Upload
kaylin-brazelton
View
214
Download
0
Tags:
Embed Size (px)
Citation preview
1
Foreign Entry and Banking Efficiency in Asia
Bayu Kariastanto, GRIPSWako Watanabe, Keio University
May 24, 2012International Conference, “International Competition in
Banking: Theory and Practice”Ukrainian Academy of Banking, Sumy, Ukraine
Outline of the Presentation
Introduction to foreign banks in Asia Background theories and hypotheses Data Empirical methodology Results and interpretations
2
Overview of the Results
In Asia,Foreign banks are more cost efficient than private domestic banks but not more profitable.State owned banks are less profitable than private banks.Mode of entry (greenfield/JV/acquiring) does not affect profitability but greenfield banks are less cost efficient than local bank acquirers.
3
44
The Presence of Foreign Banks by RegionThe share of assets held by foreign banks within bank assets by
region ( % )
Note: the number of countries inside the blaket
Source: Domanski (2005)
1995 2005 World (105) 15 23 North America (2) 10 21 Western Europe (19) 23 29 Eastern Europe (17) 25 58 Latin America (14) 18 38 Africa (25) 8 8 Middle East (9) 14 17 Central Asia (4) 2 2 East Asia and Oceania (13) 5 6
5
Foreign banks vs. domestic banks Foreign banks bring new lending technology and their
governance is more disciplined. Private banks vs. state owned banks State owned banks engage in political (“connected”)
lending. Minority foreign/state shares Minority shares may influence bank performance as
majority shares do?
Ownership Type and Bank Performance
6
Foreign banks vs. domestic banks Foreign banks more profitable in developing/transitional
countries (Bonin et al., 2004; Claessent, et al., 2000; Micco et al., 2004)
Private banks vs. state owned banks State owned banks as efficient as private banks (Bonin et
al., 2004) Minority shares (foreign/state) Minority foreign ownership improves state-owened
banks’ efficiency (Berger et al., 2008)
Ownership Type and Bank PerformanceEvidence
7
Mode of Entry and Bank Performance
Greenfield Open branches only in regional major cities Specialized on wholesale lending Utilize “hard” information ( = private & verifiable) Local bank Acquirers Acquire a local branch network. Utilize “soft information” ( = unverifiable) Joint Ventures Hybrids of greenfield and retail banks
8
De Novo Banks, Retail Banks or Joint Ventures
Theoretically, it is hard to predict which mode of foreign entry is more profitable/efficient.
Empirically… Lending rates are higher when foreign lenders are
greenfield than they are local bank acquirers (Claeys & Hainz, 2007)
99
Soft Information and Relationship Lending
Relationship lender
(a loan officer)SMEs
Other banks
Relationship
Soft (qualitative) information
Hard (quantitative) informationAsymmetri
c informatio
n
1010
Backgrounds: SME Lending and Soft Information
Local domestic lenders may be more profitable. A relationship lender who has exclusive access to certain
information about a borrower’s credit quality is able to earn a rent so that relationship lenders are more profitable than hard information based transaction lenders. (ex. Rajan, 1992)
Local lenders are able to select better credit risks whereas entrants are forced to lend to poor credit risks that local lenders choose not to lend to (Dell'Ariccia et al, 1999)
But more technologically advanced foreign lenders may be more cost efficient and more profitable.
1111
Soft Information and A Bank’s Organizational Structure
Loan review function of the headquarters
Branch manager
Loan officerSMEsRelationship
Soft info
Hard info
Soft info
Hard info
Hard
info
Documenting soft information is hard so it is difficult to deliver soft information from a bank’s branch to its headquarters.
The more delegated a bank’s branch is, the more incentive to gather soft information the branch has (because soft information is utilized for decision making).
1212
Organizational Structure and Bank Lending
Hypothesis
Loan officers at a bank with a decentralized decision making structure has more incentive to collect soft information than those at a bank with a centralized structure.
Evidence: Liberti & Mian (2009), Agarwal & Hauswald (2010)
1313
Operation Type and Foreign Bank Performance
Our question
Is a presumably more independent foreign subsidiary more efficient/profitable than a branch?
Evidence? Very few papers look at foreign banks’ operation types. A branch/subsidiary choice is made based on institutional
environments (Cerutti et al., 2007).
