Abstract
This paper presents recent trends in government and foreign bank ownership across countries and summarizes the evidence regarding the implications of bank ownership structure for bank performance and competition, financial stability, and access to finance. The evidence reviewed suggests that foreign-owned banks tend to be more efficient than domestic banks in developing countries, promote competition in host banking sectors, and help stabilize credit when host countries face idiosyncratic shocks. But there are trade-offs, since foreign-owned banks can also transmit external shocks and might not always contribute to expanding access to credit. The record on the impact of government bank ownership suggests few benefits, especially for developing countries.
Highlights
The rise in financial globalization since the 1990s led to significant changes in bank ownership structures around the world.1 Across both developed and developing countries the share of banks owned by foreigners increased, while at the same time government ownership of banks declined
Cross-country studies in South East Asia and in a panel of 22 developing countries suggest that bank privatization raises bank profitability and efficiency over time to levels in excess of preprivatization bank performance, even when the acquirer is a foreign bank (Boubakri et al, 2005; Williams and Nguyen, 2005)
Since the mid-1990s, banking sectors around the world have experienced a significant transformation in terms of ownership structure: foreign bank participation has increased while, until the recent Global Financial Crisis (GFC), the presence of government-owned banks declined across most regions
Summary
The rise in financial globalization since the 1990s led to significant changes in bank ownership structures around the world.1 Across both developed and developing countries the share of banks owned by foreigners increased, while at the same time government ownership of banks declined. The majority of studies focusing on developing countries finds that foreign-owned banks perform better than the other types of banks in terms of cost and profit efficiency.
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