Discussion Paper Details

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Title: Are international banks different? Evidence on bank performance and strategy

Author(s): Ata Can Bertay, Asli Demirguc-Kunt and Harry Huizinga

Publication Date: December 2017

Keyword(s): Bank internationalization, procyclicality, risk-taking and south-south banking

Programme Area(s): International Macroeconomics and Finance

Abstract: This paper provides evidence on how bank performance and strategies vary with the degree of bank internationalization using data for 113 countries over the 2000-2015 period. We investigate if international banks headquartered in developing countries behave and perform differently than those headquartered in high-income countries. Results show that compared to domestic banks, international banks have lower valuations and achieve lower returns on equity in general. This suggests 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 to 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 GDP growth, smoothing out 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.

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Bibliographic Reference

Bertay, A, Demirguc-Kunt, A and Huizinga, H. 2017. 'Are international banks different? Evidence on bank performance and strategy'. London, Centre for Economic Policy Research.