Are International Banks Different? Evidence on Bank Performance and Strategy

44 Pages Posted: 20 Dec 2017 Last revised: 27 Feb 2018

See all articles by Ata Can Bertay

Ata Can Bertay

World Bank - Development Research Group (DECRG); Tilburg University - European Banking Center

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Date Written: December 19, 2017

Abstract

This paper provides evidence on how bank performance and strategies vary with the degree of bank internationalization, using data for 113 countries over 2000-15. The paper investigates whether international banks headquartered in developing countries behave and perform differently from those headquartered in high-income countries. The results show that, compared with domestic banks, international banks have lower valuations and achieve lower returns on equity in general. This suggests that, on average, bank internationalization has progressed beyond the point where it is in the interest of bank shareholders, potentially because of corporate governance failures and too-big-to-fail subsidies that accrue to large and complex banks. In contrast, developing country international banks seem to have benefited from internationalization compared with their high-income counterparts. Furthermore, for international banks headquartered in developing countries, bank internationalization reduces the cyclicality of their domestic credit growth with respect to domestic gross domestic product growth, smoothing local downturns. In contrast, if the international bank is from a high-income country investing in a developing country, its lending is relatively procyclical, which can be destabilizing.

Keywords: Bank internationalization, south-south banking, risk-taking, procyclicality

Suggested Citation

Bertay, Ata Can and Demirgüç-Kunt, Asli and Huizinga, Harry, Are International Banks Different? Evidence on Bank Performance and Strategy (December 19, 2017). World Bank Policy Research Working Paper No. 8286. Available at SSRN: https://ssrn.com/abstract=3090772

Ata Can Bertay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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Tilburg University - European Banking Center ( email )

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Asli Demirgüç-Kunt

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

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Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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