Multinational banking behavior has significantly expanded as barriers to both international capital flows and to foreign market entry have decreased-illustrate and explain.
A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. The banks accept deposits from customers at low interest rate and lending money to customer both individual and corporate customers at higher rate and gain profit. The banks are designed their products and services according to the customer needs and wants. Nowadays a bank is lots of branches in lots of area both national and international. Some of branches are beyond in country and this type of bank called international or multinational bank. Due to their critical status within the financial system and the economy generally, banks are highly regulated in most countries specially multinational banks.
Multinational banking behavior has significantly expanded as barriers to both international capital flows and to foreign market entry have decreased. A multinational bank, consisting of a home bank and a number of foreign located banks, can easily take advantage of ill-harmonized national supervisions. Furthermore, regulation of a MNB in one country may well affect the behavior of the bank and regulators in other countries. As such, the rapid expansion of MNBs represents a source of new concerns for regulators.
The last few years have seen a notable liberalization of banking markets. While banks activity in rather saturated developed. Non-financial markets looked for new investment and growth opportunities, banks in many emerging economies were in need for new capital in the aftermath of banking crises. The privatization process in Eastern Europe provided further opportunities for multinational banks to expand abroad. Nowadays, in around 40 percent of all developing countries, more than 50 percent of banks are foreign owned.
In a country multinational banking is so many uses prospect of multinational bank and consumer also nation. A bank creates from in multinational when domestic area businesses expand in international. International business need support from bank and when a bank gone through become international then it’s easy to all kind of transaction between international organization. For example HP is a global brand and its origin is USA but its production is in Singapore. From Singapore they distribute product all over the countries around the world. On the other hand for this type of global company’s all type of financial support and transaction need a specialized bank that has lots of network and branches.
Objective of Study
The purpose of the study is to make an identification of operation of multinational bank in global market. This study attempted to understand the raise of multinational banking and it’s impact to the global market on different segments such as macroeconomic environment, social environment and bilateral home host characteristics. The specific objectives aimed for this report is;
- To fulfill the Partial requirement of the course under the guidance of the coordinator.
- To gather experience and knowledge on analyzing how to handle report writing on current global market situation.
- To understand about multinational banking operations.
- Recognize the difficulty area.
This case analysis is mostly focus on the multinational banking operation and it’s impact on the global market situation. The case study basically prepared on the collecting secondary sources of data.
Scope of the Study
This study gives a chance to introduce with multinational banking operation and difficulties that face the multinational banks in local market operations. This study also helps to know the names of multinational bank and operational zone.
Limitations of the Study
The following limitations have identified at the time of preparing the report;
**Availability of data.
** Availability of text book as this topic doest not consists in running course.
** Lack of time.
** Lack of access to internet within short time.
Multinational Banking and Impact on Global Market
01. What is multinational bank?
A bank that has offices and operations across multiple countries can be considered a multinational bank. The multinational bank means the international banks which operate its business across international borders and competing with domestic local banks. It is fully owned and operated by the mother company and designed its products ad services according to the needs of the local customers. MNB operations can come in different forms, namely as branch offices, as subsidiaries, as joint ventures, or as strategic partnerships. Branch offices are an integral part of the mother company specifically they have no capital of their own. Subsidiaries are their own corporate entities, which are fully owned by the mother company.
Generally, MNB activities are more limited in their scope than the activities as on operations, product and service offering, branch opening of local banks, and they tend to remain more restricted.
