, if decided and implemented, could possibly prevent the sleeping beauty from turning into a dead duck.

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How financially literate is CESEE? Insights from the OeNB Euro Survey

Sarah Reiter, Elisabeth Beckmann ¹⁹

Drawing on data from the OeNB Euro Survey, we document financial literacy across ten countries in Central, Eastern and Southeastern Europe (CESEE-10) between 2012 and 2018. We analyze people’s understanding of the “big three” concepts of financial literacy: interest rates, inflation and risk diversification. We show that financial literacy differs across and within countries. On average, just one in five adults can be considered financially literate. Our results show that low financial literacy levels are more common among older and less educated individuals and that self-employment is only weakly related to higher literacy. In line with previous research, females show lower levels of financial literacy than their male counterparts. However, the gender gap observed in the CESEE-10 (countries with a communist legacy) is small compared to the gap in countries that do not have a communist legacy. Individuals who experienced economic turbulence during transition from planned to market economies tend to be more financially literate regarding inflation. While indicators of economic and financial development are correlated with higher financial literacy at the country level, interactions are more complex at the intracountry level.

JEL classification: D14, D83, D91, G53

Keywords: financial literacy, interest rates, inflation, risk diversification, gender gap, CESEE

From previous research, financially literate individuals are known to be (1) more successful at job planning and saving for retirement (Behrman et al., 2012); (2) more likely to participate in the stock market (Almenberg and Dreber, 2015; van Rooij et al., 2011); and (3) more likely to diversify their savings (Hastings et al., 2013). In contrast, individuals who lack financial literacy are more prone to take high-cost loans and become overindebted (Lusardi and Tufano, 2015) and to encounter ­repayment difficulties (Gerardi et al., 2013).

To remedy this situation, many countries have implemented national strategies for financial education seeking to improve “financial literacy with a view to promoting healthier financial behaviors and improving financial well-being” (OECD, 2015). In this context, the OECD argues that “policymakers, educators and ­researchers need high-quality data on levels of financial literacy in order to inform financial education strategies” (OECD, 2013). Indeed, the number of surveys undertaken to gain a better understanding of financial literacy is steadily increasing. However, some of these surveys are not appropriate for comparisons across countries as they vary regarding the sociodemographic groups that are surveyed. For instance, some studies consider only young or only old people whereas others consider adults in general. Moreover, the studies also differ in the way they define and measure financial literacy. ²¹

To deal with this shortcoming, numerous efforts have been made to come up with harmonized definitions and measures of financial literacy, allowing for cross-country comparisons. One of the most prominent of these projects was initiated by the OECD International Network on Financial Education (OECD/INFE), which provides harmonized data on financial literacy for 30 countries (Atkinson and Messy, 2012; OECD, 2016). Furthermore, the World Bank has developed ­financial capability surveys and is actively involved in developing financial education strategies (World Bank, 2014). Another well-known initiative is the so-called Financial Literacy around the World (FLat World) ²² project, which collects answers to three standard financial literacy questions on interest rates, inflation and risk diversification (Lusardi and Mitchell, 2008). In the literature, these questions have come to be known as the “big three” (see, for example, Barboza et al., 2016).

In this paper, we present unique survey evidence on individuals’ understanding of the “big three” concepts of financial literacy for ten Central, Eastern and Southeastern European (CESEE-10) countries for the period from 2012 to 2018. One distinct advantage of our data is that the wording of the financial literacy questions put to respondents (always the adult population) and the survey mode were exactly the same in all ten countries. We contribute to the literature by presenting evidence for countries with a rather short history of developed financial systems and consumer finance. To the best of our knowledge, this is the first paper that analyzes evidence for the three standard financial literacy questions over a period of more than five years using a dataset that has sufficient observations to dig into intracountry heterogeneities. Moreover, we add to the FLat World project by providing comparable statistics on financial literacy for countries that have not yet been covered by the project. We present evidence of how financial literacy varies across sociodemographic groups and, by comparing our results to those from other surveys, we show that in the CESEE-10 (all countries with a communist legacy) the gender gap in financial literacy is smaller than in countries that do not have a communist legacy (similar findings were made by Cupák et al., 2018). For each of the ten CESEE countries under study, the online annex of our paper provides indicators of financial literacy for different sociodemographic groups and regions. This evidence can be used as input for policy work and further research.

