Foreign-owned Banks Research Articles

BANKS WITH FOREIGN CAPITAL IN UKRAINE: CONTROVERSIES AND PROSPECTS OF DEVELOPMENT

Introduction. Existence in the national economies of banks of foreign banking groups is today a form of financial globalization. The Ukrainian banking system is not an exception. Banks with foreign capital have a considerable influence on the domestic banking system and cause a complex of qualitative changes in it. The consequences of the presence of a significant proportion of foreign-owned banks in the domestic market are quite ambiguous: on the one hand, they contribute to the financial development of the country, and on the other – to conceal certain threats. Under these conditions, the issue of researching the activity of foreign banks in the banking system of Ukraine and identifying prospects for its development becomes highly relevant. Subject. Identification of peculiarities of functioning of banks with foreign capital in Ukraine, as well as influence on the development of the domestic banking system. Goal. Assessment of actual indicators of the presence of foreign capital, analysis of its impact on the formation and development of the domestic banking system, as well as identifying directions for improving the efficiency of banks in Ukraine. Method. The basis of the work was systematic and comparative approaches, which allowed to comprehensively consider the problem in the unity of all components of significant characteristics. The study used the following methods: comparative and statistical analyzes, the method of generalization, the relationship of quantitative and qualitative changes – to analyze the state of the banking system; induction and deduction, analysis and synthesis – in the study of practical results of foreign banks; historical method and method of generalization – in the study of key trends in the development of the banks with foreign capital. Scope. The practical value of the obtained results is determined by well-grounded conclusions about the impact of foreign-owned banks on the formation and development of the banking system of Ukraine and methodological recommendations for improving the efficiency of the banking system by implementing innovative solutions in its activities. Results. The actual indicators of the presence of foreign capital during the crisis and after the crisis are analyzed. The peculiarities of the development of foreign banks in Ukraine are revealed. The effects of the presence of foreign capital in the banking system have been determined. The directions of increasing the efficiency of the banking system in the conditions of uncertainty and rapid changes are suggested.

Muslim CEOs and bank risk-taking: Evidence from Indonesia

This study investigates the relationship between Muslim CEOs and bank risk-taking based on Indonesian banks from 2010 to 2017. We find that there is no significant difference in risk-taking among Indonesian banks based on whether the banks have Muslim CEOs or not. However, we find that only state-owned banks with Muslim CEOs display significantly low risk-taking. We further find that foreign-owned banks with Muslim CEOs display a significant low risk-taking only in the presence of Muslim-dominated boards. We show that Muslims must be in the majority on 2-tier boards (board of directors and board of commissioners) to significantly influence Muslim CEOs' risk-taking. In addition, we find no related evidence from family-owned firms. Further analysis reveals that banks with a low concentration of ultimate ownership indicate Muslim CEOs' low risk-taking behaviour, and vice versa.

The Impact of Treasury Yields on US Presidential Approval, 1960–2010

ABSTRACT The ‘power of bond markets’ is a widely assumed and poorly understood feature of the global economy. We demonstrate that even in a bond market as stable as the United States this influence is considerable. In this article, we scrutinise a particularly direct influence, the impact of US Treasury yields on presidential approval rates. Our empirical analysis from 1961 to 2010 demonstrates that rising/falling bond yields lead to a decline/increase in approval rates. We show that this impact is mediated via the US mortgage market. The stronger the rise in mortgage rates, the stronger the influence of Treasury yields on presidential approval. We then outline the broader possible political impacts of this, particularly given foreign and domestic central bank ownership of US Treasuries.

Bank Ownership and Efficiency of Russian Banks

ABSTRACT The paper examines how the type of ownership affects the efficiency of Russian banks. Using bank-quarter data for selected banks in the period 2004–2015, we combine stochastic frontier analysis (SFA) methodology with an intermediary approach to assess both profit and cost efficiency scores. Our key findings show that foreign-owned banks are the most profit efficient, and state-owned banks efficiently manage costs compared to other banks. These results are robust when we consider these banks in terms of risk preferences and specialization.

