There has been considerable progress on capital liberalization in these countries and it is expected that, under OECD rules, capital movements will be free of restrictions pretty soon. The major challenge now is to ensure that the restructuring of the financial sector keeps pace, an area where there is still much to be done.
It is well-known that in the communist past many banks used to be a part of, or closely related to, the central bank. In addition, many of the borrowers used to be companies with close ties to the government. As a result, there were few incentives for risk control and return enhancement.