The rest of this paper is organized as follows: Section 2 describes the data; section 3 presents details on the “big three” financial literacy questions and discusses the strengths and weaknesses of these questions. Section 4 presents the corresponding results, describing the variation in financial literacy across countries. ²³ We also compare our financial literacy results with those of other surveys that have been conducted in the CESEE-10. Section 5 analyzes intracountry variation of ­financial literacy and its correlates. Section 6 discusses the variation in financial literacy across sociodemographic groups, section 7 describes how the transition experience is related to literacy and section 8 provides concluding remarks.

1 Data: the OeNB Euro Survey

The Euro Survey has been conducted on a regular basis since 2007 as a repeated cross-sectional face-to-face survey. In each country and in each survey wave, a sample (based on multistage random sampling procedures) of around 1,000 individuals is interviewed. Each sample reflects a country’s population characteristics in terms of age, gender, region and ethnicity.

When interpreting the results presented in this paper, the following issues should be taken into account: Nonresponse varies across countries and across survey waves. The gross sample size ranges approximately from 1,500 to 3,000 across countries and waves. The number of interrupted interviews is zero in some countries and up to 200 in other countries. In the absence of information on the number of individuals who refused to participate in the survey, we cannot construct nonresponse weights. Regarding unit nonresponse, we do not impute missing values but assume that nonresponse is random, which is arguably a strong assumption. However, for the central questions of interest – the questions on financial literacy – the share of “no answer” responses is below 3% in all countries and waves.

Weights are calibrated on census population statistics for age, gender, region, and, where available, on education and ethnicity. Weights are calibrated separately for each wave and country. For the majority of countries, population statistics ­relate to the year 2011; more recent census data were available only for some countries. ²⁴

All in all, we use data from six Euro Survey waves between 2012 and 2018, ²⁵ meaning that our dataset covers a total of around 60,000 observations. ²⁶ The central variables of our analyses are derived from the three questions on financial literacy referred to above. Beyond that, the survey questionnaire elicits a rich set of information on socioeconomic characteristics, indicators of wealth and household ­finances, individual beliefs, expectations and trust.

The survey also contains the addresses (at the street level) of the primary sampling units (PSUs), i.e. of the units that are selected in the first stage of the multistage random sampling process, which is ultimately aimed at selecting individual elements. Put simply, these are the points where the interviewer starts walking to select specific addresses, and ultimately individuals, to participate in the survey. Depending on the country, there are between 100 and 300 PSUs per country. The maximum number of interviews conducted around one PSU is 25. We geocode the PSU addresses and calculate the area around the PSU points at different radii (5km, 10km, 20km). For each area, we compute (1) indicators of urbanicity and (2) proxies for local economic activity such as average stable night light following Henderson et al. (2012). We merge the survey data with these indicators at the area level. Both indicators have been shown to be associated with financial literacy at the country level (Klapper and Lusardi, 2019).

3 Measurement of financial literacy

The three financial literacy questions as put to Euro Survey respondents are shown in table 1. The questions on interest rates and inflation use the original wording. With regard to the question on risk diversification, which originally ­referred to stock mutual funds, various surveys have used a different wording, as stock mutual funds are not commonly known in all countries; see for example the S&P Global Finlit Survey (Klapper and Lusardi, 2019). ²⁷ The Euro Survey follows this approach: respondents are asked whether they think that the risk of losing money when spread among different assets increases, decreases or stays the same, rather than whether they consider a single company stock to provide a safer return than a stock mutual fund. ²⁸

Based on the three questions, previous research commonly defines three binary variables where the correct answer is coded as 1, wrong answers and “do not know” responses are coded as 0, and “refuse to answer” responses are coded as “missing.” The three binary variables are then aggregated to a financial literacy score, defined as the number of correct answers (see, for example, Bucher-Koenen and Lusardi, 2011; and Bucher-Koenen and Ziegelmeyer, 2013). In our paper, we follow this approach and define (1) three separate binary variables for each of the three financial literacy questions and (2) a financial literacy score taking on integer values between 0 and 3.

Table 1: The big three financial literacy questions included in the OeNB Euro Survey

Concept	Question
Interest rate	Suppose you had 100 [local currency] in a savings account and the interest rate was 2% per year. Disregarding any bank fees, how much do you think you would have in the account after 5 years if you left the money to grow: (i) More than 102 [local currency]*(ii) Exactly 102 [local currency](iii) Less than 102 [local currency](iv) Do not know(v) No answer
Inflation	Suppose that the interest rate on your savings account was 4% per year and inflation was 5% per year. Again disregarding any bank fees – after 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?(i) More(ii) Exactly the same(iii) Less*(iv) Do not know(v) No answer
Risk diversification	When an investor spreads his money among different assets, does the risk of losing money(i) Increase(ii) Decrease*(iii) Stay the same(iv) Do not know(v) No answer
Source: OeNB Euro Survey.
Note: Correct answers are marked with an asterisk.

