Financial development, as an inseparable part of economic development, entails the establishment and expansion of financial institutions, instruments, and markets. Developed financial infrastructure facilitates capital mobilization, helps in its efficient allocation, contributes to risk reduction, and facilitates the turnover of goods and services. Consequently, the development of the financial system acts as a catalyst for economic growth, raising living standards, reducing poverty, and enhancing societal economic well-being. Financial development is a dynamic process through which the financial system of a country evolves and transforms over time. In the countries of the Western Balkans, the first step towards financial development was the reform of the banking sector. The transformation of the banking sector was one of the most important aspects of the transition process from centrally planned to market economy. In this regard, the aim of this paper is to identify similarities and differences in financial development among Western Balkan countries through a comparative analysis and to highlight which segment of the financial system represents an obstacle to faster development in these countries. Generally accepted indicators of financial development, ensuring comparability across countries, include measures of size, activity, efficiency, and stability of the financial system.

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