Data
The primary source of our data is Bankscope (Fitch IBCA & Bureau van Dijk) as well as banks’ homepages
Our data are the unbalanced panel of 980 banks from 33 countries in Asia (East, Southeast, South and Central Asia/Caucasus.) over the period of 1996 through 2011.
14
Trends of Ownership Types in Asia, Shares in terms of Total Assets
15
Descriptive Statistics: Ownership Types and Operation Types
Sample banks are divided into four ownership types, majority STATE (23%), majority private DOMESTIC (40%), majority FOREIGN (30%) and “no majority” (7%).
State, domestic, foreign and “no majority” represent 48%, 27%, 11% and 14% of total bank assets in Asia, respectively.
Only 6% of foreign banks operate as branches. This may be due to underepresentation of branches
in Bankscope.
16
Empirical Methodology: SFA Approach
The two step estimation approach is employed. At the first step, running the regression of the profit/cost function, each sample bank’s efficiency is estimated. At the second step, the estimated efficiency (level/rank) is regressed on variables to measure a bank’s attributes such as ownership types as well as control variables. The profit efficiency is more complete concept than the cost efficiency (Berger & Mester, 1997)
17
The Cost/Profit Function
The profit/cost function follows the specification employed by Bonin et al. (2004). Assumed to be a function of four outputs (total loans, total deposits, liquid assets, other earning assets) and two input prices (ratios of interest expenses to total deposits and non-interest expenses to fixed assets). Year and country dummies are included.
18
Ownership Type RegressionsProfit Efficiency
19
VariablesEfficiency
LevelRank
-0.021*** -0.072***(0.006) (0.024)
-0.043*** -0.149***(0.008) (0.026)
-0.015* -0.056(0.009) (0.036)
0.003 0.014(0.008) (0.035)
-0.010 -0.042(0.007) (0.027)
N 3521 3521Clusters 536 536
R-square 0 0
Minority state
Minorityforeign
Majorityforeign
Majority state
No majority
Ownership Type RegressionsCost Efficiency
20
VariablesEfficiency
LevelRank
0.058*** 0.058***(0.016) (0.016)
-0.023 -0.023(0.015) (0.015)
0.027 0.027(0.021) (0.021)
-0.001 -0.001(0.018) (0.018)
-0.014 -0.014(0.013) (0.013)
N 3521 3521Clusters 536 536
R-square 0 0
Majorityforeign
Majority state
No majority
Minority state
Minorityforeign
The Ownership Type Regressions
Banks are profit efficient in the following order,
Domestic > Foreign > State Domestic banks have better access to the soft information
(Mian, 2003; Claeys and Heinz, 2003) State-owned banks are often engaged in policy oriented
loans or politically motivated loans (Sapienza, 2004; Dobson and Kashyap, 2006; Berger, et al, 2008)
Foreign banks are more cost efficient than domestic banks.
Foreign banks are more technologically advanced.
21
Foreign Bank RegressionsProfit Efficiency
22
VariablesEfficiency
LevelRank
-0.013 -0.062(0.011) (0.043)
0.007 0.035(0.018) (0.075)
0.025 0.096*(0.016) (0.053)
-0.033 -0.151*(0.021) (0.093)
-0.160*** -0.374***(0.009) (0.035)
0.021 0.078(0.017) (0.072)
N 979 979Clusters 165 165
R-square 0 0
Greenfield
Joint venture
Acquisition,Minority stateGreenfield,Minority stateJoint venture,Minority state
Branch
Foreign Bank RegressionsCost Efficiency
23
VariablesEfficiency
LevelRank
-0.085*** -0.157***(0.029) (0.046)
-0.069 -0.107(0.050) (0.083)
0.078** 0.173**(0.038) (0.068)
-0.086 -0.117(0.054) (0.100)
-0.016 -0.007(0.023) (0.043)
-0.024 -0.134(0.048) (0.082)
N 979 979Clusters 165 165
R-square 0 0
Joint venture,Minority state
Greenfield
Joint venture
Branch
Acquisition,Minority stateGreenfield,Minority state
Foreign Bank Regressions
Mode of entry does not affect profit efficiency. Minority state ownership decreases greenfield
banks’ profit efficiency. The ex-post government’s stake in a bank established
as a greenfield bank reduces the bank’s profitability. Greenfield banks are less cost efficient than local bank
acquirers. Branches are generally more efficient than subsidiaries. Only successful branches may be in the data…
24
THANK YOU!!
25