IMPACTS OF FOREIGN BANKS ON DOMESTIC BANKS BUSINESSES OVERALL CASE STUDY ON DEVELOPING COUNTRIES

Abstract

Foreign Banks participation have increased steadily across developing countries since the 1990s.Claessens et al., 2012, 2013 , comprehensively investigate the impact of foreign banks entry on domestic banks businesses. They notice that Foreign Bank entry impact the domestic banks’ Income, Profit, Credit extension and Costs. They find the conclusion that foreign banks improve the functioning of domestic banking markets through increase in market competition. As well, Robert et al., 2010, explore the drivers and consequences of foreign bank participation, paying focus particularly on the degree of foreign bank entry and impact. They develop theories, like local profit opportunities, the absence of barriers to entry, mechanism forces across developing countries. Coincidently, they analyze that there has been positive influence of foreign banks entry that enhances and maintain the stability of domestic banking business. Florida Veljanoska in 2011, developed a picture of multinational banks in developing countries by using broad range of statistical data, she admits that there are some negative consequences from foreign banks entry but less than benefits that arise from foreign banks penetration and bring new positive economic inputs in developing countries. Moreover, Todd A. Gormley, 2005 and 2007 estimate the effect of foreign banks entry on credit access. Several researchers significantly study the impact of foreign banks on host countries, some have positive influences and some of them have negative consequences but the study is still in progress. In many empirical studies, it advised positive effect of foreign banks entrance are confirmed. During a cross country study of 7900 banks from 80 countries for the period 1988-1995, Claessens et al., 2001 investigate that foreign banks presence tend to reduce overhead expenses, profitableness as well as margin for domestic banks. In our research thesis, we examine the three major factors that give prominence to foreign banks which impact the local banks businesses. 1. Technology 2.Consumer Loans 3.Customer Services. We introduce a new comprehensive data based on survey questionnaires, for 55 banks locating in Germany, France, Turkey and Pakistan. In term of impact we document that technology, consumer loans and customer services are salient factors that affect the local banks businesses. If the domestic banks succeed to implement these three factors in their banking structure, they can excel into competitive market and would be able to stand with foreign banks in a competitive environment. In particular the bank managers can employ this analysis to identify the relative position of their banks as opposed to their foreign competitions. This will enable the local banks to identify the most important competitive advantages/disadvantages compared to foreign banks and to develop measures to take advantage of their relative strengths points or to tackle with existing disadvantages. For that we develop hypothesis and get response from each bank’s employees to approve our hypothesis. For our reliability and validity of data analysis we used the SPSS 17. Cronbach Alpha is used for testing reliability and factor analysis for validity of data analysis by using 5 point Likert scale.