تعیین اقتصادی، بحران مالی و حالت های ورود بانک های خارجی به بازارهای نوظهور
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|14122||2010||24 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Emerging Markets Review, Volume 11, Issue 3, September 2010, Pages 205–228
In the last two decades, foreign banks have significantly expanded their presence in several emerging markets. The expansion of foreign banks has continued despite the global financial crisis. In the study we establish the role of economic factors and their relevance in driving a bank's expansion decision into emerging markets. The results confirm that the economic factors influencing the location choice of banks vary with respect to the economic condition of the home and host countries. Moreover, the results show that these factors may influence a foreign bank's choice of organizational structure in emerging markets.
In the last two decades, many countries, particularly those with emerging economies, have witnessed an increase in foreign banking activity in their banking sectors. This increase in activity has been largely led by the privatisation of state-owned banks and the rescue of distressed domestic financial institutions by multinational banks. As a result, Claessens et al. (2008) reported that the percentage of domestic banks among total banks in the developing world declined from 77% in 1995 to 62% in 2006, while the share of foreign banks increased from 23% in 1995 to 38% in 2006. Today, more than 50% of banks have foreign owners in approximately 45% of developing countries. Strikingly, this figure exceeds 80% in several emerging markets, especially in Latin American and Central and Eastern European (CEE) countries. Multinational banks enter foreign markets primarily to increase their profitability within an acceptable risk profile. Indeed, the characteristics of a host country that are related to profitability and risks have been found to be important drivers of a bank's decision to penetrate emerging markets. Focarelli and Pozzolo (2005), for example, found that banks prefer to maintain subsidiaries in countries where expected profits are larger because of higher expected economic growth and the prospect of benefiting from the inefficiencies of local banks. The impact of a foreign bank's entry on a host country's banking system is that it undermines the local conditions that attracted it in the first place. In an inter-country study, Claessens et al. (2001) showed that foreign banks reduced profitability and diminished overhead for domestic banks and that this led to improved efficiency. This evidence of increased bank efficiency and intensified competition after a foreign bank's entry into emerging markets is also supported by country-specific studies (Koutsomanoli-Filippaki et al., 2009). As a result, the presence of foreign banks has typically been considered a positive development in emerging markets. However, there have also been recent studies illustrating the negative effects of a foreign bank's entry into host countries. Giannetti and Ongena (2009) suggested that domestic banks might cut back their own lending in response to foreign bank entry. Likewise, Gormley (2010) found that in India, after foreign bank entry, firms were eight percentage points less likely to receive a loan because of a systematic drop in domestic bank loans. Furthermore, a number of studies have also pointed out different effects of foreign banks on the stability of emerging banking sectors, especially during a time of global financial crisis. For example, Schmidt (2009) found that foreign banks that enter new markets through greenfield operations are more exposed to higher competition in a host country and therefore to lower profits. As a result, these banks take on more debt than other institutions in order to increase their profitability. At the same time, they have a lower incentive to undertake costly monitoring. Consequently, in a time of economic downturn, the credit quality of loan portfolios in these banks deteriorates faster than in other credit institutions. The current global financial crisis has additionally demonstrated that even the largest foreign banks are not immune to sharp reversals in the economy and the attendant fallout from a widespread liquidity crunch. Moreover, many governments in developed countries have had to provide support to their respective multinational banks to retain confidence in them and their own financial system. The deterioration of financial conditions in a large number of multinational banks and the sharp revision in the pricing of risk have increased the possibility of a reversal in their activities abroad, especially with respect to lending. Indeed, some of these banks have decided to review their foreign operations and close or sell their underperforming franchises. Therefore, the global financial crisis may change the structure of the financial industry in Central Europe as well as in other emerging economies. At present, however, none of the foreign-owned banks has pulled out of Central Europe, with the exception of AIG Bank. Nevertheless, during the global financial crisis, there were 17 systematically important local banks that failed, though this was mostly in Russia and Ukraine. Those banks and other domestic financial institutions weakened by the financial crisis are currently potential targets for foreign banks to acquire in order that these foreign banks enter or increase their share in some of the emerging markets. In CEE, the transformation of the current banking structure may also be further triggered through the action of the European Commission as part of the review process for state aid granted to many banks during the financial crisis. The Irish‐based Allied Irish Bank (AIB), for example, has announced its plans to sell its majority stake in the third largest bank in Poland in order to raise capital and repay the state aid it received during the financial crisis. After the announcement, already more than a dozen, mainly European multinational banks have expressed their interest in buying it. At the same time, the Irish bank has been unable to sell its minority stake in a US bank since 2008. In contrast, one year earlier, AIB entered the Latvian, Estonian and Lithuanian markets by acquiring AmCredit's mortgage finance business from the Baltic–American Enterprise Fund. As such, this situation shows that the financial crisis has created opportunities for foreign banks to enter the Central European and other emerging markets through acquisition. Therefore, questions arise over what causes foreign banks to enter now-emerging markets. In our study, we try to establish the role of economic factors and their relevance in driving a bank's expansion decision in light of international business cycles. Our framework permits us to examine the relation between the relative importance of the factors within different countries and the entry mode chosen by foreign banks into the Central European region. Our sample includes the entries of foreign banks into the four countries in this region, namely, Poland, the Czech Republic, Slovakia and Hungary, during the period 1995–2008. These countries began their respective economic transitions under similar initial conditions, but foreign banks were not able to establish a presence in all of them at once due to resource