The progress of reforms in the financial systems of transition economies has been uneven. Many commentators are critical of the reform performance of the Soviet countries. In contrast, the literature evaluates the results of banking sector restructuring in the former communist countries of the Central and Eastern Europe and Baltic states more favourably. Seven countries of the Commonwealth of Independent States (CIS) were identified from the rest of the transition countries by multilateral agencies as facing a "particularly difficult transition period". This study compares the recent developments in the banking and financial sectors of the distinct groups of countries within Central and Eastern Europe and the former Soviet Union. The progress in financial sector development and intermediation is compared with the assistance of various indicators and ratios. Since generating profits is one of the main goals of any business activity and may have an impact in many other related indicators of financial development, a special consideration is given to analysis of the profitability ratios. This is important for policy making because a policy response must take into account "a complete picture" of the problem. The study finds that despite certain progress made in bridging the gap between advanced transition countries and those lagging behind, further steps targeting measures to improve competition and banking practices are required in the latter group of countries.