Foreign Bank Branches Research Articles

Foreign bank branch participation and U.S. syndicated loan contract design

I examine whether and how foreign bank branch participation in U.S. loan syndicates influences loan contract design. I predict that foreign bank branches’ dollar funding liquidity risk and information frictions increase renegotiation costs and affect loan contract design. I find that loan contracts with greater foreign bank branch participation include fewer flexibility-reducing covenants, such as capital expenditure and balance sheet covenants, that restrict borrowers from making positive net present value investments. I document similar results using matched sample and plausibly exogenous variation in foreign bank branch participation. Additionally, loan contracts with greater foreign bank branch participation are more likely to feature split control rights, which give banks in revolving lines of credit the exclusive right to renegotiate. In contrast, foreign bank branches are more likely to be included in covenant-lite term loans. Overall, I show that foreign bank branch participation affects U.S. syndicated loan contract design through renegotiation costs.

Bank agglomeration and corporate environmental responsibility performance: Evidence from Chinese bank branch data

While corporate environmental responsibility (CER) has attracted widespread attention in recent years, there is still very little understanding as regards whether bank agglomeration affects CER practices. This study has measured the agglomeration of bank branches around Chinese listed enterprises from 2011 to 2020 using Python and the Baidu Map API. For the first time, the study has revealed that, bank agglomeration can have a positive impact on CER practices by reducing financial constraints on enterprises and fostering green business practices. This impact is more significant for private enterprises, enterprises with high costs of equity, enterprises in non-pollution-intensive industries, and enterprises in highly marketized regions. CER performance can be better enhanced by the clustering of state-owned, local, and foreign bank branches around enterprises. In addition, the entry and exit of bank branches can improve CER performance as it can foster the effective allocation of financial resources, and this effect is more evident for private enterprises. To conclude, this study has evaluated the value of bank branch evolution for the environment and society of emerging countries.

The effects of different modes of foreign bank entry in the Turkish banking sector during the 2007–2009 Global financial crisis

<abstract> <p>This paper provides insights on how foreign bank entry modes (acquisition vs. greenfield investment) in an emerging market (Turkey) influenced bank strategies during the 2007–2009 global financial crisis. Using a comprehensive dataset comprising twenty-nine accounting variables from Turkish banks' financial statements during 2005–2010, we find important differences between foreign-acquired banks and foreign bank branches in lending and sourcing funds. We find that foreign bank branches continued to support international trade by issuing import loans during 2007–2009 global financial crisis, whereas foreign-acquired banks focused on issuing consumer and credit card loans. In terms of bank sourcing funds, we find that foreign-acquired banks were able to continue to use foreign currency deposits of Turkish residents and local interbank funding including participation (Islamic) banks. Foreign bank branches, on the other hand, relied on sourcing funds from international interbank funding and foreign currency deposits of residents abroad, which led to the necessity for them to change their strategies because of funding shortage in international markets. Our results show that the presence of foreign banks in Turkish banking sector enabled the continuity of bank lending activities in host market during the turmoil of 2007–2009 global financial crisis. Our findings on foreign bank entry mode provide new evidence and have important implications for both policy makers and practitioners in emerging markets.</p> </abstract>

The challenges foreign banks face in developing markets: an exploratory study

Purpose This study aims to explore the challenges faced by foreign banks in the Kingdom of Saudi Arabia (KSA). It is important to explore the challenges as extant literature provides limited guidelines about this issue. Design/methodology/approach A mixed-method approach was used by canvassing 71 questionnaires and 36 semi-structured interviews. The sample included senior managers of foreign bank branches working in the Saudi market by the end of 2019. The quantitative data were analyzed using the distribution fitting algorithmic approach, and it is supported by the qualitative data analyzed using the thematic analysis method. Findings Results indicate that foreign banks encounter various challenges including government policies and regulations, the Saudi legal system, high “Saudization” ratio of the workforce, technological advances, high competition and overall economic change (oil price change). It seems that these challenges represent the KSA’s specific business environment. Originality/value This study will advance the extant literature on foreign bank entry with evidence from a unique context. This study could also help regulators, policymakers and bankers to better understand foreign banks’ entry into emerging and developing markets.

