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STIJN CLAESSENS

NEELTJE VAN HOREN

Foreign Banks: Trends and Impact

Over the past two decades, foreign banks have become much more impor-
tant in domestic financial intermediation, heightening the need to understand
their behavior. We introduce a new, comprehensive database, made publicly
available, on bank ownership (including the home country of foreign banks)
for 5,324 banks in 137 countries over the period 1995–2009. We docu-
ment large increases in foreign bank presence in many countries, but with
substantial heterogeneity in terms of host and banks’ home countries, bilat-
eral investment patterns, and bank characteristics. In terms of impact, we
document that the relation between private credit and foreign bank presence
importantly depends on host country and banks’ characteristics. Specifically,
foreign banks only seem to have a negative impact on credit in low-income
countries, in countries where they have a limited market share, where enforc-
ing contracts is costly and where credit information is limited available, and
when they come from distant home countries. This shows that accounting for
heterogeneity, including bilateral ownership, is crucial to better understand
the implications of foreign bank ownership.

JEL codes: F21, F23, G21


Keywords: foreign banks, financial globalization, financial sector
development.

This paper was partly written while Van Horen was visiting the Research Department of the Fed-
eral Reserve Bank of Chicago. We would like to thank Thorsten Beck, David Marques-Ibanez, an
anonymous referee, and participants at the DNB-JMCB conference Post-Crisis Banking for valuable
comments. We are grateful to Yiyi Bai, Tugba Gurcanlar, Matias Gutierrez, Joaquin Mercado, Lindsay
Mollineaux, Deimante Morkunaite, Krisztina Orban, Jeanne Verrier, and Chen Yeh for their extensive
help with collecting the data and providing excellent research assistance at various stages of this project.
The data collection was started while the authors were at the World Bank, and financial support for
this project from the World Bank’s Research Support Budget and the United Kingdom’s Department
for International Development (DECRG trade and services project) is gratefully acknowledged. The
database underlying this paper is made available online at http://jmcb.osu.edu/claessens-and-van-horen
and http://www.dnb.nl/en/onderzoek-2/databases/index.jsp. While extensive efforts have been undertaken
to cross-check information, we do not accept responsibility for the accuracy of the final data. The views
expressed in this paper are those of the authors and do not necessarily represent those of the institutions
with which they are or have been affiliated.
STIJN CLAESSENS is with the International Monetary Fund, University of Amsterdam, and CEPR
(E-mail: sclaessens@imf.org). NEELTJE VAN HOREN is with De Nederlandsche Bank (DNB) (E-mail:
n.van.horen@dnb.nl).
Received February 27, 2012; and accepted in revised form January 31, 2013.

Journal of Money, Credit and Banking, Supplement to Vol. 46, No. 1 (February 2014)

