Foreign-owned Banks Research Articles

Foreign-owned banks and their impact on Kenya’s financial stability

We examine the effect of foreign banks’ presence on financial stability in Kenya. We consider a two-fold outcome, that is, whether or not foreign-owned banks enhance financial stability in Kenya. To ascertain this, we use binary regression approach involving a logit model. Our results suggest that foreign-owned banks have no important direct effect on financial stability in Kenya; rather, financial stability depends on the credit policies of the banks and their balance sheet structures, regardless of the ownership type. Foreign capital in the banking sector in Kenya is not a deciding factor in influencing the stability of the sector and measures to promote local banks and government banks should be encouraged. Generally, positive macroeconomic development drives Kenya’s financial stability and increases foreign banks’ penetration by encouraging them to expand through aggressive credit policies. Our findings suggest that it is the macroeconomic conditions and prudential regulations in Kenya that enhance financial stability and not necessarily the presence of foreign-owned banks.

Bank ownership and lending dynamics: Evidence from Turkish banking sector

The principal aim of this paper is to examine whether the bank ownership structure leads to differences in the lending dynamics of banks during the various phases of the business cycle. To elaborate on this question we make use of a bank-level panel data set which comprises of the monthly financial statements of public banks, domestically owned private and foreign-owned banks for the period between 2005 and 2019 operating in a large emerging market, Turkey. We exploited panel fixed effects methodology with a large set of macroeconomic and bank-level controls in various specifications. The results of our analyses demonstrate that public banks are less pro-cyclical in lending credits compared to private and foreign-owned banks by smoothing credit cycles during the upturns and downturns in the business cycle. This behavior strengthens during the recessions and financial distress periods as public banks lend significantly higher than domestic private and foreign-owned banks. Furthermore, the impact of bank ownership on credit allocation differentiates by the type of financial distress. If the source of the distress is global, foreign banks do not behave significantly differently from domestic private banks and during the local distress, foreign banks cut lending significantly more than domestic private and public banks. Overall, our findings suggest that while domestic private and foreign banks’ lending behavior is pro-cyclical with economic activity; public banks play a stabilizing role when financial conditions tighten or the economy overheats.

PENGARUH KEBIJAKAN BANK INDONESIA TENTANG PEMBATASAN KEPEMILIKAN KARTU KREDIT TERHADAP PERTUMBUHAN KARTU KREDIT DAN KARTU KREDIT MACET BERDASARKAN KELOMPOK BANK

The aim of this research is to examine the impact of PBI SEBI 14/27/DASP/2012 in Indonesia. The examination is using Panel Data Regression Methods and Different Test of Independent Samples Test. The purposes are to compare the compare the effect of the growth of credit cards before and after the implementation of PBI SEBI 14/27 / DASP / 2012. The research period was from year 2008 to year 2015. The sample populations used are four groups based on ownership of banks are: State Owned Banks, Foreign Exchange Commercial Banks, Foreign Owned Banks and Joint Venture Banks and PT Bank Bukopin Tbk in each period. The result of this research shows that PBI SEBI 14/27/DASP/2012 has significant impact on revenue growth of credit cards and a decrease in the credit card NPL by a group of banks, and the growth of credit cards at PT Bank Bukopin has a significant influence on the growth of cards credit Quantity, the credit card NPL and Annual Fee credit card.

The impact of bank ownership on lending behavior: Evidence from the 2008–2009 financial crisis

AbstractThis paper investigates the lending behavior of banks with different ownership types (domestic‐private, foreign, and government‐owned) during normal and financial crisis periods. Using panel data for the period 2004–2013, our results indicate that the 2008–2009 crisis caused a negative shock to banking sector loan growth rates which was considerably higher during 2008 compared to 2009. Although loan supply decreased during the crisis, there were differences under different ownership types and between high and upper‐middle income countries. Our findings suggest that consumer and retail loans declined significantly more in high income economies compared to upper‐middle income countries. Further, in upper‐middle income economies, the reduction in consumer and retail loans in 2009 was higher under foreign bank ownership in comparison to domestic‐private bank ownership. Overall, the results indicate that the lending behavior of banks with different types of ownership is significantly different in upper middle income countries compared to high‐income countries.

