[CROSS-BORDER BANKING] IMF & GLOBALIZATION OF BANKING

The IMF on the Globalization of Banking
http://www.imf.org/External/Pubs/FT/GFSR/2007/01/pdf/text.pdf

Although no one indicator fully captures institutional globalization in all its aspects and forms, one telling illustration is the volume of cross-border M&A in the financial sector. M&A activity in the financial system has risen sharply since 2000, with crossborder M&A increasing from less than 1 percent to nearly 40 percent of the total value of financial sector M&A activity from 1997 to 2006.

Institutions have internationalized for a wide range of reasons, including expectations that knowledge and efficiencies in undertaking business and underwriting risk in one market can be transferred into others; that economies of scale and scope can be achieved when operating multi-country operations; and that a crossborder group can better allocate a large and stable capital base profitably across business lines to those where profitability is expected to be greatest, while also diversifying risk.

Cross-border expansion into emerging market (EM) countries has often been particularly appealing. Emerging markets have been seen as offering the prospect of faster business and profit growth, especially given the relative underdevelopment of their financial markets and institutions. For many emerging European countries, the prospects of closer economic integration with the European Union—including through EU accession and eventual membership in the euro area—have been a significant driving force in this regard.

Of all types of financial institutions, Banks are most active in pursuing an international presence. One measure of the rapid internationalization of banking in recent years is the rising number of foreign claims (loans made and deposits placed externally) of Bank for International Settlements (BIS) reporting banks. The increase in foreign ownership was particularly rapid in Eastern Europe, where the share of banking assets under foreign control increased from 25 percent in 1995 to 58 percent in 2005, and in Latin America, where that share rose from 18 to 38 percent of total bank assets.

The past decade has also seen a transformation of the role of foreign banks in EMs. First, while the large international banks have continued their expansion in selected markets, a number of mid-sized banks have also become increasingly active across borders since the mid-1990s, particularly in emerging Europe. This has partly reflected limited expansion opportunities, heightened competition in home markets, and prospects of strong profitability in host markets.

Second, there has been a significant shift toward local activities by foreign banks in EMs. Traditionally, foreign banks primarily focused on providing financial services to their inter-national corporate clients in host countries, but there is now often a growing emphasis on housing-related and other personal lending. One reflection of this development is that direct cross-border lending by the head offices of international banks has been progressively overshadowed by local lending by their foreign affiliates.

[EXAMPLE: SWEDBANK EXPANDS INTO BALTIC NATIONS]http://www.swedbank.com/
http://www.swedbank.com/about-swedbank/group-presence/index.htm