Foreign Banks: Trends and Impact CLAESSENS, STIJN; VAN HOREN, NEELTJE
Journal of money, credit and banking,
February 2014, Volume:
46, Issue:
s1
Journal Article
Peer reviewed
Over the past two decades, foreign banks have become much more important in domestic financial intermediation, heightening the need to understand their behavior. We introduce a new, comprehensive ...database, made publicly available, on bank ownership (including the home country of foreign banks) for 5,324 banks in 137 countries over the period 1995-2009. We document large increases in foreign bank presence in many countries, but with substantial heterogeneity in terms of host and banks' home countries, bilateral investment patterns, and bank characteristics. In terms of impact, we document that the relation between private credit and foreign bank presence importantly depends on host country and banks' characteristics. Specifically, foreign banks only seem to have a negative impact on credit in low-income countries, in countries where they have a limited market share, where enforcing contracts is costly and where credit information is limited available, and when they come from distant home countries. This shows that accounting for heterogeneity, including bilateral ownership, is crucial to better understand the implications of foreign bank ownership.
This paper analyses the funding of the Irish domestic banking system during the boom period. We highlight: the shifting roles of deposit and bond funding; the prominence of foreign banks as funding ...counterparties; the role of interoffice funding; and the scale of US dollar and Sterling funding. From August 2007, the deterioration in funding conditions is clearly evident across a range of indicators. Keywords: banking, credit, Ireland JEL Classifications: G21, G24
This paper addresses the impact of foreign ownership on the risk-taking behavior of banks. Using bank-level panel data of more than 1300 commercial banks in 32 emerging economies during 2000–2013, we ...find that foreign owned banks take on more risk than their domestic counterparts. We further examine several factors that may potentially contribute to foreign banks’ differentiated riskiness from four perspectives, namely, foreign banks’ informational disadvantages, agency problems, the contagious effect of parent banks’ financial conditions and the disparity between home and host markets. We find supportive evidence that these factors play a significant role in affecting foreign banks’ risk-taking.
•This paper examines the impact of foreign ownership on banks’ risk-taking behavior.•We find that foreign owned banks take more risk than their domestic counterparts.•We use bank-level panel data of 1300 commercial banks in 32 emerging economies.•We also identify the factors contributing to foreign banks’ differentiated risks.•We find supportive evidence that these factors affect foreign banks’ risk-taking.
Can distance-related information asymmetries in credit markets be overcome with contract design and credit scoring models? To answer this question, we explore differences in foreign and domestic ...banks' credit contract terms and pricing models. Using a sample of firms that borrow from both domestic and foreign banks in the same month, we show that foreign banks are more likely to demand collateral and grant shorter maturity loans than domestic banks. Foreign banks also base their pricing on internal credit ratings and collateral pledges, while domestic banks price according to the length, depth, and breadth of their relationship with a firm. These findings confirm that foreign banks can overcome informational disadvantages using contract design and credit scoring models. However, we also show that there are limitations, with foreign banks facing higher default rates and lower returns on lending if not using collateral and short maturity as disciplining tools.
This paper was accepted by Amit Seru, finance.
We use data on the 48 largest multinational banking groups to compare the lending of their 199 foreign subsidiaries during the Great Recession with lending by a benchmark of 202 domestic banks. ...Contrary to earlier and more contained crises, parent banks were not a significant source of strength to their subsidiaries during 2008-09. When controlling for other bank characteristics, multinational bank subsidiaries had to slow down credit growth almost three times as fast as domestic banks. This was in particular the case for subsidiaries of banking groups that relied more on wholesale funding.
According to recent figures from the State Bank of Pakistan (SBP), since 2006, commercial banks’ non-performing loans (NPLs) have significantly risen. To this end, the primary objective of this ...research is to explore the impact of NPLs on the operational efficiency of commercial banks in Pakistan. NPLs were incorporated as bad output in the efficiency estimation of 24 CBs for the period 2006–2017. This study employs the data envelopment analysis (DEA) Super-SBM with the undesirable output for the efficiency evaluation of CBs. To test the robustness of our results, we used two different input-output bundles (model A and model B). The findings show a significant difference exists between the results estimated with and without undesirable output. Furthermore, the results of super-efficiency estimation rank the most efficient CB for the study period and distinguish it from other efficient DMUs. Models A and B show that foreign banks are always more efficient than domestic banks, while private CBs have higher efficiency scores than public CBs in domestic banking. In addition, the big five CBs show mixed findings, as in model A, they were more efficient than other domestic CBs, while in model B were less efficient. In the second stage of the empirical study, we use the system GMM to examine the impact of NPLs, bank size, and net interest margin on CBs efficiency. We discovered that NPLs have a negative and significant effect on banking efficiency, whereas bank size and net interest margin positively affect the efficiency of commercial banks in Pakistan.
The optimum economic outcome of financial system development depends on its level of efficiency. The purpose of this study is to investigate the effect of institutional quality on financial system ...efficiency. For empirical analysis, we have used a panel dataset of 108 countries from 1996–2020 and employed fixed effect regression and two stages least squares (2SLS) regression methods. The empirical results show that institutional quality has a significant positive effect on financial system efficiency. Particularly all the constituting elements—voice and accountability, political stability and absence of violence, regulatory quality, government effectiveness, rule of law, and control of corruption—of institutional quality are found to have a significant positive impact on financial system efficiency. Moreover, we found that the effect of institutional quality is more pronounced in countries with low-income levels and strong institutional quality. These findings are robust across several robustness tests conducted using additional controls, alternative methodologies, an alternative measure of institutional quality, and financial system efficiency. The results of the study suggest that policy makers should prioritize both enhancing and sustaining institutional quality to promote the efficiency of the financial system, which is crucial for sustainable growth and development.
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