Bank lending: The bank ownership focus in the pre- and post-global financial crisis periods

The objective of this research is to examine the impact of bank ownership on the composition of working capital, investment, and consumption loan types before and after the global financial crisis (GFC). The data has been grouped into pre-GFC and post-GFC sub-periods. The pre-GFC period encompasses the post-Asian crisis time period until 2006, just before the start of the GFC. The post-GFC period comprises the time period 2009 until 2016. Data were obtained from the Indonesian Banking Directory of the Indonesian Central Bank, commercial bank annual reports provided by Infobank magazine, and the Indonesian Banking Development Institute. The findings reveal the differences and changes in the composition of loan types for the different forms of bank ownership. Government-owned banks tend to focus on consumption loans, whereas foreign-owned banks outpace domestic-owned banks in the financing of working capital loans. After the GFC, government-owned banks increased their consumption loans significantly. This research augments the knowledge about loan portfolio compositions and trends pertaining to different bank types. It can serve as a benchmark and can be applied to enhance decision-making in the banking industry. Furthermore, Indonesian regulating authorities can utilize the information from a strategic and policy perspective to monitor, manage and control financial intermediation from a macroprudential perspective.

DETERMINANTS OF ASSETS GROWTH OF FOREIGN OWNED BANKS IN INDONESIA

The aim of this research is to assess the dominant factors enabling foreign owned banks to increase their assets in Indonesia and to confirm whether the “follow the customers hypothesis” is also applicable in motivating foreign owned banks to do business in Indonesia to support investment and trade activities of the companies originated from foreign countries. Using the panel data of 28 foreign owned commercial banks in Indonesia between 2006-2015 obtained from Indonesian Banking Directory, Indonesian Banking Statistics databases, foreign country central bank websites, a least square dummy variable (LSDV) regression model was applied to examine the effect of Bilateral Trade, Foreign Direct Investment (FDI), Interest Rate Differences, Domestic Deposits, Parent banks Return on Assets (ROA) and Length of Time presence of the foreign owned banks in Indonesia on Assets or Size of Foreign Owned Banks. The main findings is that the decisions by foreign owned banks to operate and to expand its business in Indonesia is predominantly affected by the increase in realization of projects funded by Foreign Direct Investment from counterpart countries, third parties fund or domestic deposit denominated in foreign currencies, profitability of the parent banks in home country and long time presence in Indonesia to enable parent bank and their branches or subsidiaries gain better operating experience, better general managerial expertise and better knowledge of local environment. Bilateral Trade and Interest Rate Differences between home and host country has no impacts at all on Assets of Foreign Owned Banks. “Follow the customer hypothesis” is applicable in Indonesia only in terms of FDIs but not applicable in terms of bilateral trade. The findings will help management of the banks in designing more reliable business plan and also used as input or tools for policy makers prior issuing the license for the newly open foreign owned banks offices or increase of its branch offices. It is suggested foreign owned banks to consider empowering its trade financing scheme which will increase the banks size or assets.

BANKACILIK ÜST YÖNETİMLERİNDE KADIN YÖNETİCİLERİN YERİ VE PROFİL ANALİZİ

Kadınların toplum, siyaset ve ekonomik yaşamda konumlarının değişmesi nedeni ile Türkiye’de bankacılık alanında da kadın çalışanların yeri önemini korumaktadır. Bu çalışmada Türkiye’ de çalışan sayıları en yüksek kamu özel ve yabancı sermayeli bankalarının çalışan sayıları ve kadınların yeri incelenmiştir. Bankalarda üst düzey kadın yöneticilerin oranı belirlenmiş ve kadın yöneticilerin eğitim deneyim ve kurum deneyimleri incelenmiştir. Çalışmada bankacılıkta kadın çalışanların erkek çalışanlara göre fazla olduğu görülmektedir. Kadın çalışanların sayısı özel ve yabancı sermayeli bankalarda daha yüksektir. Üst yönetimde görev alan kadınların sayısının ise düşük olduğu görülmektedir. Üst düzey yönetimde görev alan kadınların görev alanları daha çok Hazine, Kurumsal Bankacılık ve İnsan Kaynakları’ dır. Kadın yöneticiler daha çok Orta Doğu Teknik Üniversitesi ve Boğaziçi Üniversitesi mezunlarıdır. Kadın yöneticilerin ortalama iş deneyimlerinin yirmi dört yıl, bulundukları kurum içindeki ortalama görev sürelerinin ise on beş yıl olduğu görülmektedir.

