Foreign Banks (FBs) play an
important role in the evolving global financial system. The process of consolidation in
the banking sector has resulted in the large-scale entry of FBs,
especially in the Emerging Market Economies (EMEs).
Internationalization of trade has also tempted FBs to expand their cross-border
exposures. Earlier, with economic integration, FBs set up
representative offices to assist their home country customers in
international transactions by way of trade credit operation. In the
process, they also acted as the link between borrowers in the
home country and lenders in the source country in the international
private debt and equity placements. Later on, capitalizing on their
in-depth knowledge of foreign markets and the rapport that they
had developed with local financial institutions, they opened
branches in various countries with emphasis on wholesale deposits.
Eventually, they set up subsidiaries with thrust on retail banking.
Generally, FBs enter into business arena of other countries
either through cross-border lending or by physical presence.
Cross-border lending is a cost-effective strategy as it does not involve
setting up of a place of business in the host country. Physical
presence can take two forms _ opening a de novo bank through green
field investment (branch/subsidiary in the host country) or purchase
of a majority stake in a domestic bank. The mode of physical
presence, in fact, is influenced by the competitive and regulatory
environment of the host country. In today's globalized era, FBs
are adopting to different strategies, such as acquisitions, targeted
purchases of specific activities, joint ventures or alliances
and outsourcing of administrative and financial services for getting
a footing in the foreign soil. |
