The impact of foreign bank ownership on developing countries

Abstract

The recent LIBOR rate scandal in which Barclays received a sizeable fine for their role in the exploitation of the Interbank rate has had a negative reputational impact on Absa, as Barclays’ owns more than 50.1 per cent of Absa’s shares. This raises the question as to what the impact is of foreign bank ownership on a developing country.The purpose of this research is to ascertain whether a developing country can attain economic growth benefits in the form of increased levels of competition and efficiency in its banking sector, by implementing the foreign bank entry or more specifically the foreign bank ownership of local banks, economic liberalisation reform.Using econometric analysis the study calculated the levels of competition and efficiency from the annual firm-level financial statements for the period 1999 to 2010. This was done in two phases, where Phase One was from 1999 to 2004 and Phase Two was from 2005 to 2010 representing the periods pre- and post the Barclays’ acquisition of Absa.The findings of the two phases were then compared and indicated that there was no significant change in the level of competition or in the level of efficiency in the South African banking sector.The findings of the two phases were then compared and indicated that there was no significant change in the level of competition or in the level of efficiency in the South African banking sector.