The Efficiency Analysis of Domestic and Foreign Commercial Banks of Pakistan: The Data Envelopment Analysis Approach

The aim of the present study is to investigate the efficiency of domestic and foreign commercial banks of Pakistan over the period from the year 2009 to 2013 through the DEA technique (Data envelopment analysis). DEA estimates efficiency by the ratio of inputs (multiple) to outputs (multiple). For this purpose, the number of employees, deposits and fixed assets were used as inputs while Advances and Investments were taken as the outputs based on the intermediation approach. Two generic forms of DEA explicitly CCR and BCC were applied to work out technical and pure-technical efficiencies, respectively. Results offered significant information to make the decision about the efficiency of commercial banks. The study outcomes showed that foreign owned banks performed better against public and private owned banks in respect of all the efficiency measures throughout the period of study.

The Risks and Financial Vulnerability of Foreign Bank Ownership in CEECs: Evidence from Exchange Rate Depreciation after the Financial Crisis

ABSTRACTThe banking sector in Central and Eastern European countries is characterized by cross-border mergers and acquisitions. Financial integration improved firm access to international capital markets but also posed a serious challenge in terms of financial vulnerability. We use bank data to analyze the determinants of bank lending between 1998 and 2016. Our results confirm significant differences in lending behavior between domestic and foreign banks. In particular, foreign banks are more sensitive to exchange rate changes but less sensitive to domestic demand. Currency depreciation has a larger negative impact on lending by foreign banks, with a lower ratio of deposits to equity.

Foreign bank ownership and income inequality: empirical evidence

ABSTRACTUsing country-level panel data over 1995–2013 on within-country income inequality and foreign bank presence, this paper establishes a positive relation between the two, running from higher foreign bank presence to income inequality. Given that foreign bank participation increased by 62% over the period 1995 to 2013, our baseline results imply a 5.8% increase in the Gini coefficient on average over this period, ceteris paribus. These results are robust to the inclusion of country and year fixed effects and to the use of restrictions on foreign bank entry in the host countries as an instrumental variable. We show that this positive effect is channelled through the lack of greenfield entry and the associated lower levels of competition.

Coping with Falling Oil Prices

This paper studies the impact of declining oil prices on banks in sub-Saharan African oil-exporting countries. Results indicate that banks respond differently to an oil shock depending on their ownership: (i) domestic banks are the most adversely impacted and experience a deterioration in asset quality and liquidity; (ii) foreign-owned banks are the most resilient as they are able to improve asset quality and attract deposits but at the same time, they decelerate credit growth; in contrast, (iii) Pan-African Banks help stabilize overall credit but large banks in that segment experience reduced asset quality. These differentiated results suggest a tradeoff between maintaining credit growth and safeguarding financial stability in an oil slump which could be addressed by both micro- and macroprudential policies.

Foreign banks and sovereign credit ratings: Reputational capital in sovereign debt markets

Sovereign credit ratings importantly influence the borrowing costs of governments in international capital markets. Yet, there is limited understanding of how credit-rating agencies determine sovereign bond ratings. I provide theoretical justification and empirical evidence to support the proposition that a substantial presence of established global banks, acting as foreign direct investors, enhances the perceived creditworthiness of the host countries that have weak domestic institutions. Foreign banks can render the host countries’ commitments to make good on their debt obligations more credible by encouraging the transparency in the financial system, disciplining their fiscal policies, and mitigating the incentives for and impact of bank bailouts. Statistical evidence from countries in emerging Europe shows that countries with high levels of foreign bank ownership tend to be assigned better sovereign credit ratings and find it easier to obtain credit at lower interest rates in sovereign bond markets. My findings are robust to various estimation techniques, to extensive controls for alternative determinants of credit ratings, for the endogeneity of foreign bank entry, and for sample-selection bias. Interviews with bankers and senior analysts at credit-rating agencies were used to complement quantitative analyses. This article is the first attempt in the literature on sovereign borrowing and debt to examine whether private market agents, such as global banks, can enhance the government’s international creditworthiness.

Foreign ownership, bank information environments, and the international mobility of corporate governance

This paper investigates how foreign ownership shapes bank information environments. Using a sample of listed banks from 60 countries over 1997–2012, we show that foreign ownership is significantly associated with greater (lower) informativeness (synchronicity) in bank stock prices. We also find that stock returns of foreign-owned banks reflect more information about future earnings. In addition, the positive association between price informativeness and foreign ownership is stronger for foreign-owned banks in countries with stronger governance, stronger banking supervision, and lower monitoring costs. Overall, our evidence suggests that foreign ownership reduces bank opacity by exporting governance, yielding important implications for regulators and governments.