02. Well-known multinational banks
The well-known multinational banks are;
|SL.||Name of Banks||Origin Country||Establishment Year||No. of Operating Countries||Operation Areas|
|1||The Honkong and Shanghai Banking Corporation (HSBC)||London, United Kingdom||1991||locations 7,500 offices in 87 countries & territories||Africa, Asia, Europe, North America and South America|
|2||Standard Chartered||London, United Kingdom||1969||1,700 branches and outlets and employs around 80,000 people.||Europe, Africa, Asia and the Middle East.|
|3||Bank of Ceylon||Colombo, Sri Lanka||1939||308 branches and 200+ extension centers||SriLanka, Maldives, India, United Kingdom|
|4||ABN AMRO Bank N.V.||Amsterdam, Netherlands||1991||———-||———-|
|5||Bank Alfalah||Karachi||1992||———-||Pakistan, Afghanistan, Bangladesh and Bahrain|
|6||Citibank, N.A.||New York City||1812||More than 100 countries and territories around the world||———-|
|7||State Bank of Mauritius Ltd||Port Louis, Mauritius||1973||Mauritius, India|
|8||Deutsche Bank AG||Frankfurt, Germany||1870||70 countries and has a large presence in Europe, the Americas, Asia Pacific||———-|
|9||BNP Paribas S.A.||Paris, France||2000||———-||———-|
|10||JPMorgan Chase & Co.||New York, U.S.A||2000||———-||———-|
|11||Royal Bank of Canada||Toronto, Ontario, Canada , New York, U.S.A||1864||———-||———-|
|12||Bank of America Corporation||Charlotte, North Carolina, U.S.||1998||more than 150 countries|
|13||Commonwealth Bank of Australia||Sydney, Australia||1911 as a government bank and 1991 as a public company||———-||Australia, New Zealand, Fiji, Asia, USA and the United Kingdom|
|14||Arab Bank||Amman, Jordan||———-||500 branches in 30 countries on five continents||———-|
3. The Raise of Multinational Bank
There are two main strands of motives on why banks enter foreign markets. The one is managerial motives. Obviously, entering a foreign market is usually connected with firm growth. Empire-building tendencies of bank managers might therefore be a simple reasoning why banks want to enter foreign markets, especially if growth possibilities are restricted in the home country e.g. due to anti-trust considerations. A large literature deals with the empire-building tendencies of managers and the underlying motives such as status, power, compensation and prestige of managers of large firms.
The other strand of motives, which is discussed in more detail, can be subsumed under ‘profit-maximization motives”’. One can further differ between the motive to expand business in general and the motive to expand in a specific business segment/geographic market.
Concerning motives for general expansion, economies of scale and scope in various dimensions might play a role. Besides the generally discussed revenue and cost economies of scale and scope, another focus in the analysis of the banking industry is on risk diversification economies of scale and scope. Practitioners strongly support the view that such economies of scale and scope exist in international expansion. For example, Spanish bank managers active in the expansion into the Latin American market perceive a wide variety of such economies e.g. due to the possibility to develop relatively homogeneous financial products or centralize back office and transaction processes The evolution of internet banking, the arrival of Automated Teller Machines (ATMs) and the beginning specialization of banks along the value chain have most probably increased available economies of scale (The At the same time bank size and diversification might be an important requirement to be able to place ”‘strategic bets on future markets such as China without putting the whole bank at risk”’
The other two well-discussed potential profit-enhancement motives for entering a foreign market are to win new customers in this country (market seeking foreign direct investment) or to keep existing domestic customers and enhance business volume with them (follow your customer-strategy). The former is the most obvious and generally acknowledged motive for entry into a foreign market. However, special to the multinational banking literature, there had been an ongoing debate about whether a foreign bank is actually capable of successfully entering local retail and commercial banking markets. More recent literature, as well as the overwhelming experience, suggests that at least some foreign banks in some host markets are able to penetrate local markets on a sufficient scale Compared to the discussion of FDI in other industries, the follow your customer motive plays a much larger role in the multinational banking literature.
Customer also might be profitable for the respective bank per se, as the latter is able to broaden the volume of business conducted with the respective firm, taking over additional trade financing and local cash management services for this firm. Also, the geographical expansion of the bank’s network might attract additional customer from its home country looking for such”‘global capabilities”’. Another profit motive for international expansion of banks seems to have become less of an issue, but has been a big reason for the big wave of international expansion of U.S. banks in the 1960s and 70s, namely the search for cheap sources of refinancing for home market financing activities.
04. Contribution of multinational bank in Domestic Country
The effect of a greater MNB presence on domestic banks equal credit supply depends on bank’s net worth. If a bank’s net worth stays above a safety threshold the bank will not increase its loans unless its net worth grows, but once its net worth falls below that safety threshold the bank will increase its loans, particularly for high risk high projects, as it stands to lose little or nothing. The dilemma, though, is that financial competition further limits banks equal ability to raise their net worth, and hence they may restrict their loans if their net worth is above their safety threshold
One area of research on multinational banking, that has already been explored to a relatively large degree by economic literature, is the location choice of multinational banks. The characteristics of an attractive host country can be sorted into two main categories, stand-alone and bilateral host-home country characteristics. Multiple dimensions of stand-alone characteristics of host country markets can be distinguished.