C 2014 The Ohio State University
296 : MONEY, CREDIT AND BANKING

ALTHOUGH INTERRUPTED BY THE recent financial crisis, the


past few decades have seen an unprecedented increase in globalization, especially in
financial services. Not only have cross-border bank (and other capital) flows increased
dramatically, but also many banks, from both advanced and developing countries,
have ventured abroad and established presence in other countries. Although there are
differences, few countries have been left out from this trend of increased financial
integration.
Given the large importance of foreign banks in many countries today, understanding
the motivations of foreign banks to enter a particular host country, the way by which
they do so, and the impact they have on financial sector development and financial
stability has become essential. These questions have become even more prominent
with the financial crisis. Although much research has been conducted, many questions
remain unanswered, however, partly because of limited data availability. Having
access to good data enables researchers to study trends and allow for heterogeneity
of foreign banks, and is therefore paramount to increasing our understanding of
the impact of foreign bank ownership. This is the main contribution of our paper:
introducing a new and comprehensive database on bank ownership.
Our database (available online at http://jmcb.osu.edu/claessens-and-van-horen and
http://www.dnb.nl/en/onderzoek-2/databases/index.jsp?) covers ownership informa-
tion of 5,324 banks active in 137 countries over the period 1995–2009. For each year
a bank is active during the sample period, its ownership, domestic or foreign, is de-
termined. When foreign owned, the home country of the largest foreign shareholder
is provided. Compared to other databases on bank ownership used in the literature
(most notably the one constructed by Micco, Panizza, and Yañez 2007), our database
is unique in a number of respects. First, it includes virtually all banks active in a
particular country. Second, it includes countries of all levels of development. Third,
it captures bank ownership and changes therein in a continuous fashion over an
extensive period. Fourth, it includes the home country of the foreign bank.
Together, this comprehensive and detailed database allows for many kinds of
new research. For example, it allows, when linked to financial data such as from
Bankscope, for comparisons between domestic and foreign banks of different types
(e.g., small versus large, old versus young, deposit taking versus nondeposit tak-
ing). It allows one to test whether foreign banks behave differently (also compared
to domestic banks) in certain countries, and to disentangle short-run from long-run
determinants and implications of foreign ownership as well as to control for some
factors often omitted. And since it differentiates between foreign banks from differ-
ent countries, one can examine the impact of bilateral factors (like distance, trade
linkages, institutional similarity, etc.) on foreign bank entry decisions and behavior.
In the remainder of the paper, we use our database to describe salient facts on the
trends in foreign bank ownership and to study its impact on financial development
in the host country. We document a sharp increase in foreign bank ownership over
the period 1995–2009 affecting a large number of countries.1 We show though that

1. A number of these patterns are documented in Claessens et al. (2008).


STIJN CLAESSENS AND NEELTJE VAN HOREN : 297

much heterogeneity exists with respect to the relative importance of foreign banks in
the host country, the home country of the parent bank, the bilateral pattern of foreign
bank investment, and the business models used by and performance of foreign banks.
Importantly, we show that accounting for this heterogeneity is crucial when studying
the impact of foreign bank ownership. When examining the link between foreign bank
presence and private credit, for example, we show that this depends importantly on
host country and foreign bank characteristics. Specifically, foreign banks only seem to
have a negative impact in low-income countries, in countries where they have a limited
market share, where it is costly to enforce contracts and where credit information is
only limited available, and when they come from distant home countries.
The relationship between foreign bank presence and private credit is one example
of the many questions studies have examined regarding the causes and consequences
of foreign bank ownership. Before the crisis, the general consensus was that the
benefits of foreign banks greatly outweigh the costs in many dimensions. It was
generally thought that foreign banks add to domestic competition, increase access to
financial services, enhance financial and economic performance of their borrowers,
and bring greater financial stability (Clarke et al. 2003, Claessens 2006, Cull and
Martinez Peria 2013). Generally, lower costs of financial intermediation (measured
by margins, spreads, overheads) and lower profitability are found to coincide with
greater foreign bank presence (Claessens, Demirguc-Kunt, and Huizinga 2001; see
also Mian 2003, Berger, Clarke, et al. 2005, Beck, Demirguc-Kunt, and Martinez Peria
2008). Also, evidence exists of better quality financial intermediation, for example,
lower loan-loss provisioning, with more foreign entry (Martinez-Peria and Mody
2004). This is especially so compared to state-owned banks whose performance is
generally found to be poor (La Porta, Lopez-de-Silanes, and Shleifer 2002, Sapienza
2004, Cole 2009, Carvalho Forthcoming). Likely a number of factors are behind
these effects, such as the introduction of new, more diverse products; greater use of
up-to-date technologies; and know-how spillovers (e.g., as people learn new skills
from foreign banks, they migrate over time to domestic banks). In addition, foreign
banks likely pressure governments to improve regulation and supervision, increase
transparency, and more generally catalyze domestic reform (Levine 1996).
The effects of the entry of foreign banks on development and efficiency appear to
depend on some conditions, though. For example, limited general development and
entry barriers can hinder the effectiveness of foreign banks (Demirguc-Kunt, Laeven,
and Levine 2004, Garcia-Herrero and Martinez Peria 2007). Also, the relative size of
foreign banks’ presence seems to matter. With more limited entry (relative to the total
host banking system), fewer spillovers seem to arise, suggesting some threshold effect
exists (Claessens and Lee 2003). Furthermore, important interplays seem to exist
between similarities of home and host countries and entry decisions (Galindo, Micco,
and Serra 2003, Berger et al. 2004, Claessens and Van Horen 2014) and between
(cultural and institutional) distance and performance (Claessens and Van Horen 2012).
In terms of individual bank characteristics, it seems that larger foreign banks’
operations are associated with greater effects on access to financial services for small-
and medium-sized enterprises, perhaps as they are more committed to the market,
298 : MONEY, CREDIT AND BANKING