Assessment of Environmental Sources of Financial Risks on Commercial Banks in Ghana

This research examined bankers’ perceptions of environmental sources of financial risks and its impact on commercial banks in Ghana. Primary data was collected from a purposive sample of ninety-six (96) middle–level bank managers using structured questionnaires. Time series secondary data on banking performance (denoted as ROA and ROE) and stability (denoted as CAR and NPLR) and growth of five major industrial businesses (including agriculture, mining, construction, manufacturing, and trade) as the environmental sources of financial risks, for a period of 13 years (2006-2018) was further obtained for analysis. Data was analyzed using the sample t-test and the multivariate dynamic panel regression model. The results show that, in bank lending, mining was perceived to be the topmost source of indirect environmental risk (credit and reputational risks), while agriculture was perceived to be the leading source of direct environmental risk (business risk). We found that perceptions of environmental sources of financial risk by mangers of locally owned banks differed from that of foreign owned banks. Growth of mining, trade and manufacturing positively influenced banking performance while the growth of construction and agriculture negatively influence banking stability. The study thus provides supportive evidence that commercial banks require set standards that guide clients’ business towards environmental sustainability

Shareholder shocks and loan loss provisions in Central European banks

We examine loan loss provisions (LLP) in banks as a previously unexplored channel of shock transmission between foreign banks and their subsidiaries. We focus on discretionary LLP, controlling for the underlying credit risk and previously created loan loss reserves. We study negative and positive shocks in order to account for LLP cyclicality. Using a sample of 71 Central European foreign-owned banks, we find that shocks suffered by shareholders are connected to changes of discretionary LLP at subsidiary banks. Moreover, the type of shareholder shock matters. Banking sector and shareholder-specific adverse shocks are associated with higher LLP. Negative macroeconomic shocks are paired with a lower level of LLP, but this effect disappears if the shock is wide and also encompasses banking sectors or capital markets. In addition, we find that positive shocks to shareholder profitability incur higher discretionary LLP. Our findings contribute to the shock transmission literature, which to date has mostly focused on the consequences of shareholder shocks for subsidiary bank loan supply. We demonstrate that LLP can also be affected.

Factors Affecting the Competitive Capacity of Commercial Banks: A Critical Analysis in an Emerging Economy

This research was conducted to investigate the factors influencing the commercial bank’s competitive capacity in an emerging country. Data were collected from the domestic-owned commercial banks and foreign-owned commercial banks listed on Vietnam’s Stock Exchange over the period of nine years from 2010 to 2018. Three statistic approaches were employed to address econometrics issues and to improve the accuracy of the regression coefficients: Pooled Ordinary Least Square (Pooled OLS), Random Effects Model (REM), and Fixed Effects Model (FEM). To correct the diagnostics and endogeneity in the model, the study uses Generalized Least Square (GLS) and Generalized Method of Moments (GMM). In order to account for the degree of competitive capacity we use Lerner index. Results demonstrate that the impact of bank-specific characteristics on market power in banks is statistically significant, and there are substantial distinguishments of economic consideration among these factors. In addition, a bank with a higher level of competitive capacity in the previous year will outstandingly generate competitive capacity in the current year. Another possibility, a greater level foreign investment into the banks in the host country could further encourage competitive capacity in the banking system. Finally, economic growth rate has no impact on competitive capacity at a significant level of 5% while a positive effect from inflation on bank’s market power could be found.

Analyzing efficiencies of city commercial banks in China: An application of the bootstrapped DEA approach

City commercial banks (CCBs) have continued to grow in support of small- and medium-size enterprises (SMEs), thus improving the misallocation of capital and helping to accelerate China's tremendous economic growth. This study uses bootstrapped data envelopment analysis (DEA) to statistically test the property of returns to scale by taking into account undesirable outputs in order to employ the appropriate model for statistically inferencing the characteristics of these CCBs. Employing a dataset from Bankfocus that covers 101 CCBs for the period 2015–2017, the returns to scale test supports technology as exhibiting variable returns to scale. The partitioning around medoids (PAM) algorithm, based on bootstrapped DEA scores, clusters China's CCBs into three groups: Cluster 1 contains half of the superior foreign-owned banks and half of those competitive local CCBs being located in the coast region, while Cluster 2 and Cluster 3 consist primarily of domestic CCBs associated with similar characteristics in locations and owner-types, where the former outperforms the latter. Other findings show that (1) biased upward efficiencies may provide incorrect information and misguide managerial and/or policy implications, and that (2) ignoring the effort by CCBs at absorbing deposits leads to significantly different results.

