Accordingly, banks wishing to offer a wide range of services, are forced to expand their business and provide services where it is in the interest of the client. Third, opening a business in another country requires a very substantial capital investment, especially if in the country there is a high ledge on the legal entry into the market, and "economies of scale" in this case becomes essential. Fourth, the inherent mainly to large banks profitable transactions in managing portfolios also suggests an increase in the number of points of presence in foreign markets. Conducted by the World Bank studies show that the entry of foreign banks has in most cases a significant impact on the characteristics of macro-prudential banking system. Do foreign banks in emerging markets are generally higher interest margins and profitability.
In addition, they pay more taxes. Another noteworthy point is that the impact of foreign banks affects not so much due to the captured market share, but rather because of the fact of the presence of the institutions established with foreign participation.
There are studies for a number of countries, where the impact of foreign banks on the overall efficiency of the system was found to clearly positive, although a tiny fraction of the market occupied by them. In the increasing competition is, of course, a serious risk to the local banks. Reduced profitability of operations makes it difficult to increase their capital base, which in the emerging markets and so quite weak. This could have a destabilizing effect on certain domestic financial system.
Therefore, increasing the participation of foreign capital must be accompanied by the improvement of the system of prudential supervision to be able to prevent the rapid deterioration of the local institutions that are no longer competitive. In addition to opportunities to increase the capital base and the impact on the profitability of an additional risk factor may serve as a potential deterioration of the quality of the loan portfolio. This is due to the fact that a first-class domestic borrowers profitable to turn to cheaper resources provided by foreign banks. However, upon the occurrence of a hard time for the economy of the presence of foreign banks can have a stabilizing and destabilizing effect.
On the one hand, foreign banks, largely based on foreign resources, are more resistant to internal shocks. On the other hand, in the case of threat to the banking crisis possible that the investors perceive foreign banks as a safe haven and begin the massive withdrawal of funds from local banks, exacerbating the situation of national organizations. As for the impact of foreign banks in other sectors of the economy, then there is basically traced the positive.
First, economic agents have access to better quality banking products. Second, the increased competition in the financial services sector means greater choice for borrowers and bank customers, reducing the cost of cash management services.
All this is undoubtedly a positive impact on businesses and the non-financial sector on economic growth. History and features of the liberalization of the banking sector in the various countries Were the first to open the national market of banking services industrialized countries. However, it is not affected all countries.
If the U. S. went to the removal of restrictions still in the 1980s, Canada, for example, has allowed foreign banks to open branches only in 1999. However, up to now, this type of foreign capital remains a subject of various restrictions.
For example, certain types of branches is completely forbidden to attract deposits and other permitted only attract deposits in excess of 150 thousand dollars. By the beginning of the 1990s was a very private banking sector in Latin America. National systems are represented by a large number of local banks with a significant share of the state in the face of both national and local governments.
Treatment of foreign banks has changed dramatically in the mid-1990s, when a series of financial crises has caused an acute need for recapitalization of the banking sector as well as in the consolidation and rationalization of state ownership in the industry. The need of the banking system in allocating resources has led to the removal of barriers to foreign participation. The largest acquisition in the region began in 1995. Foreign banks are mainly focused on the purchase of controlling stakes in banks with a well-developed retail network.
As a result, the ownership structure of the banking systems in the region has changed dramatically in the second half of the 1990s.