while smaller banks are more niche players (Clarke et al. 2005). Furthermore, the
health of both the home and the local host bank operation seem to matter, with
healthier banks showing better credit growth (Dages, Goldberg, and Kinney 2000;
see also De Haas and Van Lelyveld 2006).
While the entry of foreign banks is generally thought to have favorable effects
on credit extension, some studies find more ambiguous results. Some show that
foreign banks “cherry pick” borrowers (Detragiache, Gupta, and Tressel 2008, Beck
and Martinez Peria 2010, Gormley 2010). This can undermine overall access to
financial services, since it worsens the remaining credit pool, and thereby lowers
overall financial development, especially in low-income countries where information
asymmetries are large. Indeed, Detragiache, Gupta, and Tressel (2008) show that
the presence of foreign banks in low-income countries is associated with less credit
being extended. However, Cull and Martinez Peria (2008) show that this relationship
disappears or even reverses once crisis-induced acquisition of (distressed) banks by
foreigners is accounted for.
Besides the impact of foreign banks on the development and efficiency of the
domestic financial sector, a number of studies examine their impact on financial sta-
bility. Some papers find that global banks support their foreign affiliates during times
of financial stress through internal capital markets (De Haas and Van Lelyveld 2006,
2010, Barba-Navaretti et al. 2010). At the same time, however, some studies show that
(funding) shocks to parent banks can be transmitted to their foreign subsidiaries and
branches with (possible) negative consequences for their lending (Peek and Rosen-
gren 1997, 2000, Cetorelli and Goldberg 2012). Studying the global financial crisis,
papers show that foreign subsidiaries reduced lending more compared to domestic
banks (De Haas and Van Lelyveld 2014, Popov and Udell 2012). Ongena, Peydro,
and Van Horen (2013), however, show for Eastern European countries that while for-
eign banks reduced lending more compared to locally funded domestic banks, they
did not compare to domestic banks that had financed their lending from international
capital markets. In addition, Claessens and Van Horen (2013) find that foreign banks
reduced credit more compared to domestic banks in countries where they had a small
role, but not when dominant or funded locally.
Although providing very interesting and valuable insights, most studies analyze
only a limited number of countries and/or a selected number of (large) banks. While
this can allow for a more careful isolation of the mechanisms the authors are after,
it can come at the cost of not being able to generalize the results or to address
the influence of heterogeneity across foreign banks. While many have attempted to
control for country factors, for example, this has proven somewhat difficult. Especially
bilateral factors have been hard to control for simply because data have not been
available. While some papers have investigated these issues (e.g., Berger et al. 2004),
only some papers (Galindo, Micco, and Serra 2003, Micco, Panizza, and Yañez 2007,
Claessens and Van Horen 2012, 2013, 2014) have been able to analyze a large sample
of banks and control for various types of heterogeneity.
As we highlight, exploiting the unique information in our database, much hetero-
geneity exists within the group of foreign banks and this heterogeneity has a nontrivial
STIJN CLAESSENS AND NEELTJE VAN HOREN : 299

impact on, for example, the relationship between foreign bank presence and private
credit development. Therefore, by introducing this new, comprehensive database cov-
ering (close to) the universe of domestic and foreign banks over a lengthy period, this
paper allows research on foreign banking to be extended in important ways.
The paper itself is structured as follows. Section 1 describes the database. Section 2
provides an overview of the main trends in foreign banking, and highlights the
heterogeneity in foreign bank ownership. Section 3 examines the impact of foreign
bank ownership on private credit in the host country. Section 4 concludes.

