Foreign Bank Participation in Developing Countries : What Do We Know about the Drivers and Consequences of This Phenomenon?
Foreign bank participation has increased steadily across developing countries since the mid-1990s. This paper documents this trend and surveys the existing literature to explore the drivers and consequences of this phenomenon, paying particular attention to the differences observed across regions both in the degree of foreign bank participation and in the impact of this process. Local profit opportunities, the absence of barriers to entry, and the presence of mechanisms to mitigate information problems have been the main factors driving foreign bank entry across developing countries. In general, foreign bank participation has been shown to exert a positive influence on banking sector efficiency and competition. The weight of the evidence suggests that foreign bank presence does not endanger, but rather enhances banking sector stability. And although some case studies suggest that foreign bank entry limits access to finance, many cross-country studies offer evidence to the contrary.
Summary: | Foreign bank participation has increased
steadily across developing countries since the mid-1990s.
This paper documents this trend and surveys the existing
literature to explore the drivers and consequences of this
phenomenon, paying particular attention to the differences
observed across regions both in the degree of foreign bank
participation and in the impact of this process. Local
profit opportunities, the absence of barriers to entry, and
the presence of mechanisms to mitigate information problems
have been the main factors driving foreign bank entry across
developing countries. In general, foreign bank participation
has been shown to exert a positive influence on banking
sector efficiency and competition. The weight of the
evidence suggests that foreign bank presence does not
endanger, but rather enhances banking sector stability. And
although some case studies suggest that foreign bank entry
limits access to finance, many cross-country studies offer
evidence to the contrary. |
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