limitations. In addition, aside from similar patterns under which they restructured their domestic financial systems, these countries differed significantly in terms of the speed and specifics of the reforms applied in the past. Moreover, the global financial crisis of 2007 has affected the economies and banking sectors in these countries to a different extent. These differences may also imply a change in the economic determinants and entry modes of foreign banks into specific countries. Therefore, we forward that this region constitutes a suitable testing ground to explore the economic factors that have influenced the decisions of foreign banks to establish a presence in an emerging market and to investigate whether these determinants have also influenced the choice of its entry mode. With this study, we attempt to fill a gap in the multinational banking literature by building on previous empirical work. Our contribution with respect to the literature is threefold. First, we consider a new set of explanatory variables and verify several different hypotheses. Second, for the first time, we use a sample composed of foreign bank subsidiaries and branches that expanded into emerging markets prior and during the recent financial crisis. Our framework permits us to examine the relative importance of the various country-specific factors in the context of the chosen foreign bank entry mode. Finally, we use a non-linear model specification together with panel data. We choose the number of entries as our dependent variable, which allows us to directly control for the nature and characteristics of the variables used in this kind of study and thus reduce the bias of our estimates. Our major finding is that the economic factors determining foreign bank entry as well as the choice of the organizational structure vary depending on the stage of the global business cycle. Consistent with other studies, we find that foreign banks use the host country's economic distortions to enter a new market by acquiring distressed entities in the emerging economy. However, we also find that during a global recession, foreign banks tend to choose less risky countries due to the uncertainty of their own home market conditions. Our results also suggest that the depreciation of a host country's currency promotes foreign bank entry through acquisition. On the contrary, the appreciation of the local currency encourages the entry of foreign banks through greenfield investments or branch offices. We also show that the economic growth rate differentials between the home and host markets as well as the distance between the host country and the foreign bank's headquarters have economic importance. Specifically, our results indicate that foreign banks from countries with lower levels of economic growth tend to reallocate their assets into emerging markets with higher levels of economic growth by opening a subsidiary. We find, however, that this pattern applies mainly during periods of global economic expansion, as we show that the financial crisis has promoted foreign bank entry only from countries less affected by the global recession. Finally, we document that foreign banks choose to open a branch operation only in more developed emerging markets, which are often seen as less risky. We assume that the reason behind this is that a branch is riskier for the parent banks, as a financial crisis in the host market can easily spill over from the branch to the parent bank. Therefore, our results confirm the previous findings of Cerutti et al. (2007), who showed that foreign banks tend to open branches in more developed countries. Therefore, in emerging markets, we observe only a few foreign banks that enter into emerging markets in our sample using branches prior to the global financial crisis, and we find none occurring during it. Our study offers also a wide range of policy implications. The literature on financial development has shown that a good financial system is an essential ingredient for sustainable economic growth (Beck et al., 2000) and that foreign banking participation can help develop a more efficient and robust financial system (Eller et al., 2006). In a recent study, De Haas and Van Lelyveld (2010) showed that parent banks are more likely to use greenfield operations in countries with high economic growth potential. In these cases, they also tend to reallocate capital from the home markets into the host countries, providing financial support for their foreign affiliates. Therefore, this present study shows that foreign subsidiaries rely more heavily on external funds than other forms of bank entries. Such behavior of foreign banks implies several important consequences regarding their financial stability in emerging countries. First, the credit growth of greenfield operations depends on the financial situation of the parent banks, which are mainly from developed countries. Second, a heavy reliance of foreign bank subsidiaries on interbank markets might severely affect the former's liquidity, which was the case during the financial crisis. In fact, using a sample of emerging CEE countries, Hryckiewicz and Kowalewski (2010) showed that the credit expansion of foreign bank subsidiaries deteriorated at the higher pace than other organizational forms during the global financial crisis. Additionally, many of them required external support from their governments, international institutions, such as EBRD in Europe, or parent banks. Ashcraft (2008) showed, however, that a parent bank's decision to act as a lender of last resort for its foreign operation depends strongly on its organizational structure. His study showed that parent banks are more willing to recapitalize acquired banks than their greenfield operations, assuming the entity is of strategic importance for the parent bank. Therefore, from a policy maker's perspective, it is important to understand how to create a favorable environment that encourages cross-border activity and incentivizes foreign bank entry, especially during an economic slowdown in the host country. Nevertheless, policy makers should be cautious regarding how foreign banks operate in host countries for several reasons. First, by inviting foreign banks, host countries may open themselves up to economic fluctuations occurring in the entrant's country of origin (Arvai et al., 2009). Second, the bank's organizational structure may affect the competitive landscape of the local banking system, threatening the profits and market share of domestic banks. Analyzing the impact of foreign entry on competition in the host country, Claeys and Hainz (2006), for example, found that greenfield investment leads to more competition than acquisition. Finally, branches and subsidiaries are associated with different levels of parent bank responsibility and financial support, which may affect the stability in the host banking sector (Dermine, 2006). The remainder of the paper is organized as follows. In the next section, we briefly describe the development of the banking sector in Central European countries and develop our theoretical hypotheses. In Section 3, we present the data used in our study and highlight some basic patterns. Section 4 describes our methodology, and Section 5 summarizes the results and offers various robustness tests. The last section of the paper lists our conclusions.