1. DATA

The main purpose of this paper is to present an original and newly collected
database on bank ownership (available at http://jmcb.osu.edu/claessens-and-van-
horen). The data in the database were manually collected using many sources. These
include, but are not limited to (parent), bank websites and annual reports, banking reg-
ulatory agency/central bank websites, reports on corporate governance, local stock
exchanges, SEC’s Form F-20, newspaper articles and country experts. We further
cross-checked the data with other (less comprehensive databases), among others,
Micco, Panizza, and Yañez (2007). Given that, to the best of our knowledge, full
coverage of bank ownership information is not available in other databases, our data
collection effort provides a unique source of information.2
We started off by creating a list of all commercial banks, savings banks, cooperative
banks, bank holdings, and holding companies that were reporting to Bankscope in
2009. We then included all banks that were active at least 1 year between 1995 and
2009. Therefore, our database includes both banks still active in 2009 and banks
that exited the market during the sample period. For each bank we provide their
consolidated and/or unconsolidated index number (as used by Bankscope) to allow
researchers to combine our ownership data with balance sheet and profit and loss
information. Given that we link our database to Bankscope, we cover subsidiaries
of foreign-owned banks, but not their branches, as branches in general do not report
individual balance sheet information and are therefore not included in Bankscope.
Following this list we imposed a few restrictions. First, we only included host
countries with more than 5 active banks reporting to Bankscope in 2009. In addition,
for the advanced countries in our sample, we restricted our coverage to the 100
largest banks in each country in terms of 2008 assets, so smaller (typically regional)
banks are not included in the database for these countries (this reduces especially the
coverage of the banks active in the United States). Third, since including bank holding
companies can potentially lead to double counting, as both the holding company and
the bank itself are often included in Bankscope, we excluded the holding company

2. Bankscope does provide some information on shareholder structures of banks. However, information
is lacking for a large number of banks and changes over time are in general only partially recorded.
300 : MONEY, CREDIT AND BANKING

if the bank itself was represented in the database. For all countries, we cover this
way at least 90% of the banking system in terms of assets. In total, the database
covers ownership information of 5,324 banks active in 137 countries, covering banks
in advanced countries like the United Kingdom and the United States, emerging
markets like Brazil and China, and developing countries like Cambodia and Zambia.
Next, we proceeded by determining for each bank in our sample the exact moment
of entry and (if applicable) of exit. If the exact year of establishment (“entry”) could
not be determined, but additional information indicated that the bank was in operation
prior to 1995 (e.g., the presence of financial statements), we coded 1500 as the fictive
year of establishment. For 47 banks (0.9% of our sample), we were not able to find
the exact year of establishment nor could we determine whether the bank was active
prior to 1995. In these cases, the year of establishment and ownership information is
left blank. In terms of exit, we used in general the year the bank became inactive in
Bankscope as the moment of exit. When in doubt, we cross-checked this information
using additional sources and made corrections if necessary.
Mergers and acquisitions (M&As) are common among banks, but represent a
complication in data collection and coding. We carefully went through all M&As
and made sure that only the merged entity or the acquiring bank remained in the
sample after a take-over. For example, if two banks, bank A and bank B, merged
in 2000 to create a new entity, bank C, then the two individual banks A and B
were each included in the data set until 2000. Then, from 2000 on, these two banks
were considered inactive and the new bank (bank C) was included in the database.
Similarly, if bank A was acquired by bank B in 2000, both banks were included in
the database until 2000, with bank A then becoming inactive after 2000 and bank
B remaining active after 2000. Information on mergers and acquisitions was mostly
obtained from Bankscope and from banks’ individual websites.3
Subsequently we identified the bank’s shareholders in each year the bank was active
in the period 1995–2009. Given that it is nearly impossible to collect exact shareholder
information and changes therein over time for such a large sample of banks and long
time period, we opted for using a dummy approach. That is, we identified a bank as
foreign owned when 50% or more of its shares were held by foreigners, capturing
this way also major changes in ownership. This cutoff is standard in the literature on
foreign bank ownership. For each year the bank was active, it was then coded either
foreign owned or domestic (note that for domestic banks we do not make a distinction
between privately or state-owned banks).
Next, we determined for the foreign banks the home country of the largest foreign
shareholder. We summed the percentages of shares held by foreigners by country of
residence, with the country with the highest percentage of shares then considered the
home country. The country of ownership is based on direct ownership; that is, we do
not consider indirect ownership. We did, however, take into account that in some cases

