The impact of foreign ownership on emerging markets' banking system: a case of BRICS
Date
2022
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Witwatersrand, Johannesburg
Abstract
The current research examines foreign bank ownership’s impact on the financial soundness and benefits observable within-host banking markets and banks’ risk-taking behaviour in the BRICS. Also, this research examines the effects of foreign ownership on both fiscal and monetary policies’ transmission via the bank lending channel. Thus, the rationale to focus on the impact of foreign ownership on BRICS member countries’ banking markets is because post-global financial crisis, these economies stimulated their economy via banking. Moreover, the effects of the global financial crisis of 2008 did not lead to deglobalisation in their banking markets because, generally, the BRICS bloc is found to have recovered quickly from the situation without their banks changing their privatisation strategy concerning foreign ownership. The CAMELS rating analysis, two- stage least square and two-way random effect panel models are the primary study tools in the current research, and the biasness testing was incorporated as a robustness check. The results show that the foreign-owned banks contribute procyclically to the bloc's
financial soundness, indicating that their presence introduces some asymmetries into their banking systems. Furthermore, foreign banks in BRICS lead to benefits that outweigh risks. However, some risk elements need to be minimised to insulate the bloc from a future globally induced crisis. These risks include systemic risk of foreign-owned banks, lowering tier II capital as required by Basel III for all banks, the ineffectiveness of fiscal and monetary policy in regulating lending risk, and excessive leveraging of domestic banks. Despite the risks associated with foreign banks' presence in BRICS, foreign bank ownership increases the performance and efficiency of all banks, with domestic banks becoming risk-averse, which may explain the quick recovery of the BRICS banking sector post-2008 global financial crisis. The policy implications from the results highlight the need for local policymakers to strategies on ways to encourage banks to lend in domestic currency to regain control over lending risks post-acquisition of their host banks by global investors. Also, host regulators need to closely monitor the extent of systemic risk from
foreign-owned banks to limit the chance of a banking crisis in the future
Description
Doctoral thesis submitted in fulfillment of the requirements for the award of Doctor of Philosophy (PhD) in Finance (Specialisation: Banking theory) Wits Business School Faculty of Commerce, Law and Management University of Witwatersrand, Johannesburg 2022
Keywords
Foreign bank ownership, BRICS, CAMELS, Risk-Benefit, Monetary policy, Fiscal policy
Citation
Magagula, Sibusiso Vusi. (2022). The impact of foreign ownership on emerging markets' banking system: a case of BRICS [PhD thesis, University of the Witwatersrand, Johannesburg]. WireDSpace.https://hdl.handle.net/10539/40899