نتیجه گیری انگلیسی
The international banking literature has identified several factors that influence the location choice of foreign banks. With this paper, we add three elements to this literature. First, we examine the determinants of a foreign bank's regarding whether and where to engage in a specific market abroad. Second, we study the determinants of organizational structure chosen by foreign banks when they enter emerging countries. Finally, we test the significance of these determinants with respect to the global financial crisis. We find that macroeconomic and institutional determinants significantly influence a foreign bank's decision to expand into a specific emerging market. We show that the foreign banks in our sample were mostly attracted by the potential of the emerging markets. This finding is in contrast to existing empirical studies in developed countries, where foreign banks are most likely to expand into countries with a high level of economic and financial development. According to these studies, only such markets offer profit opportunities for efficient banks. Our results do not support this view; indeed, they suggest the opposite. Furthermore, we do not find support for the hypothesis that the foreign banks decided to enter these emerging markets to follow key clients. As a result, we find that during periods of economic expansion, location- and ownership-specific factors are the main determinants of international expansion in developing countries. According to Clarke et al. (2003), an explanation for these results is the fact that these countries offer foreign bank entrants substantial profit opportunities. As a consequence, they might precede or even bring foreign entry by nonfinancial firms. We find, however, that the foreign bank entrants were mainly from neighboring EU countries or from regions with the same legal origin, which can be explained by the legal, cultural and geographical proximity to the host country. When we include in the sample period the global financial crisis, our results indicate that foreign banks used this event to enter the emerging markets. We show that multinational banks from countries less affected by the financial crisis increased their presence in the emerging markets by acquiring local banks. However, our findings also suggest that during the global financial crisis, foreign banks prefer to enter less risky emerging economies. In our study, we also examine the modes of foreign bank entry in the context of economic determinants. We conclude that a foreign bank's choice of organizational structure strongly depends on the economic characteristics and risk of the host country. We find that the foreign banks tend to locate their branches in more developed emerging countries and only during periods of global economic expansion. Indeed, our data show that during the global financial crisis, none of the foreign banks decided to enter the emerging countries in our sample using branches. At the same time, we report the entrance of foreign banks using greenfield investments or acquisition into emerging markets. We assume, therefore, that foreign banks do not use branches as an entry mode during periods of high global uncertainty. Finally, our results are important from a policy perspective. We show that even during a financial crisis, foreign banks are determined to enter an emerging market. Because foreign banks have been shown to positively influence domestic financial systems, this would seem to be good news, especially for emerging economies with financial systems that are poorly developed and where the access to financial services is generally constrained. Additionally, because foreign banks mainly use subsidiaries as an entry mode in periods of global financial crisis, they are easier to supervise by host regulatory authorities. Moreover, the study of De Haas and Van Lelyvald (2006) implies that the credit supply of foreign banks remains stable during crisis periods in the host emerging country and that this effect is mainly driven by greenfield foreign banks. As a consequence, the entrance of foreign banks might help to mitigate some of the problems in the host country caused by the global financial crisis. Acknowledgements The authors would like to thank Franklin Allen, Thorsten Beck, Iftekhar Hasan, Reinhard Schmidt, Celso Brunetti, Sheng Huang and Editor Jonathan Batten for their helpful comments and suggestions. The paper has also benefited from comments from the participants of the 2008 European Financial Management Association, the 2008 Financial Intermediation Research Society Conference, the Midwest Finance Association's 57th Annual Meeting and the XVI International “Tor Vergata” Conference on Banking and Finance. Oskar Kowalewski was supported by a fellowship from the Program Support for International Mobility of Scientists from the Polish Ministry of Science and Higher Education.