The Role of Foreign Banks in Emerging Countries

 The Role of Foreign Banks in Emerging Countries
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Executive Summary
In the globalized and liberalized world, the financial industry has grown in leaps and bounds and it has
entered various geographies to diversify its asset class and increase its size.
The world is divided into three parts: Developed Economies, Emerging Economies and Third World
Countries. Off late the importance of Emerging Economies has increased as it provides high return
avenues and has fundamentally stronger growth potential when compared to the developed economies.
Banking industry has been playing an important role in growth of all these economies and mobilizing
funds. The leading banks have played a pivotal role in this respect. These foreign banks have increased
their pace of growth in the emerging markets from late 1990s onwards.
Foreign banks bring new products, better technology, lower cost of funds and financial stability to these
economies. However they also allow the coupling of these markets with global economy, increasing the
risk of susceptibility to macro economic shocks as seen from the recent crisis.
The regulation is continuously evolving and gradually the foreign banks will find it easier to enter and
spread all over the world. They will not only provide funding to multinational clients, but will be an
integral part of the monetary policies of the respective central banks and governments.
The Role of Foreign Banks in Emerging Countries
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Table of Contents
Executive Summary................................................................................................................................... 2
Introduction ................................................................................................................................................ 4
Emerging Markets...................................................................................................................................... 5
Banking System.......................................................................................................................................... 6
Foreign Investment in Emerging Markets.............................................................................................. 8
Foreign Banks in Local Market: Operational Strategy.......................................................................... 9
Pros and Cons of Foreign Bank presence in Local Market:............................................................ 10
Foreign Bank Involvement in the Local Market and Change in Role ..............................................11
Regulatory Development and Issues .................................................................................................... 13
Banking Environment ............................................................................................................................. 15
• Consolidation of the Financial Industry ................................................................................... 15
• Globalization................................................................................................................................. 17
• Crisis and its effects ..................................................................................................................... 17
Foreign Banks Trends.............................................................................................................................. 18
Foreign Banks: Learning from the past................................................................................................. 20
The Future of Banking............................................................................................................................. 21
Bibliography ............................................................................................................................................. 24
Appendix................................................................................................................................................... 26
The Role of Foreign Banks in Emerging Countries
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Introduction
Banks act as a financial intermediary involved in borrowing and lending activities. It accepts
deposits and savings from various entities such as general public, corporate entities etc. and uses
the same in on-lending purpose through direct banking channels or capital markets.
The history of banks can be pegged back to ancient history. Initially the world traded on “Barter
System” which had inherent flaws necessitating the development of banking system. Temples
were the first banks which grew as an industry gradually and today it rules the world financial
system (Giuseppe Felloni, 2004). The banking system has evolved from a small answer to flaws
endured by Barter System to a fully grown industry providing various services to the country and
its people. Gradually the world has evolved to 195 countries (United Nati