Dynamics Analysis of Credit Transmission on Foreign Bank Penetration in Indonesia

Studies explore mode penetration bank foreign in transmission credit channel in Indonesia. ARDL-PMG is used for analyzing Office Bank branch Foreign (FOB) and Foreign Acquired Banks (FAB) on data panel bank-level, using the BI-7DR Days Reverse-repo rate and JIBR as monetary policy indicators. This study uses data on individual banks classified as FBO and FAB in Indonesia. The use of the ARDL-PMG model as an alternative to solve dynamic heterogeneous panels on credit channel problems in Indonesia. The main finding of this study proves that FBO and FAB show different credit channel transmission mechanisms in response to monetary policy. Studies also show that monetary policy contraction significantly impact towards FBO and FAB in Indonesia in the long-run. This studies due to the characteristics of Foreign Bank Branch Offices that are risk averse and have higher liquidity and Foreign Acquired Banks with higher capitalization. This characteristic causes the impact of contractionary monetary policy insignificant on FBO credit growth and FAB. The research has implications for financial and banking authorities to improve supervision over credit transmission at FBO and FAB due to differences in credit channel transmission mechanisms in response to monetary policy.

Cost of Funds Vs Return on Advances – A Comparative Study of Scheduled Commercial Banks in India

In the light of shrinking gap between interest income and interest cost, this paper examines the trend in interest cost and income ratios, and also the differences among three groups of scheduled commercial banks viz., public sector banks, private sector banks and branches of foreign banks in India. For this purpose, data for 16 years from 2004-05 to 2019-20 are used and analysed with descriptive statistics besides t-test and Levene’s test. The study finds that the cost of fund ratios are lower for branches of foreign banks followed by private sector banks and public sector banks. As far as the return on advances/investment ratios are concerned, private sector banks have improved their performance more than the public sector banks and branches of foreign banks. Further, in terms of return on advances and investments adjusted to cost of funds, the branches of foreign banks are more profitable among three groups of scheduled commercial banks, and between two groups of domestic scheduled commercial banks, private sector banks are more profitable than the public sector banks.

Effect of Credit and Liquidity Risks on Bank Stability: Empirical Evidence from Afghanistan

This study investigates the effects of liquidity and credit risks on the stability of banks with empirical evidence from the Afghanistan banking sector over the period 2014–2020. The stability of a bank is measured through the dependent variable of its capital adequacy ratio. Credit risk (calculated by the ratio of impaired loans) is included as an independent variable along with liquidity risk. The bank specific factors, namely bank net interest margin, size of the bank, return on assets, loan growth rate, liquidity gap, return on equity, loan to asset and macro-economic factors, inflation and GDP growth rate are included as control variables. This study includes all 10 operationalized banks in Afghanistan, excluding the two branches of foreign banks. The panel dataset was collected from banks’ websites and the macroeconomic data was derived from World Bank reports. This study employed the simultaneous equation approach of a two-stage least square and a fixed effect panel regression model to investigate the affiliation between liquidity and credit risks and their effects on the stability of banks. The results of this study indicate that liquidity and credit risks don’t have a mutual relationship, while the interaction of both types of risks jointly impacts bank stability. It shows that NIM, loan assets, ROA, liquidity gap, loan growth rate, and ROE have positive impacts on bank stability, whereas the size of the bank has negative effects on bank stability. Among the macroeconomic variables, only the growth rate of GDP signifies a negative effect on the stability of banks. The finding under this paper recommends that the governance body of the banking sector drafts policies aimed at strengthening bank capital and taking liquidity measurement according to the best standards introduced by the Basel committee. Also, to create frameworks for measuring liquidity and capital standards.

U.S. Federal Income Taxation of U.S. Branches of Foreign Banks: Selected Issues and Perspectives

An earlier version of this article was presented to the Tax Club in New York in December 1993.The title of this article notwithstanding, the United States does not in fact tax the U.S. branches of foreign banks; branches are not regarded as distinct entities for most federal income tax purposes. Rather, the United States taxes foreign corporations (including banks) that are engaged in a trade or business within the United States on taxable income that is effectively connected with the conduct of that U.S. trade or business.But the story is not so simple. Various provisions of the Code and Regulations-including especially Regulations section 1.882-5, providing for the determination of the deductible interest expense of a foreign bank attributable to its U.S. trade or business, the branch profits tax, and the branch level interest tax-treat U.S. branches of foreign banks as separate entities, to one degree or another. Also, most income tax treaties provide that there should be attributed to a U.S. branch (a permanent establishment) the business profits that it might be expected to earn if it were a distinct and separate entity.Moreover, in recent years, the nature of international banking has evolved considerably. Many banks now actively trade and deal in foreign currencies; in interest rate and foreign currency forward and futures contracts, options, and swaps; and in various equity- and commodity-derivative products, as well as in securities. These activities have resulted in a tremendous expansion of the volume and type of transactions involving multiple branches of these banks, both in providing financial products to customers and in hedging the risks assumed by the banks. The involvement of multiple branches in these transactions takes a variety of forms, including transactions between branches (such as swaps, sales of property, loans, and forward contracts) and joint efforts to provide products to customers. These developments have placed considerable pressure on the concepts that traditionally have been applied in determining the amount of a foreign bank's taxable income for U.S. federal income tax purposes, including the extent to which a branch should be disregarded as a separate entity.