As Lusardi and Mitchell (2014) point out, any given set of financial literacy measures can “only proxy for what individuals need to know to optimize their ­behavior in intertemporal models of financial decision making.”

Indeed, for the specific sample of countries we cover, the concept of risk diversification is probably less important than in the U.S.A. and other high-income countries where these questions were initially developed and implemented. For example, stock market capitalization to GDP is 152% in the U.S.A., compared to 32% in Croatia (the Euro Survey country with the highest percentage). Further indicators, such as life insurance premiums to GDP, pension fund assets to GDP and mutual fund assets to GDP provide a similar picture. ²⁹ It is, therefore, not surprising that saving instruments such as life insurance, pension funds, bonds, stocks and mutual funds are not widespread in the countries we analyze. Instead, for the countries covered by the OeNB Euro Survey, for example, understanding of ­exchange rate risk may be much more relevant in terms of optimizing household financial decisions (Beckmann and Stix, 2015). Nevertheless, we will stick to the “big three” and follow the concept of the FLat World project as this is the only way to allow comparison with results from countries not covered by the OeNB Euro Survey.

Compared to the OECD Toolkit for Measuring Financial Literacy (OECD, 2018), the “big three” questions have the advantage that they can be integrated into existing surveys at low cost. At the same time, this limits the measure to three concepts and gives rise to two general concerns that may be particularly relevant for this limited number of questions: (1) Are responses to the questions affected by measurement error? (2) Do the questions provide a comprehensive measure of financial knowledge?

With regard to the first concern, Crossley et al. (2017) provide an in-depth discussion of measurement error related to financial literacy. They point out that, in contrast to many other survey questions, financial literacy questions test respondents’ knowledge (instead of, say, their opinion), and so the interviewers, who presumably know the correct answers, would be able to help respondents. Crossley et al. (2017) indeed find that interviewer effects are larger for financial literacy questions than for other survey questions. Interviewer variation does not seem to drive the “do not know” responses but is more complex. Guessing the correct answer when being asked a financial knowledge question might also lead to measurement error. Analyzing the framing of financial knowledge questions, van Rooij et al. (2011) find that correctly guessed answers might be mistaken for true financial knowledge.

With regard to the second concern, it has been argued that although the “big three” provide a narrow measure of financial literacy, the three concepts covered by the questions are most relevant to saving and investment decisions (Bucher-­Koenen et al., 2017). Furthermore, compared to research using more complex measures of financial literacy, research based on the “big three” finds similar sociodemographic patterns with regard to lack of financial literacy. For example, a growing body of research on gender and financial literacy documents a gender gap irrespective of the survey measure of financial literacy: Cupák et al. (2018) use the OECD surveys; Driva et al. (2016) use the “big three” plus additional questions on financial literacy; Bucher-Koenen et al. (2017) use the “big three”; and Klapper and Lusardi (2019) use the S&P Global Finlit Survey. Irrespective of the financial literacy measure used, robust patterns have been identified also with respect to other sociodemographic characteristics such as age, employment status and education.

In this paper, we address the above-mentioned concerns in the following way: We compare our results to evidence from other surveys conducted in the ten ­CESEE countries covered by the OeNB Euro Survey. ³⁰ As can be seen in the next section, the relative levels in financial knowledge among countries remain more or less the same no matter what measure of financial knowledge is used.

4 Financial literacy: variation across countries

In line with the common approach in the above-mentioned studies, we compute indicators of cross-question consistency. On average, across all countries, 19% of respondents answer all three questions correctly whereas 22% fail to answer any of the three questions correctly. The percentage of respondents who answer both the inflation and interest rate questions correctly is significantly higher at 33%. Overall, the six CESEE EU countries perform better than the four CESEE non-EU countries. In the online annex, we also provide a detailed overview of how financial literacy evolved over time between 2012 and 2018.

