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Foreign bank participation in developing countries : what do we know about the drivers and consequences of this phenomenon?
 
Author:Cull, Robert; Soledad Martinez Peria, Maria; Collection Title:Policy Research working paper ; no. WPS 5398
Country:World; Date Stored:2010/08/09
Document Date:2010/08/01Document Type:Policy Research Working Paper
Language:EnglishMajor Sector:Finance
Rel. Proj ID:1W-The Crisis And Beyond: Fy11-Fy13 -- -- P122136;Region:The World Region
Report Number:WPS5398Sub Sectors:General finance sector
SubTopics:Foreign Direct Investment; Access to Finance; Emerging Markets; Banks & Banking Reform; Debt MarketsVolume No:1 of 1

Summary: Foreign bank participation has increased steadily across developing countries since the mid-1990s. This paper documents this trend and surveys the existing literature to explore the drivers and consequences of this phenomenon, paying particular attention to the differences observed across regions both in the degree of foreign bank participation and in the impact of this process. Local profit opportunities, the absence of barriers to entry, and the presence of mechanisms to mitigate information problems have been the main factors driving foreign bank entry across developing countries. In general, foreign bank participation has been shown to exert a positive influence on banking sector efficiency and competition. The weight of the evidence suggests that foreign bank presence does not endanger, but rather enhances banking sector stability. And although some case studies suggest that foreign bank entry limits access to finance, many cross-country studies offer evidence to the contrary.

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