The Legal Framework for Foreign Investment in the Iranian Banking Sector

Abstract The banking services are heavily regulated in the Islamic Republic of Iran. The regulatory framework is based on the Monetary and Banking Act 1351 (1972) which was supplemented with the Interest-Free Banking Operations Act 1362 (1983) in post-revolutionary period. The Council of Money and Credit of the Central Bank of Iran performs the regulatory functions. Iran has tried to attract foreign investment in its banking sector under the Promotion and Protection of Foreign Investment Act 1381 (2002). The current regulatory regime provides four channels to foreign investors for investment in the banking sector. First is partnership with the existing Iranian banks; second is establishing a development bank, third is to establish foreign banks, and fourth is to establish branches of foreign banks. Iran is likely to attract foreign investment in its banking sector especially after its accession to the Shanghai Cooperation Organization on September 22, 2021. This however will require reforms in the current regulatory regime that is stringent and ambiguous in many aspects related to the establishment, functions, operations, winding up of banks.

On the Sabotage by Foreign Banks of Short-Term Obligations of the State Treasury During the Foreign Intervention in the Russian Far East and Siberia

The revolutionary events of 1917, the Civil War, and the military intervention of the allied powers in the Russian Far East (1918–1922) were marked by frequent regime changes and an acute monetary crisis. Each government tried to solve it by issuing its own currency surrogates. These included 5% short-term liabilities of the State Treasury of the Provisional Siberian Government and short-term liabilities of the State Treasury of the Provisional All-Russian Government. Branches of foreign financial institutions established in the region refused to accept these obligations on a par with the national banknotes, in violation of the previously effective laws. This contributed to the depreciation of the Russian rouble and had a significant negative impact on the monetary situation and the economic situation of the region in what was already a very difficult historical period. The issue, circulation, and withdrawal of various short-term liabilities of the State Treasury have been extensively discussed in the writings of Russian historians. However, an intriguing and historically significant aspect, such as the refusal to accept these obligations on an equal basis with the national banknotes operating in the region by branches of foreign banks, has remained outside the scope of these studies. The author examines previously overlooked aspects of the operations of branches of foreign banks in the Far East of Russia in 1918–1922. In addition, for the first time, archival documents relating to the subject are being brought into scholarly circulation.

On the Issue of the Activities of Foreign Banks in the Far East of Russia in 1922– 1925

Using documentary sources, some published here for for the first time, this article aims to analyze and summarize the activities of branches of foreign banking institutions in Vladivostok after the end of the Civil War and the military intervention of allied troops and the establishment of Soviet power in the Russian Far East from 1922 to 1925. The role of branches of foreign banks in the economy and money market of the region during the period of foreign intervention is revealed. A brief description of the branches of foreign banking institutions (Japanese Chosen Bank, Yokohama Haste Bank, and English Hong Kong Shanghai Bank), which continued their activities after the evacuation of foreign military units from the region, is given. The necessity of the presence of these institutions in the territory of the Russian Far East in the first years of Soviet power is determined in view of the close connection of the region with foreign markets and the importance of Manchu transit, which takes place to a large extent with the participation of these banks. The article shows the inability of the “young” Far Eastern Region, the industry and economy of which were in decline and were just beginning to recover, to resist the activities of foreign financial institutions. It was impossible for Soviet banking institutions relying on hard foreign currency to begin operations in the region quickly to replace foreign banks. The main economic indicators of the financial activities of these banking institutions in the period under review and their relationship with the Soviet financial and economic bodies of the region are given.

Competitiveness of the Russian Banking System: Cross-Border Aspect

The processes of globalization and cross-border relations between countries have made it possible to carry out work and provide services in the markets of another country. In the conditions of the banking sector, this process is expressed in the branches of foreign banks or by investing money in the authorized capital of an existing bank. In this case, the management process is located in another country. Foreign investment in all sectors plays an important role in the development of the economy. The classification of commercial banks depends on the source of financing of the authorized capital. The article analyzes the impact of foreign investment on national banking organizations. The growth in the number of commercial banks exacerbates competition in the country. Market participants increase their competitive advantages by introducing additional banking services. The banking sector includes the authorized capital of non-residents, so the bank’s strategy is developed by citizens of another country, taking into account national characteristics. While the foreign banking industry is more likely to overtake domestic technologies, innovations increase the level of competition by adapting foreign mechanisms to Russian markets. The purpose of the study is to analyze the competitive advantages of the national banking sector, taking into account foreign capital. In order to determine whether the policy of a foreign bank affects the atmosphere of the national market, it is necessary to study the industry leaders, measure the share and scale of non-resident banks, using the calculation of the Gerfindahl-Hirschmann market concentration index. The results obtained can reasonably describe the banking market, describe the risks and ways of development of the industry, taking into account the need for an investment fund.

