Foreign Bank Penetration Research Articles

SMEs and financial dependence: how important are foreign banks?

PurposeThe importance of financial dependence of small and medium enterprises (SMEs) on their performance is a relatively unaddressed area of research. Relatedly, whether and to what extent foreign bank penetration exerts an impact in the presence of financial dependence also remains an open question. The purpose of the paper in this regard is to exploit unit-level data on Indian SMEs and assess the independent and interactive effects of financial dependence on SME behaviour, in the presence of foreign banks.Design/methodology/approachThis study uses fixed effects specification to address the issue. In subsequent analysis, this study also uses an instrumental variable approach for robustness.FindingsThe results indicate that financial dependence improves investment and employment, although there is a decline in productivity. These findings differ across size classes of SMEs. Similar is the evidence in the presence of foreign banks. In particular, foreign bank penetration leads to a decline in investment for micro and medium SMEs, although for small SMEs, the impact is found to be the opposite.Originality/valueTo the best of the author’s knowledge, this is one of the early within-country studies to examine the interface between SMEs and financial dependence and the role played by foreign banks in this regard.

Foreign bank penetration in Vietnam following Vietnam’s accession to the WTO: matching expectations with reality

Vietnam continuously liberalizes the financial market as a requirement for its accession to the World Trade Organization in 2007. This paper discusses the foreign investors’ expectation and their experience when penetrating into Vietnam’s market. The role of the foreign entrants is also assessed. By synthesizing and analyzing relevant research and reports, several important insights are discovered. Firstly, the presence of foreign investors and banks improves market competition, efficiency, and stability. Wholly and partly foreign-owned banks provide the spillover effects in management quality, in the introduction of world standard banking products and services, and in the application of information technology. Secondly, by looking into the foreign owned banks, it is found that the banks’ foreign investors are not likely to play an influential role in managing the banks they invested in. The motive of the investors to control the invested companies leads to their decision of holdings withdrawing.

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.

Inter‐industry FDI spillovers from foreign banks: Evidence in transition economies

AbstractUsing a sample of nonfinancial domestic firms in transition economies from Eastern Europe and Central Asia, we examine whether and how inter‐industry spillover from foreign direct investment in the banking sector occurs. Our findings show that the innovation pursued by domestic firms benefits from foreign bank penetration. However, these positive inter‐industry spillovers surprisingly do not seem to work through enhanced credit access. We further find these positive spillovers to occur mainly for foreign banks that use relationship lending, domestic firms that do not export, and host countries that are less open to the global market.

Does loan growth impact on bank risk?

In the context of competition between domestic banks but also foreign banks become more and more fierce. The increasing penetration of foreign banks brings certain risks to domestic banks. This study was conducted to assess the effect of loan growth on banking risk in Vietnam. The study collects data on 29 banks listed on the Vietnam stock exchange from 2010 to 2020. The results of panel data analysis with Generalized least squares (GLS) have shown a relationship between loan growth and bank risk. In which loan growth has a negative impact on Non-performing loans (NPL), liquidity risk equity on asset (ETA); loan growth has a positive impact on return (ROA). In addition, the study also conducts a comparative assessment by bank size and loan growth rate. The results indicate a difference in loan growth's impact on banks' bank risk with lower and higher assets and lower and higher loan growth rates. From the results of this study, the authors also provide some implications to help banks reduce bank risk based on loan growth strategy.

Bank Competition, Credit Risk, and Foreign Bank Penetration: Empirical Evidence from Indonesia

This study examines the relationship between bank competition and credit risk with foreign bank penetration as a moderating variable. The research sample used was 79 commercial banks listed in the Indonesian Banking Directory published by the Financial Services Authority (OJK) during the 2014-2019 period with a total of 474 observations. The results of this study indicate that the higher the bank's competition, the higher the bank's credit risk, which is in accordance with the competition-fragility theory. Furthermore, from the results of the Moderated Regression Analysis, the results show that foreign bank penetration has not been able to moderate the relationship between bank competition and bank credit risk, however, if it stands as an independent variable on its own, foreign bank penetration will reduce bank credit risk. The results of this study contribute to providing useful information for parties in the banking industry that increasing foreign bank penetration can reduce bank credit risk.

The Influence of Foreign Bank Entry on the Development of Regional Financial Markets

Intensive international activity of banks caused by fairly recently lifted financial restrictions in many countries has been a subject of great scientific interest ever since. The article describes various short-term consequences of foreign bank penetration in the financial markets of some of the regions of the world. The authors pay specific attention to the reasons and modes of foreign bank entry in emerging market and transition market economies as well as to the differences in the impact of such entry on the stability and efficiency of financial systems and economies of the countries of Asia, Latin America, Central and Eastern Europe and Russia. Research methods: systemic, comparative and logical analysis.

