Foreign bank entry and outreach
What is the impact of foreign bank entry on banking sector outreach? A recent paper on the Mexican experience shows contrasting patterns: the number of municipalities with bank presence increased, but the number of loan and deposit accounts decreased.
While only rich and urban areas benefited from more bank presence, the decline in loan and deposit accounts was more pronounced in rural and poorer areas.
Reaction to pre-crisis inefficiencies? A deliberate strategy of foreign banks to focus on the upper end of the market? Or a response to demand or regulatory changes?
Comments (2)
Delicious
E-mail
Facebook
Follow us on Twitter
The below extracted from my “Voice and Noise” is not directly about banks, but the doubts apply.
Foreign vs. local investors
Whether there are some differences between foreign and local investors that the Knowledge Bank should be aware of, while helping countries develop, is most probably a very sensitive issue.
Just like the saying that goes “Of course all men are created equal, but some are more equal than others” I cannot see why we should not be able to acknowledge and discuss differences between local and foreign investors.
Let us paint a mental picture of a big company with a sizable debt in a country where devaluation rumors abound. In that case I submit to you that if the owner of the company was a foreigner he would look to saddle the company with as much debt as possible, local or foreign, and try to get out his own capital investments as fast as possible, weakening, of course, the company in the process. If, on the contrary, the owner were a local citizen, he would do his utmost to come up with local finance to pay off as much foreign-denominated debt as possible. Is this true? I do not know it for sure … but why have I seen this over and over again, and what does it imply for a developing country?
Let us now take the case of that sort of easy and quite profitable business that in small local markets could tend to develop into a quasi-monopoly—like a brewery. My impression is that if the owners are local they would tend to reinvest much more of the easy earnings in their own country than if the owners are foreign and all surpluses have to be sent to a central treasury. Is this true? I do not know it for sure … but why have I seen this over and over again, and what does it imply for a developing country?
But then again, in some circumstances, I have also seen the local investors escaping the country much faster than foreigners … but perhaps then also doing the right thing!
By the way, when I say foreigners I do not mean foreign citizens who are residents in the country; they are sometimes the most resilient nationals of them all; no, I mean all those foreigners who are really foreign everywhere, except perhaps in business-class lounge at some airports.
Posted by: Per Kurowski | Jan 15, 2008 4:38:13 PM
One difficulty for this very interesting study is that the period also coincided with some dramatic changes I bank regulations and that could indeed explain more any changes that just the foreign vs. local discussion.
This is also an opportunity to comment on a connected issue. The Basel authorities are giving more and more importance to the third pillar, “market transparency” and more disclosure so that the minimum capital requirement structure is complemented by better supervision from all stakeholders. In this respect I must say that we used to know very well our banker-neighbors and used to be able to tell quite well who were or at least seem trustworthy and who not, but now, with international banks we haven’t the foggiest, as even in their own hometowns regulators and investors seem to be so unsure of what Citibank and the others are up to.
Posted by: Per Kurowski | Jan 15, 2008 5:06:18 PM