Dancing the Viennese waltz or just doing business? The policy of parent banks in CESEE countries

ABSTRACT We investigate how group- and market-specific traits impact the credit policy of foreign-owned banks operating in Central, Eastern and South-Eastern European (CESEE) countries over the 1995–2015 period using an instrumental variable fixed effects approach. This period includes the years of the global financial crisis (GFC), during which the Vienna Initiative (VI) was established to limit the negative impact of the crisis on five CESEE countries in which foreign-owned banks play a considerable role. We find evidence that the credit policy of banks operating in VI countries and/or owned by VI parents differs from the overall policy in the region. Our study suggests that parent banks focus on the geographical diversification of group assets on host markets, followed by ensuring that there is strict capital control and that return on equity outperforms that of the market. Our results confirm that the VI was efficient in immunising subsidiaries and countries.

Sustainability reporting assessment for quality and compliance: the case of Ukrainian banks’ management reports

Management report is a new form of sustainability reporting (SR) in Ukraine, and its assessment for quality of environmental, social and governance (ESG) criteria disclosure and compliance among banks plays a crucial role for auditors in the verification process. The Quality and Compliance Bank Management Reports (Q&C BMR) Index methodology was developed for this purpose. The methodology includes a range of formal, content, assurance and disclosure scorings. According to the results of a continuous assessment of these management reports of 75 state, private and foreign-owned banks in Ukraine for the 2018 fiscal year, the average Q&C BMR Index is 61.2%. This indicates a fairly high level of quality and compliance with regulatory requirements for disclosure by banks of Ukraine in their SR. Differentiation of the studied population of banks in terms of Q&C BMR Index allowed distinguishing the following rating groups: А – leaders, B – pursuers, C – starters, and D – outsiders. There is a clear trend in the relationship between the ownership of a bank and its Q&C BMR index. Despite the rather high average value of the index, there is an opportunity to improve Ukrainian banks’ SR in the context of its further standardization and disclosure of the full set of ESGs – a criterion for all rating groups (especially C and D). Q&C BMR Index can be used as a benchmark by banks, regulators and auditors when comparing the level of disclosure by banks and their transparency. AcknowledgmentThe comments of an editor and anonymous referees have been gratefully acknowledged. Inna Makarenko gratefully acknowledges financial support from the Ministry of Education and Science of Ukraine – Corporate Social and Environmental Responsibility for Sustainable Development: Partnership of Stakeholders in the Real, Financial and Public Sectors of the Economy (0117U003933).

Do Busy Directors Impede or Spur Bank Performance and Bank Risks? Event Study Evidence From Brazil

The paper investigates the implications of busy directors on bank performance and bank risks in Brazil. The study employs an event study based on a change in board status as an identification strategy, Heckman’s two-stage model, and the propensity score matching method to account for endogeneity. The study findings show that busy directors contribute to an increase in bank market value. Regarding bank risks, the study shows that multiple directorships contribute to an increase in asset risk and insolvency risk. The study contributes to the existing literature by showing that busy directors are associated with high bank risks in foreign-owned banks while they disproportionately reduce bank risks in state-owned banks. Considering the importance of bank stability in promoting economic growth in Brazil and the positive impact of busy directors on bank risks, there is need for the policymakers to craft clear corporate governance clauses which guide the selection of multiple directors and enforce feedback and accountability mechanisms that govern busy directors who serve in Brazilian banks. Reducing excessive participation for busy directors serving in bank boards ensures that the directors have adequate time and attention to discharge their governance responsibilities efficiently, thus resulting in robust risk monitoring strategies in bank operations.

