Internationalization And Performance: Evidence From Bangladeshi Banks

Internationalization of banking institutions has been evident to a greater extent recently due to the advancement of technology and increased global inter-connectedness of the business world. As the ‘engine of economic growth’, banks are the dominant players in Bangladesh financial market following the global footprint. Due to quick market saturation, highly competitive domestic market and need for innovation, banks in Bangladesh are tending to move towards international market. While internationalization of Bangladeshi banks has been more evident in the last decade, its impact on the financial performance of the banks remains unclear and unexplored. Using six financial performance measures and five internationalization variables, this paper examines the impact of different internationalization dimensions on financial performance of Bangladeshi scheduled banks. The study estimates 18 models on panel data of 35 scheduled banks for the period from 2005 to 2014 utilizing panel regression with Dricoll- Kraay Standard Error, Prais-Winsten Panel Corrected Standard Error alongside Fixed Effect and Random Effect estimation techniques. Estimations were carried separately for ‘All Banks’, ‘State Owned Banks (SOBs)’ and ‘Private Commercial Banks (PCBs)’. As impacts appear largely heterogeneous, we calculate the net effect of internationalization. Findings suggest that the overall net effect of internationalization is negative for all banks while it is significantly damaging for the SOBs. On average, PCBs appear to have accrued positive benefit out of international banking operations. The paper also finds that physical presence in foreign countries, banks’ current level of internationalization and age of international operation have significant impact on most of the performance measures. While regulations specific to international banking remains very limited in Bangladesh, this research calls for immediate attention of the policy makers and regulators to facilitate the early stage internationalization wave of the Bangladeshi banking sector. This paper contributes to existing literature by: using new dimensions to define internationalization, using a wider and comprehensive set of six financial performance measures, being the first study on internationalization of Bangladeshi banks, and generating some unique findings.