Foreign-owned banks and foreign trade in CESEE countries – a growth-enhancing duo?

ABSTRACTBased on a sample of 14 Central, Eastern and Southeastern European (CESEE) countries during the period between 1995 and 2015, we analyse how foreign-owned banks and foreign trade impact economic growth. To date, studies have concentrated on the interlinkages between different forms of foreign bank presence (cross-border flows, branches, subsidiaries and syndicated loans) and the scale of foreign trade (imports and exports). Our approach is novel because we analyse the impact of the similarity between the geographical structures of foreign-owned banks and foreign trade on economic growth. We find that this similarity is not conducive to economic growth and reduces the benefits of a country’s openness to trade.

Mode of entry, loan portfolio structure, and returns of foreign-owned banks in Indonesia

Mode of entry, loan portfolio structure, and returns of foreign-owned banks in Indonesia

Risk governance, banks affiliated to business groups, and foreign ownership

The aim of the present work is to study the effect of risk governance on the profitability of a sample of listed banks in Mexico during the period 2007–2015. The evidence presented here shows that functions of risk governance have an impact of only slight significance on the profitability of banks, which suggests that the dispositions and recommendations for risk governance are only fulfilled in a limited way. One possible explanation for this finding is related to patterns of ownership structure, due to the presence of banks linked to business groups, that give risk management a secondary role while other objectives are given greater emphasis. However, in foreign-owned banks also there were no patterns very different from the previous ones. The results suggest that the effective size of the risk committee and the independence of the chair of this committee are the only relevant risk governance mechanisms in commercial banks established in Mexico.

A path to financial integration: steps for the Eurasian Economic Union

This paper analyzes the banking systems of the founding states of the Eurasian Economic Union (EAEU) to indentify discrepancies that may hinder the establishment of a single market for financial services. Practical contributions are derived from two dimensions. First, a comparison of the EAEU banking sectors’ structures prior to integration reveals common features such as high concentration, low level of foreign ownership and dominance of state-controlled banks. Significant heterogeneity in the development of the EAEU banking sectors, however, is observed. We expect changes towards reinforced Russian banks’ power in smaller EAEU member states. Intense cross-border competition will drive a further consolidation of domestic credit institutions and decrease the market share of state banks. Second, harmonization of banking regulations and supervisory practices is a critical starting point for moving to a single market for financial services. We report some divergences in the implementation of Basel III standards at the national levels. Russian banks’ regulatory framework is more advanced and compliant with international requirements for capitalization and liquidity. Governance and information disclosure in the EAEU banking sectors, however, remain weak. Unless regulation is strengthened and appropriate prudential tools to control bank risks are properly set, financial integration may facilitate spillover of risks across national borders and threaten the financial stability in the EAEU.

Coping with Falling Oil Prices: The Different Fortunes of African Banks

This paper studies the impact of declining oil prices on banks in sub-Saharan African oil-exporting countries. Results indicate that banks respond differently to an oil shock depending on their ownership: (i) domestic banks are the most adversely impacted and experience a deterioration in asset quality and liquidity; (ii) foreign-owned banks are the most resilient as they are able to improve asset quality and attract deposits but at the same time, they decelerate credit growth; in contrast, (iii) Pan-African Banks help stabilize overall credit but large banks in that segment experience reduced asset quality. These differentiated results suggest a tradeoff between maintaining credit growth and safeguarding financial stability in an oil slump which could be addressed by both micro- and macroprudential policies.

Does Foreign Bank Branch Activity Affect Lending Behavior?

In this study, we examine the effects of foreign branch activity on commercial banks in the Central, Eastern, and Southeastern European countries for the period 1995-2015. We show that more foreign bank branches are present in countries that have higher taxes and regulatory restrictions on bank activity. The increased activity of bank branches negatively affects foreign-owned bank lending, and to a lesser extent, that of state-owned banks. We attribute this finding to the fact that branches and foreign-owned banks compete for the same type of clients, namely, multinational corporations. The branch effect seems to be larger for corporate loans than for consumer loans, which confirms our assumptions. Moreover, we find that the negative effect is stronger for foreign banks owned by multinational banks than by non-bank entities.