In table 3, we compare the financial literacy results for the CESEE-10 countries with those of other countries participating in the FLat World project. ³²

With a share of 38.6% of respondents correctly answering all three financial literacy questions, Czechia ranks among the best-performing countries. However, most of the other CESEE countries under study are at the lower end of the ranking. The countries differ considerably in terms of economic and financial development. Hence, cross-country comparisons between the CESEE-10 countries and the other FLat World countries should be taken with caution. GDP per capita is in general low in the CESEE-10 countries when compared to the other FLat World countries. The only FLat World country with GDP per capita figures in the range of most CESEE-10 countries is Chile, which also exhibits low financial literacy rates. Italy and Czechia are comparable in terms of GDP per capita, but less so in terms of overall financial literacy. In general, table 3 also shows that literacy does not steadily increase with GDP per capita.

Table 3 also suggests that the gender gap in financial literacy increases with overall financial literacy. See section 6 for a discussion of this aspect.

Table 2: Summary statistics on the big three financial literacy questions

	Full sample	CESEE EU	CESEE non-EU
	%
Interest rate
More than 102*	51.7	51.5	52.7
Exactly 102	16.3	16.0	18.2
Less than 102	11.7	12.3	8.1
Do not know	18.1	18.3	16.8
No answer	2.3	1.9	4.2
N	61,564	36,777	24,787
Inflation
More	11.3	10.9	13.2
Exactly the same	17.8	17.2	21.3
Less*	48.5	49.6	42.4
Do not know	19.9	20.2	18.1
No answer	2.5	2.0	5.1
N	61,564	36,777	24,787
Risk diversification
Increase	19.7	18.3	27.5
Decrease*	39.8	41.4	30.6
Stay the same	16.3	16.4	16.2
Do not know	21.7	21.8	20.9
No answer	2.6	2.2	4.8
N	61,564	36,777	24,787
Cross-question consistency
Correct answers for interest rate and inflation	32.6	32.9	31.0
All answers correct	18.6	19.7	12.1
None of the answers correct	21.7	21.6	22.5
“Do not know” selected at least once	33.2	33.6	30.6
“Do not know” selected for all answers	9.5	9.5	9.6
N	58,732	35,573	23,159
Source: OeNB Euro Survey, 2012–2016 and 2018.
Note: The statistics are based on weighted data. Correct answers are marked with an asterisk. N = number of observations. The “cross-question consistency” panel covers only those respondents who gave an answer to all three questions.

To test the robustness of our financial literacy measure, we provide an overview in table 4 comparing our results with those from other studies on financial literacy conducted in the CESEE-10: Klapper et al. (2015) analyze people’s financial knowledge in more than 140 economies including all CESEE-10. With its International Network on Financial Education, the OECD analyzes financial knowledge, financial behavior and financial attitudes in various countries, including four of the ten CESEE countries in their first study (Atkinson and Messy, 2012) and five of them in their second study (OECD, 2016). ³³ Subject to the constraint that the studies differ in their definition of financial literacy and that the financial literacy measures are based on a different range of questions (ranging from three to eight), we find that the relative position of the ten CESEE countries with respect to financial knowledge is robust across the different surveys. Across all surveys, Czechia and Hungary consistently show the highest levels of financial knowledge within the CESEE-10. In contrast, the four CESEE non-EU countries generally show low levels of financial knowledge when compared to the other six CESEE EU countries.

Table 4: Financial knowledge in the CESEE-10: a comparison across different studies

	OeNB Euro Survey	Klapper et al. (2015)	Atkinson and Messy (2012)	OECD/INFE (2016)
Country	3 out of 3	Rank	N	Year	3 out of 4	Rank	N	Year	6 out of 8	Rank	N	Year	5 out of 7	Rank	N	Year
	%				%				%				%
Bulgaria	22.8	3	5,850	x	35	6	n.a.	2014	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Croatia	19.1	5	5,885	x	44	3	n.a.	2014	n.a.	n.a.	n.a.	n.a.	46	4	1,049	2015
Czechia	38.6	1	6,109	x	58	1	n.a.	2014	57	2	1,005	2010	52	3	1,000	2015
Hungary	25.1	2	5,912	x	54	2	n.a.	2014	69	1	998	2010	60	1	1,000	2015
Poland	19.6	4	5,800	x	42	4	n.a.	2014	49	3	1,008	2010	55	2	1,000	2015
Romania	7.5	10	6,017	x	22	8	n.a.	2014	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Albania	9.5	9	6,021	x	14	10	n.a.	2014	45	4	1,000	2011	43	5	1,000	2015
Bosnia and Herzegovina	10.2	8	5,706	x	27	7	n.a.	2014	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
North Macedonia	10.9	7	5,835	x	21	9	n.a.	2014	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Serbia	14.7	6	5,597	x	38	5	n.a.	2014	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Source: OeNB Euro Survey (2012–2016; 2018), Klapper et al. (2015), Atkinson and Messy (2012) and OECD/INFE (2016).
Note: The definition of “being financially knowledgeable” varies across studies: to qualify as financially knowledgeable, respondents must answer 3 out of 3 questions correctly (OeNB Euro Survey); 3 out of 4 questions (Klapper et al., 2015); 6 out of 8 questions (Atkinson and Messy, 2012); or 5 out of 7 questions OECD/INFE, 2016). x indicates the survey waves from 2012–2016 and 2018; n.a. stands for “not available”; and N refers to the number of observations.