Cross‐border bank flows through foreign branches and the effect of a macroprudential policy

AbstractGlobal banks play an important role in the international transmission of shocks by allocating funds across the world through their foreign affiliates. Using monthly data on individual foreign bank branches in Korea from 2004 to 2018, this paper investigates how global banks propagate shocks and examines the effect of one particular macroprudential measure that was introduced to reduce the volatility of cross‐border bank flows. I find that foreign bank branches actively adjust their borrowing from headquarters by responding to changes in interest rates and the covered interest parity deviations. An important underlying heterogeneity is revealed: branches with high shares of loans in their balance sheets are more sensitive to interest rate changes, while branches with high bond shares respond more to the covered interest parity deviation. The macroprudential policy restricting the foreign exchange derivative positions of banks to be less than certain multiples of the long‐term capital does make the branches capitalize more by borrowing over the long term from parent banks, but the policy mostly affects the bond‐type branches and has no effect on total borrowing from the parent banks.

Wholesale funding runs, global banks' supply of liquidity insurance, and corporate investment

Using supervisory data on the U.S. branches of foreign banks and their syndicated loans, we show that the branches of euro-area banks suffered a liquidity shock in the form of reduced access to wholesale funding from U.S. money market funds during the European sovereign debt crisis. Affected branches cut lending to U.S. firms mostly in the form of revolving credit and along the extensive margin, as increased funding from their parents only partially offset the liquidity shortfall. This shock was amplified by the reaction of exposed U.S. firms, which responded to the loss of credit lines by reducing investment and building up cash reserves. Our findings highlight the impact of funding stress encountered by global banks on firms' investment and precautionary savings.

Domesticating Foreign Finance

More than a decade after the 2008 financial crisis, U.S. policymakers still have not adequately addressed one of the primary causes of the crash: foreign banks. When foreign banks first entered the United States fifty years ago, they specialized in traditional banking products like loans and deposit accounts. Over time, however, foreign banks shifted to a riskier strategy focused on speculative capital markets investments and fueled by volatile short-term debt. This novel business model created vulnerabilities for the U.S. financial system, as became clear when Deutsche Bank, Barclays, UBS, and other foreign banks accelerated the 2008 crisis. This Article contends that while foreign banks’ role in the U.S. financial system has changed dramatically over time, the U.S. regulatory framework has not kept pace. After the financial crisis, policymakers tried to rein in foreign banks by regulating some of their U.S. offices directly, rather than deferring to home country authorities. Foreign banks, however, have largely evaded these reforms by shifting billions of dollars in assets to lightly-regulated U.S. branches — a classic case of regulatory arbitrage. This Article asserts that foreign banks continue to pose risks to the U.S. financial system, threatening a recurrence of the Great Recession. Accordingly, this Article recommends an alternative regulatory approach — namely, mandatory subsidiarization of foreign bank branches — that would better safeguard foreign banks’ U.S. operations, consistent with longstanding international regulatory norms.

The Impact of Non-banking Credit Organization Credits on Economic Growth in Azerbaijan

Financial institutions plays remarkable role in Azerbaijan economy. The general structure of financial institutions in the country includes banks, local branches of foreign banks and non-bank financial institutions, while among these organizations banks have a leading position. Most of the lending activity in Azerbaijan is carried out through banks. This situation shows their special importance in the country's economy. However, NBCOs (Non-Banking Credit Organizations) also have an important position in lending to the individuals in the economy. This article investigates the impact of the NBCOs credits on non-oil GDP in Azerbaijan. For this purpose, the quarterly data covering 2005-2018 were used. For the evaluation, the cointegration methods as CCR (Canonical Cointegrating Regression), DOLS (Dynamic Ordinary Least Squares) and FMOLS (Fully Modified Ordinary Least Squares) methods were employed. The results of cointegration tests conclude that there is cointegration relationship between the variables in long-term. The results of the estimation show that a 1% rise in credits and physical capital investments increases non-oil GDP by 0.26% and 0.92, respectively. Findings of study are in line with both the theory and the results of other researches, and may be considered adequate for Azerbaijan economy. The management and other decision-makers of relevant organizations may adopt effective decisions for more efficient operation of credit organizations by taking into account the results of the research.

