Abstract
Mode of entry, loan portfolio structure, and returns of foreign-owned banks in Indonesia
Highlights
Foreign-owned banks (FBs) are generally established when they follow their home country’s multinational customers and/or pursue opportunities in host countries (Cull & Peria, 2010)
This study focuses on the Economic Sector Herfindahl Index (HHI) (E-HHI) and the Loan Type HHI (T-HHI)
The EHHI and THHI loan portfolio concentration of the acquired FBs and greenfield FBs over the study period (2003 to 2011) show that the concentration of the EHHI of the greenfield FBs is the highest during the entire study period, their concentration decreased over the period 2005 to 2011
Summary
Foreign-owned banks (FBs) are generally established when they follow their home country’s multinational customers and/or pursue opportunities in host countries (Cull & Peria, 2010). Vencappa and Thi (2007) refer to these motives as follow-the-client behaviour and profit-seeking behaviour based on traditional multinational banking theories. Similarities in institutional, regulatory, economic, and cultural aspects between the parent bank country of origin and its subsidiary (or foreign branch) country serve as another consideration (Cull & Peria, 2013). These theories indicate that multinational banks may prefer less intensive competitive markets with low entry barriers, but with large market sizes and high growth rates. The choice between branches and subsidiaries largely depends on the risks involved from a parent bank’s desired market activity in a foreign country
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