Table 3: Financial literacy in the FLat World and OeNB Euro Survey countries

Country	All correct	Gender
	Rank	Result	Male	Female	Difference	Rank	N	Data collection	Source	GDP per capita
		%	%		pp.
Germany	1	53.2	59.6	47.5	12.1	11	1,059	2009	Bucher-Koenen and Lusardi (2011)	46,988
Switzerland	2	50.1	62.0	39.3	22.7	1	1,500	2011	Brown and Graf (2013)	77,452
Austria	3	48.8	55.0	43.0	12.0	12	1,342	2019	Fessler et al. (2020)	49,190
Netherlands	4	44.8	55.1	35.0	20.1	2	1,665	2010	Alessie et al. (2011)	53,920
Australia	5	42.7	52.0	34.0	18.0	4	1,024	2012	Agnew et al. (2013)	56,229
Canada	6	42.5	51.4	32.9	18.5	3	6,805	2012	Boisclair et al. (2017)	51,126
Czechia	7	38.6	41.2	36.2	5.0	15	6,109	x	Own analysis	22,755
Finland	8	35.6	44.0	27.1	16.9	5	1,477	2014	Kalmi and Ruuskanen (2018)	47,559
France	9	30.9	36.3	26.0	10.3	13	3,616	2011	Arrondel et al. (2013)	43,002
U.S.A.	10	30.2	38.3	22.5	15.8	7	1,488	2009	Lusardi and Mitchell (2011b)	53,356
Japan	11	27.0	34.3	20.6	13.7	9	5,268	2010	Sekita (2011)	48,439
Hungary	12	25.1	25.7	24.6	1.1	24	5,912	x	Own analysis	15,696
Italy	13	24.9	29.5	17.0	12.5	10	3,992	2007	Fornero and Monticone (2011)	35,029
New Zealand	14	24.0	32.0	16.0	16.0	6	850	2009	Crossan et al. (2011)	37,678
Bulgaria	15	22.8	24.5	21.2	3.3	16	5,850	x	Own analysis	8,331
Sweden	16	21.4	29.3	13.6	15.7	8	1,302	2010	Almenberg, Säve-Söderbergh (2011)	56,611
Poland	17	19.6	20.5	18.8	1.7	22	5,800	x	Own analysis	15,826
Croatia	18	19.1	22.0	16.6	5.4	14	5,885	x	Own analysis	15,332
Serbia	19	14.7	16.2	13.2	3.0	17	5,597	x	Own analysis	6,560
North Macedonia	20	10.9	12.0	9.9	2.1	20	5,835	x	Own analysis	5,257
Bosnia and Herzegovina	21	10.2	11.6	8.9	2.7	18	5,706	x	Own analysis	5,828
Albania	22	9.5	10.8	8.2	2.6	19	6,021	x	Own analysis	4,868
Romania	23	7.5	8.6	6.5	2.1	21	6,017	x	Own analysis	11,017
Chile	24	7.7	n.a.	n.a.	n.a.	n.a.	14,463	2009	Garabato Moure (2016)	14,749
Russia	25	3.1	3.8	2.5	1.3	23	1,366	2009	Klapper and Panos (2011)	11,470
Source: FLat World project and OeNB Euro Survey; World Bank (Global Financial Development).
Note: For the ten OeNB Euro Survey countries (“own analysis”), the statistics are based on weighted data; x indicates waves from 2012–2016 and 2018. For Romania, also see Beckmann (2013). For Austria, the statistics are not based on the big three questions, but on a survey that uses the OECD toolkit for measuring financial literacy. n.a. stands for “not available” and N refers to the number of observations. GDP per capita refers to 2017 and is expressed in constant 2005 USD.

5 Financial literacy: regional variation