POSSIBLE IMPACT FROM FOREIGN BANK PRESENCE TO THE PERFORMANCE OF LOCAL COMMERCIAL BANKS IN VIETNAM

Research on the impact of the presence of foreign banks on the domestic banking industry in particular is a popular topic for policy implications. The paper examines whether the presence of foreign banks improves the performance of domestic commercial banks in Vietnam. On the sample of 26 domestic commercial banks and 9 fully foreign-owned banks in Vietnam in the period 2009-2018, the research result shows that the presence of foreign banks reduces the profitability of domestic commercial banks, whereas does not have any impact on their operating costs, showing that the combination of spillover effects and competition effects has not caused a positive impact on Vietnamese banking industry. This result leads to policy implications that competition and the introduction of substitute products should be promoted, in order to make good use of the benefits of the entry of foreign banks.

Access to finance – Mind the gender gap

Studies on financial inclusion have focused on the determinants of access to finance but only a few s attempted to examine the impediments that women face trying to access finance. This paper contributes to this literature by understanding the underlying factors of gender gaps in accessing finance using the World Bank Global Findex database for 141 countries over time. We also construct a database combining bank-level data with other variables to examine the association between banking system ownership structure and concentration, the regulatory framework and other socio-economic variables reflecting women’s participation in the labour market and gender disparities in education, income and access to property across countries. Our results suggest that women are more likely to be excluded from the financial sector in countries where: (i) foreign-owned banks have smaller presence; (ii) state-owned banks have a bigger share in the banking system; and (iii) credit information is less available through public and private credit registries, and (iv) gaps between women and men in educational attainment are large. The results are robust to different specifications and alternative measures of financial inclusion.

Banks beyond borders: internationalization, financialization, and the behavior of foreign-owned banks during the Global Financial Crisis

An internationalizing wave swept through many developing and emerging countries’ banking systems in the years before the onset of the Global Financial Crisis (GFC) in 2008. Early critics of the influx of foreign banks worried that local affiliates of international behemoths could serve key nodes for transmitting turbulent conditions in the global financial hubs to the peripheries of the world economy. The eruption of the GFC and its aftermath, it would appear, decisively settled the dispute over the merits of foreign control of national banking systems in the critics’ favor. Yet the simple foreign/domestic ownership distinction cannot answer the questions that animate this article: why did foreign-owned banks play an amplifying role during the crisis in one region (post-communist Central and Eastern Europe) but not in another (Central and South America)? What accounts for the difference in how foreign-owned banks responded to a common financial shock across the two regions? I argue that financialization of banking systems in the post-communist European group of countries is a key mediating factor that explains why the heavy foreign bank presence in the region amplified the regional effects of the global credit crunch in 2008 and the years that followed.

Impact of ownership structure on risk-taking behavior of South Asian banks

The implementation of an effective risk management policy is necessary for the survival and success of banks. Ownership structure changes the risk-taking behavior of banks. Therefore, we analyze the impact of the ownership structure on risk-taking behavior of banks in emerging markets (i.e., Pakistan, India, and Bangladesh). We take public, private and foreign ownership of banks in this study. We collect the data from 64 banks of selected countries from 2011 to 2018. We measure risk-taking as capital adequacy, leverage coverage ratio, non-performing loan ratio, and return volatility. We use two-step system dynamic panel estimation for analyzing the results. We find that public and private banks have significant relationship with the risk-taking of banks. Furthermore, public and private banks show more risk-taking behavior as compared to foreign banks in all selected countries.

Foreign bank ownership and business cycle synchronization in the European Union

Foreign bank ownership and business cycle synchronization in the European Union

The Link Between Bank Competition and Risk in the United Kingdom: Two Views for Policymaking

We use quantile regression to examine the links between competition and firm-level solvency risk for all banks and building societies in the United Kingdom between 1994 and 2013. Quantile regression provides a finer picture of the relationship (as compared with standard regression techniques) across institutions ranked according to how close each is to insolvency. We find that for domestic banks and building societies already close to insolvency the association is favourable, suggesting that risk decreases (increases) with more (less) competition. For foreign-owned banks and for relatively healthy building societies farther from insolvency we find the opposite, indicating that risk increases (decreases) with more (less) competition. We find that regulation is effective in moderating adverse links between risk and competition. Our results highlight real differences in the links between competition and risk at the individual level that are useful for assessing the link at the system-wide level.