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Foreign Bank Presence, Domestic Bank Performance and Financial Development

Author

Listed:
  • Niels Hermes

    (Department of Financial Mangement, Faculty of Management and Organisation, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands, c.l.m.hermes@bdk.rug.nl)

  • Robert Lensink

    (Faculty of Economics, University of Groningen, Groningen, The Netherlands, and external CREDIT fellow, University of Nottingham, United Kingdom)

Abstract

This article analyses the relationship between foreign bank presence and the performance of the domestic banking sector and takes into account the role of the level of development of the financial sector of the recipient country. We use data of 982 banks in 48 countries for 1990-96. We find support for the hypothesis that financial development does matter. In particular, we show that foreign bank presence is associated with higher costs and margins of domestic banks at low levels of financial development while it is associated with falling costs and margins of domestic banks at higher levels of financial development.

Suggested Citation

  • Niels Hermes & Robert Lensink, 2004. "Foreign Bank Presence, Domestic Bank Performance and Financial Development," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(2), pages 207-229, August.
    • Handle: RePEc:sae:emffin:v:3:y:2004:i:2:p:207-229
    DOI: 10.1177/097265270400300206
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    References listed on IDEAS

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    1. Allen N. Berger & Timothy H. Hannan, 1998. "The Efficiency Cost Of Market Power In The Banking Industry: A Test Of The "Quiet Life" And Related Hypotheses," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 454-465, August.
    2. Cludia M. Buch, 1997. "Opening up for foreign banks: How Central and Eastern Europe can benefit1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 5(2), pages 339-366, November.
    3. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
    4. Lensink, Robert & Hermes, Niels, 2004. "The short-term effects of foreign bank entry on domestic bank behaviour: Does economic development matter?," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 553-568, March.
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    Citations

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    Cited by:

    1. Satish Kumar & Vinodh Madhavan & Riya Sureka, 2020. "The Journal of Emerging Market Finance: A Bibliometric Overview (2002–2019)," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 19(3), pages 326-352, December.
    2. Chen, Jihui & Zhu, Lili, 2019. "Foreign penetration, competition, and financial freedom: Evidence from the banking industries in emerging markets," Journal of Economics and Business, Elsevier, vol. 102(C), pages 26-38.
    3. Ozili, Peterson K, 2017. "Non-performing loans and Financial Development: New Evidence," MPRA Paper 75964, University Library of Munich, Germany.
    4. Ece C. Akdo?an & Ekin Ayºe Özºuca, 2019. "Profitability effects of financial globalization in an emerging market banking industry: insights into Turkey," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 303-325.
    5. Denis Yongmin Joe & Frederick Dongchuhl Oh, 2017. "Did Foreign Ownership Of Korean Credit Rating Agencies Improve Their Ratings?," Contemporary Economic Policy, Western Economic Association International, vol. 35(1), pages 193-200, January.
    6. Huong, Pham Thu, 2022. "Foreign bank penetration in Vietnam following Vietnam’s accession to the WTO: matching expectations with reality," OSF Preprints fkhbt, Center for Open Science.
    7. Ngoc-Anh Vo Thi & Dev Vencappa, 2008. "Does the Entry Mode of Foreign Banks Matter for Bank Efficiency? Evidence from the Czech Republic,Hungary, and Poland," William Davidson Institute Working Papers Series wp925, William Davidson Institute at the University of Michigan.
    8. Hafiz Waqas Kamran & Shamsul Bahrain bin Mohamed Arshad & Abdelnaser Omran, 2019. "Country Governance, Market Concentration and Financial Market Dynamics for Banks Stability in Pakistan," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(2), pages 136-146, July.
    9. Ozili, Peterson K, 2018. "Banking Stability Determinants in Africa," MPRA Paper 101825, University Library of Munich, Germany.
    10. Driton Balaj, 2010. "The Impact of Foreign Banks Presence on the Performance of Domestic Banks in Kosovo during the Period 2001-2007," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 4(4), pages 87-103, December.
    11. Hanedar Avni Önder, 2015. "Foreign Bank Entry in the Late Ottoman Empire: The Case of the Imperial Ottoman Bank," Review of Middle East Economics and Finance, De Gruyter, vol. 11(3), pages 207-223, December.

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