Deposit Insurance, Market Discipline and Bank Risk

Using evidence from Russia, we explore the effect of the introduction of deposit insurance on bank risk. Drawing on within-bank variation in the ratio of firm deposits to total household and firm deposits, so as to capture the magnitude of the decrease in market discipline after the introduction of deposit insurance, we demonstrate for private, domestic banks that larger declines in market discipline generate larger increases in traditional measures of risk. These results hold in a difference-in-difference setting in which state and foreign-owned banks, whose deposit insurance regime does not change, serve as a control.

Effects of bank capital on liquidity creation and business diversification: Evidence from Malaysia

This paper examines the effects of bank capital ratios on liquidity creation and business diversification for Malaysia. Annual data are analyzed for 28 commercial banks for the period 2001⬜2017. We observe that the average equity capital and capital adequacy ratios trended upward over the period from 11 to 17% and from 19 to 27%, respectively. In connection with higher bank capital ratios, we find a general shift in bank focus away from traditional lending and deposit taking activity that creates liquidity for the economy toward fee-based services and other transactional business. More nuanced patterns emerge when banks are differentiated by size, stock market listing, and domestic versus foreign ownership. In particular, while traditional on-balance sheet liquidity creation is reduced across the board in connection with higher capital ratios, off-balance sheet liquidity creation (e.g., credit commitments) declines more selectively for larger, listed, and domestic banks. We infer that smaller, non-listed, and foreign owned banks have a competitive advantage in providing the more personalized services needed for off-balance sheet liquidity creation. Further, while an increase in business diversification in connection with higher capital ratios is broadly observed, the increase is not uniformly evident for larger and domestic banks.

Lending Corruption and Bank Loan Contracting: Cross-Country Evidence

Lending corruption is an important agency problem for banks. Using data from the World Bank Business Environmental Survey, we find that in countries with more lending corruption, banks give more favorable loan terms to borrowers. This relation is stronger when firms are under more financing constraints, consistent with corruption being important to obtaining favorable loan terms when the supply of debt capital is tighter. In line with the expectation that monitoring constrains agency problems, this relation is weaker in countries with higher foreign ownership of banks or where Protestantism is the primary religion. In the syndicated loan market, participant banks are inclined to lend less in countries where lending corruption is more prevalent. Firms in countries with greater corruption prefer private bank debt over public bonds and are more leveraged. Banks in countries with more lending corruption have poor loan quality, worse earnings performance, and are more susceptible to trouble during a financial crisis. Overall, our findings suggest that corruption greases the wheels for borrowers but is detrimental to bank shareholders.

DETERMINANTS OF BANKING SECTOR PERFORMANCE IN UZBEKISTAN

ABSTRACT This paper analyses determinants of banking sector performance in Uzbekistan over the last two decades. In this purpose, it has been deeply studied that the relationship between the structure of bank ownership and bank performance. To test our hypothesis, we use the econometric cost frontier approach - measured the performance of banking sector in terms of efficiency, using Trans-Log Cost and Profit Function with panel analysis for 29 Uzbekistan’s banks over the period 2003-2017. This study has been carried out to show possible difference between state-owned banks and the other types of bank ownership (private, joint-stock and foreign owned banks) in Uzbekistan from the perspective of performance. Moreover, this paper discovered an interesting pattern on a substance effect of bank ownership to banking sector performance of Uzbekistan before and after the 2008s financial crisis. The result reveals that the structure of bank ownership is a key determinant for the banking sector performance in Uzbekistan and that it does matter before the 2008s financial crisis in the banking system. Furthermore, this study finds that bank capitalization and price policy are insignificant determinants for banking sector performance of Uzbekistan. More importantly, on average, state-owned banks operated more cost efficient and less profit efficient than other types of banks in Uzbekistan in the last decade. These are interesting findings, because the cost efficiency of the state-owned banks is consistent with the “development” theory (A. Gerschenkron, 1962), and the profit inefficiency of the state-owned banks is more likely connected with the “political” theory (La Porta et al., 2002). Furthermore, it has been concluded that there is a significant space for improving the overall performance of the banking sector through privatization of the state-owned banks by implementing good corporate governance practice in the banking system of Uzbekistan. Keywords state-owned, joint stock, foreign and private banks, bank performance, determinants, bank ownership, corporate governance, cost efficiency and profit efficiency.