Reserve accumulation and bank lending: Evidence from Korea

Sterilized reserve accumulation reduces room for loans in bank balance sheets by unloading sterilization securities on them, and hence, it may deter loan growth. The effect would be more significant to the banks participating in the primary market for sterilization securities. Using monthly bank-level data for Korea during its massive reserve accumulation period (2003–2008), this paper finds evidence for a crowding-out effect of reserve accumulation. It finds that loan growth rates decline significantly after reserve accumulation, and that the decline is larger in primary dealer banks and foreign bank branches than in non-primary dealer banks and domestic banks, respectively. The results yield the important policy implication that reserve accumulation could work against expansionary effects of capital inflows by mitigating credit expansion and leverage buildup.

The Implications of Interest Rates on Private Saving with Reference to Myanmar

The private saving is one of the fundamentals for economic development and growth of the country. Thus, the main purpose of this paper is to analyze the effect of interest rates on private saving in Myanmar over the period from fiscal year 2013-14 Q1 to 2018 Q2. This study investigates the private saving of Myanmar’s banking sector which includes twenty seven private commercial banks, four State-owned banks and thirteen foreign bank branches. The quarterly data are obtained from secondary data sources collected from quarterly Financial Statistics Bulletin and annual reports of Central Bank of Myanmar, Statistical Year Books and Selected Monthly Economic Indicators published by CSO, Myanmar, as well as websites from commercial banks to investigate the effect of domestic interest rates on private saving. Inferential analysis including multiple regression analysis and correlation analysis as well as descriptive analysis are applied to examine the effect of domestic interest rates on private saving with the use of Statistical Package for Social Sciences (SPSS) software (version 25). The findings of the study reveal that all independent variables except from Treasury bill rate have significant impact on the savings while inflation and fixed deposit rate have adversely impact on savings. Among all independent variables, saving deposit rate is the most influent variable on attracting private saving. Therefore, the study concludes that policies for ensuring to adopt flexible interest rates structures and for maintaining reasonable inflation rate depending upon the macroeconomic conditions of the economy would be critical to mobilize private saving in Myanmar.

Factors Determining Effectiveness of Internal Audit in Commercial Banks: The Case of Study (Commercial Banks of Herat-Afghanistan)

Internal audit plays a major role in enabling an institution to achieve its goals when properly implemented, operated, and managed. To take corrective measures and strengthen procedures, companies that implemented, operated and managed internal auditing successfully became more able to recognize their business threats and inefficiencies in the system. The overall goal of the paper is to recognize factors influencing the effectiveness of internal audit in commercial banks of Herat-Afghanistan. At the moment, 13 banks are operating in Afghanistan including DAB (Central Bank of Afghanistan) DAB (2020), three state-owned banks (Bank Millie Afghan, Pashtany Bank, New Kabul Bank), seven private or commercial banks (Azizi Bank, Afghanistan International Bank, Islamic Bank of Afghanistan, Maiwand Bank, Afghan United Bank, The First MicroFinance Bank, Ghazanfar Bank) and two branches of foreign banks (Bank Alfalah ltd, National Bank of Pakistan) with the total number of 158 internal auditors. Therefore, internal auditors of Afghanistan commercial banks are the population for this research. 158 questionnaires were allocated to 12 commercial banks for the purpose; the analysis followed a form of research by using quantitative methods of research. The study tool used in quantitative terminology through self-administered questionnaires. These questionnaires were prepared on a 5 point Likert- scale, distributed to the Afghanistan Commercial Banks’ internal auditors and analyzed using the SPSS statistical software. Based on the research results; Management commitment and supports had a positive relationship with the efficacy of the internal audit regarding value-adding, improving departmental performance, and improving organizational efficiency, with clear and statistically significant consequences. In this respect, the only determining factor of the effectiveness of the Internal Audit of commercial banks in Herat-Afghanistan was management support.

Singapore

The Monetary Authority of Singapore (MAS) is the designated resolution authority for financial institutions, including holding companies and domestic branches of foreign banks. In this role, MAS determines if the conditions for entry into resolution are met and designs and implements the resolution strategy. The Ministry of Finance (MOF) plays only a limited role in the technical decisions concerning bank resolution, intervening when the use of public resources is contemplated. In 2017, the passage of amendments to the MAS Act strengthened the resolution framework. It introduced enhanced resolution powers and strengthened the framework for recovery and resolution of domestic systemically important banks (D-SIBs). These powers are broadly consistent with international best practices as outlined in the Financial Stability Boards (FSB) Key Attributes for Effective Resolution of Financial Institutions. The powers are generally applicable to all financial institutions.