Domestic and international determinants of bank profits: Foreign banks in Australia

Abstract

This paper develops and tests a model that integrates the existing multinational bank literature with the domestic bank profits literature. Using data for Australia, this paper demonstrates that an integrated model results in a small increase in explanatory power when compared to models drawn solely from the multinational banking literature. The paper finds that profits are a negative function of competitor market share and bank licence status, and a positive function of Australian size and home GDP growth. It is argued that there is incomplete integration between the market segments of domestic and multinational banks due to the first mover advantages of incumbent banks.