The nexus between foreign bank presence and credit to the private sector: evidence from Sub-Saharan Africa

PurposeThe purpose of the study is to explore the implications of global financial integration on host economies in Sub-Saharan Africa (SSA). The study tests the competing views on the impact of foreign bank penetration on private sector access to credit in developing host economies.Design/methodology/approachUsing data on a panel 25 SSA economies over a period of 22 years from 1995 to 2016, the study employs fixed effects and Prais-Winsten estimations as well as generalized methods of moments (GMM) to test the foreign bank impact.FindingsThe findings show support for the hypothesis that global financial integration has positive implications for participating economies. In other words, financial sector liberalization and deregulation leading to the influx of foreign banks has positive implications for access to credit by the private sector in SSA economies. The study also finds other standard determinants of access to credit like lending rate and broad money supply conforming to the existing literature in terms of impact.Originality/valueOverall, the findings hold relevant implications for banking sector policies and the financial sector in general regarding the priority that policy makers and advisors attach to reforming financial sector policies.

Main tools of integrated marketing communications of banks

The question of the essence of the main tools of integrated marketing communications in the activity of banks of Ukraine is investigated. Their introduction in the management of Ukrainian banks is becoming relevant nowadays. Influence of such factors as intensification of competition; penetration of foreign banks into the Ukrainian market; expansion of the scope of banks’ activities determine the search for effective tools of integrated marketing communications. The purpose of the study is to substantiate and systematize theoretical and methodological approaches to the application of the main tools of integrated marketing communications of banks. The object of research is main tools of integrated marketing communications in the activities of banks. The theoretical basis of the study is the theories and marketing concepts of scientists. The results of the study allowed to determine the essence of such concepts as «marketing tools», «tools», «tools of marketing communications». The main tools of integrated marketing communications of banks as the most effective tools in modern market conditions are highlighted. Their use plays an important role in forming a positive image of the bank. Features of application of the main tools of integrated marketing communications for promotion of banking products and provision of banking services are considered.

Role of Information Sharing on the Impact of Foreign Banks’ Penetration on Banking Competition

Globalization has led to an increase in foreign banks' penetration. It is argued that the presence of foreign banks may affect the banking sector of the host countries in several ways including their competition level. It is mentioned that the presence of the foreign banks could heightened the level of competition in the banking sector. Nonetheless, the impact of the foreign banks on competition could be influenced by the degree of information sharing in the banking industry. This study investigates the role of information sharing in moderating the impact of foreign bank penetration on host banking sector competition in selected developing countries. We employ panel data samples of 54 developing countries during the period from 1998 to 2016. The estimation is carried out using the two-step system of the Generalized Method of Moments (GMM) regression technique. This technique is adopted due to its robustness to all forms of endogeneity. The findings of this study show that the presence of information sharing could affect the relationship between foreign banks' penetration and competition. They suggest that improvement in information sharing by a host country may help foreign banks to improve monitoring and reduce the moral hazard and adverse selection problem.

Influence of Governance on the Relationship Between Foreign Banks’ Penetration and Banking Stability

Globalization that has started decades ago is one of the main factors of the influx of foreign banks. The presence of foreign banks in a host country can have many effects on its banking sectors. One of them is it could increase competition and force domestic bank to take additional risk which could lead to instability of the sector. On the other hand, foreign bank penetration can also be a source of stability. It can enhance financial stability by offering valuable diversification in services or absorbing shocks. Nonetheless, it is said that the impact of foreign banks’ penetration could be influenced by the presence of governance in the host country. This study aims to examine the impact of governance on the foreign bank penetration-stability relationship. We focus our analysis on 54 developing countries during the period 1998 to 2016. The results from a two-step system GMM support the market risk hypothesis that the penetration of foreign banks decreases the stability of the host banking sector. However, the presence of governance in the country may reduce the negative stability impact of the foreign banks’ penetration.

Inter-industry FDI spillovers from foreign banks: Evidence in transition economies

Using a sample of non-financial domestic firms in transition economies from Eastern Europe and Central Asia, we examine whether and how inter-industry spillovers from FDI in the banking sector occur. Our findings show that the innovation pursued by domestic firms benefits from foreign bank penetration. However, these positive inter-industry spillovers surprisingly (and in contrast to conventional wisdom) do not seem to work through enhanced credit access. Our theory suggests that they may occur through the improvement of the local market of fee-based banking services and the transfer of knowledge to domestic firms in non-contractual interactions. These positive spillovers occur mainly for foreign banks that use relationship lending, domestic firms that do not export, and host countries that are less open to the global market.