05. Macroeconomic conditions
The macroeconomic conditions attracting banking foreign direct investment are very much alike these attracting FDI in general. Generally, all else equal, a higher GDP should equal a larger demand for any kind of product. Besides similar reasoning, higher GDP per capita might be associated with a higher demand for sophisticated, high-margin banking services, such as asset management. Country risk, as measured by an Index from Euro money, is found to have a negative influence on international bank activity in a respective country, be it cross-border lending or bank foreign direct investment.
06. Bank Sector and Regulation Characteristics
One unanimous result across the empirical literature is that countries harboring financial centers (e.g. New York, London, Tokyo) attract a larger volume of bank sector FDI This easily can be rationalized by a type forward and backward linkages in the banking industry, as banks buy investment banking products for their portfolios from other banks as well as sell such products to other banks. Proximity of respective banks’ investment banking divisions supports these transactions with heavy information and trust requirements.
Concerning bank sector regulation, studies find, that the harsher activity restrictions for multinational banks and the stricter banking regulation in general, the less bank FDI the respective country will attract
Other profit-influencing factors determining whether banks enter the market are the size of the banking market (+) the level of concentration in the host banking market
(-), and the cost efficiency of incumbent banks (-). These influence factors obviously shape the expected profitability of market entry through determining the market volume and the degree of competition in the respective market.
07. Bilateral Home-Host Country Characteristics
Screening the empirical literature, bilateral country characteristics seem to play a large role in multinational banks’ location decisions, just as the general theory on Foreign Direct Investment predicts
Looking at the broad picture one clearly sees strong bilateral patterns in multinational banking, from a host country perspective, for example, Spanish banks account for 65% and 58% of total bank foreign assets in Argentina and Brazil, respectively, while e.g. Austrian banks’ foreign asset shares in the Czech Republic is 39%.
A closer, regression analysis-based look on bilateral home-host country characteristics shows, that the amount of bilateral trade and real sector foreign direct investment positively influences the volume of bank sector FDI into the host country. This result is consistent with the idea that follows your customer-motives play an important role in multinational banks’ location choice. Additionally common language, low distance and a common legal system are found to positively influence bilateral bank sector FDI in some studies Looking at how the Latin American and Eastern European markets shape up concerning the source of inward bank FDI, especially in the Latin American case, language and cultural factors do seem to play a role, as the dominance of Spanish banks among multinational banks in these countries is blatant. Such a cultural factor is also often mentioned as the reason for the market leadership of Austrian banks in Eastern Europe, as countries such as the Czech Republic, Hungary and Slovenia used to be part of the Austrian Habsburg empire for a long period of time in history.
Findings and Conclusion
Findings and Conclusion
Understanding the way MNBs act and the regulatory responses is a first step for a more ambitious normative analysis on the socially optimal organization and regulation of MNBs.While there may be compelling reasons to attract MNBs into less industrialized economies, policymakers may want to consider regulatory actions that help to lower the adverse effects of MNB entry. The growth rate of MNBs has been so rapid that within a short time span MNBs have gained a sizable market share, and sometimes even a majority share of the domestic banking sector. Considering that MNB entry is not only a matter of domestic banking development, but also of international trade, implementing financial policy measures, which may affect MNBs, may be complicated by bilateral or multilateral agreements, such as GATS, especially in financial markets where MNBs play a major role.
MNB: Multinational Bank Limited
ATM: Automated Teller Machine
FDI: Foreign Direct Investment
GDP: Gross Domestic Product
HSBC: Honkong and Shanghai Banking Corporation
SCB: Standard Chartered Bank
US: United State
1. WIKIPEDIA (2012) Bank [Online] Available from: http://en.wikipedia.org/wiki/Bank
2. WIKIPEDIA (2012) Financial Institution Available from: http://en.wikipedia.org/wiki/Financial_institution
3. WIKIPEDIA (2012) Financial intermediary Available from: http://en.wikipedia.org/wiki/Financial_intermediary
4. EMERGING MARKET FINANCE, The role of multinational banks and microfinance. Available from: http://edoc.ub.unimuenchen.de/9607/1/Lehner_Maria.pdf
6. Peter Beermann (2007) Multinational Banking And International Industrial Organization
 In political science, empire-building refers to the tendency of countries and nations to acquire resources, land, and economic influence outside of their borders in order to expand their size, power, and wealth.
 (The Economist (2006), page 4).