Foreign Bank Entry and Stock Price Crash Risk: Insights from Staggered Regulatory Changes

Exploring staggered quasi-exogenous regulatory changes in China, we find that banking sector FDI significantly reduces the likelihood of stock price crashes of domestic listed firms. The effect is more pronounced among firms with ex-ante lower disclosure quality and worse performances, which indicates a monitoring spillover effect of foreign bank penetration on domestic firms. Moreover, we find evidence of reduced overall financing costs and extended loan maturity after foreign bank entry. Our findings highlight an unexplored role of the banking sector marketization in terms of curtailing stock price crash risks and improving the stability of stock markets.

Financial Development, Foreign Banks and Economic Growth in Africa

AbstractThis study aims to examine and analyze the impact of financial development and foreign bank penetration on African economies. An empirical study for the period 1995–2015 is conducted using the system GMM estimator. Our empirical results indicate that foreign bank entry has a positive and significant impact on economic growth in the countries of North and Southern Africa, while in the other two regions considered in this study (West and Central Africa, East Africa) the impact is negative and rarely significant. In addition, our results show that the development of financial markets has a positive and significant effect on economic growth only in the Southern African region. The paper concludes that policymakers should focus on long‐term policies to strengthen the financial sector to truly meet the needs of African people.

Ocena kvaliteta korporativnog upravljanja u bankama u Srbiji

The significance attached to successful corporate management of banks primarily originates in the importance that banks play in the financial and economical system of a country. There has been a global spike in interest in the quality of corporate management of banks after the onset of the World Economic Crisis in 2007/2008, the consequences of which are still visible today. Paralel to the transformation of our country's economic system, we have also witnessed changes not only to the banking system, but also to the concept and quality of corporate management of banks in Serbia. Ownership transformation of an economic system involves strong penetration of foreign banks, by means of acquisition of domestic banks or founding of new ones. The introduction of foreign banks brought new sources of financing to the Serbian economy; in addition, the regulatory and legal frameworks for operation and functioning of the banking sector changes, as the country gradually integrates into the standards of the European Union. On the other hand, the arrival of foreign banks raised the quality of corporate management, resulting in greater earning power of those banks. The quality of corporate management in the domestic banks with private and state capital is adapting to new regulatory and market conditions. The quality and speed of those adaptations correlate closely to the market challenges imposed by the banks with foreign capital. Therefore the aim of the analysis of quality and particulars of corporate management in domestic banks with domestic capital is precisely to analyze and implement the standards of corporate management used in the banks with foreign capital. The goal is to raise and improve the quality of their corporate management, especially the policies for operation of Boards of Directors and audit commit-tees, the role of independent risk units, the operation of internal audit, as well as the application of market principles of operation and functioning.

Foreign penetration, competition, and financial freedom: Evidence from the banking industries in emerging markets

Traditional theories suggest that foreign entry intensifies competition and improves efficiency in a banking sector. However, the positive impacts may be offset by several factors, such as foreign banks’ “cherry-picking” lending practice, mergers & acquisitions, and the “crowd-out” effect. Based on a sample of commercial and savings banks collected from Bankscope, this paper investigates the effects of foreign penetration on bank competition in the host countries. Using the two-step Arellano-Bond system GMM method, we show that the entry of foreign banks enhances competition in the banking systems among the sampled developing countries between 2000 and 2014. The positive relationship between foreign penetration and banking competition is more conspicuous after the 2008–2009 global recession. Latin American countries appear to benefit more from foreign bank penetration during the sample period than emerging markets in Asia. Also, the level of a host country’s financial freedom has a moderation effect on the “foreign penetration—competition” nexus.

The determinants of intermediation margins in Islamic and conventional banks

Purpose The distinctive feature of Islamic financial intermediation is its foundation on profit-and-loss sharing which reinforces solidarity and fraternity between partners. Thus, the bank margin and its determinants may differ between Islamic and conventional banks (CBs). The purpose of this paper is to empirically assess the main factors that explain the bank margin in a panel of Islamic and CBs operating in the Middle East and North Africa (MENA) region. This study will permit to identify the common and the specific determinants of the intermediation margins in dual banking systems. Design/methodology/approach The authors use a dynamic panel approach. The empirical analysis is carried out for a sample of 50 Islamic banks (IBs) and 126 CBs from 14 MENA countries. Findings The results reveal that net profit margins of IBs may be explained for the most part by risk aversion, inefficiency, diversification and economic conditions. With regard to CBs, their margins depend positively on market concentration and risk aversion and negatively on specialization, diversification, inefficiency and liquidity. Practical implications The significant impact of the degree of diversification on margins suggests that any policy analysis of the pricing behavior of banks should rely on its whole output. The high levels of margins in Islamic and CBs based in the MENA region may represent an obstacle to these countries to pursue their development process. Thus, policy makers in these countries should consolidate the role of capital markets and nonbanking financial institutions to provide alternative sources of funding and stimulate more competition. Social implications The positive relationship between concentration and net interest margins requires that policy makers should create competitive conditions if they want to lower the social cost of financial intermediation. The creation of competitive conditions may be achieved through encouraging the establishment of new domestic banks or the penetration of foreign banks. Originality/value The present study aims to contribute to the existing literature on the determinants of bank margins in three ways. First, the authors identify the factors that most explain bank margins for both conventional and IBs. The majority of previous studies examine the determinants of the profitability or the overall performance of banks and in particular conventional ones. Second, this paper employs two generalized method of moments (GMM) approaches introduced by Arellano and Bover (1995) and Arellano and Bond (1991). It differs from Hutapea and Kasri (2010) who employed the co-integration technique to examine the long-run relationship between Islamic and CB margins and their determinants in Indonesia. Third, unlike previous studies focusing on MENA region that use a small number of countries and a short sample period, the period of study covers 16 years from 1999 to 2014 and a large sample of countries (14 countries). This paper differs from Lee and Isa (2017) who applied the dynamic two-step GMM estimator technique introduced by Arellano and Bond (1991) to study the determinants of intermediation margins of Islamic and CBs located in Malaysia.

Financial stability in Europe: Banking and sovereign risk

We analyze the link between banking sector quality and sovereign risk in the whole European Union over 1999–2014. We employ four different indicators of sovereign risk (including market- and opinion-based assessments), a rich set of theoretically and empirically motivated banking sector characteristics, and a Bayesian inference in panel estimation as a methodology. We show that a higher proportion of non-performing loans is the single most influential sector-specific variable that is associated with increased sovereign risk. The sector’s depth provides mixed results. The stability (capital adequacy ratio) and size (TBA) of the industry are linked to lower sovereign risk in general. Foreign bank penetration and competition (a more diversified structure of the industry) are linked to lower sovereign risk. Our results also support the wake-up call hypothesis in that markets re-appraised a number of banking sector-related issues in the pricing of sovereign risk after the onset of the sovereign crisis in Europe.

FOREIGN BANK PENETRATION AND ITS IMPACT ON BANKING INDUSTRIES

The purpose of this study is to measure the impact of penetration of foreign banks in the Indonesian banking industry. The measured effects are limited to competition and efficiency during the years 2000-2011, during which was a recovery from the economic crisis in Indonesia. Panzar-Rosse measures the competition and Conjectural Variation approaches. The efficiency is measured by the Standard Profit Efficiency approach. By using panel regression method with SUR (Seemingly Unrelated Regression), we found that penetration of foreign banks will increase competition and efficiency of banking in Indonesia, especially to medium and small banks through spillover effect on domestic banking system. The increase in total assets, total loans and the amount of third party funds held by foreign banks in Indonesia will increase competition and efficiency of banks in Indonesia.

PENETRASI BANK ASING DAN PENGARUHNYA TERHADAP KOMPETISI PERBANKAN YANG DIUKUR DENGAN PENDEKATAN CONJECTURAL VARIATION DI INDONESIA

This study examines the effect of foreign bank penetration on banking competition in Indonesia. Penetration of foreign banks is measured by using the ratio between total assets, total loans and total deposits of foreign banks to total assets, total loans and total deposits of the banking industry in Indonesia, such as those used by Levy and Micco (2007). Bank concentration is measured by using Concentration Ratio (CR3 and CR5) and the Herfindahl index. Bank competition is measured by using the Conjectural Variation approach as used by Cetorelli Angelini (2003). By using panel regression method with SUR (Seemingly Unrelated Regression) during 1998 to 2009, we found that the increase of foreign bank penetration will increase competition of banking in Indonesia through spillover effects on the domestic banking system. These results support the research of Jeon et al (2011).Keywords: Foreign Bank Penetration, Conjectural Variation and Bank Competition