3. Although the database does not provide a specific indicator for the occurrence of a merger or acquisi-
tion, where relevant often (detailed) information on the merger or acquisition is provided in accompanying
notes.
STIJN CLAESSENS AND NEELTJE VAN HOREN : 301

the direct owner is an entity purely established for tax purposes. In such cases, we
recorded the country of nationality of the ultimate owner as the home country (these
cases typically involve entities registered in Luxembourg, Mauritius, and Panama).
In later years, identifying home countries and tracing ownership information became
more complicated with more banks raising equity through public capital markets
offerings. To overcome the problem of determining the nationality of anonymous
shareholders, we only considered block shareholdings when determining ownership.
When determining ownership, we erred on the side of caution and reported ownership
as missing when the reliability of the information was in question.
The following is an example of how the coding of a hypothetical bank was carried
out. First, let a bank in Hungary be 40% domestic owned and 60% foreign owned.
Then, let shareholder X from Austria hold all shares not held by domestic owners.
This bank is coded as foreign owned with Austria as the home country. In this case
the foreign shareholder is the largest shareholder. There are cases though in which the
foreign shareholder is not the largest shareholder, but the bank is still foreign owned.
An example can clarify this case. Let a bank in Poland be 40% domestic owned and
60% foreign owned. Then, let shareholders X and Y from Germany hold 35% of the
shares, while a shareholder Z from Italy holds 25% of shares. This bank is then coded
as foreign owned, with Germany as the home country because the largest portion of
shares in foreign hands is held by German investors, even though German investors
themselves hold fewer shares than domestic owners do.
Using these data and procedures, we were able to determine the complete ownership
structure, including the home country of the largest foreign shareholder, for 5,248 of
the 5,324 banks in the sample (i.e., 98.6%) for all the years each bank was active. For
14 banks only partial ownership and for 61 banks no ownership could be determined.
All in all, the data provide an almost complete picture of bank ownership around the
world and changes therein over time.
Using the database, we next discuss developments in foreign bank presence be-
tween 1995 and 2009, how this varies by home, host, and bilateral characteristics;
compare foreign and domestic bank characteristics; and analyze the relationship be-
tween foreign bank presence and financial development and how this varies by host
country and foreign bank characteristics.

2. TRENDS AND HETEROGENEITY IN FOREIGN BANKING

Over the period 1995 to 2009, banking systems in many countries experienced
important transformations. While the total number of domestic and foreign banks
in our sample stayed virtually the same (3,980 in 1995 and 3,947 in 2009), these
aggregate numbers mask two counteracting trends (Table 1).4 The number of domestic
banks decreased by about 18%, due to consolidation driven by technological changes

4. We exclude from all further analyses eight offshore host countries (Antigua and Barbuda, Bahrain,
Barbados, Cyprus, Mauritius, Panama, Seychelles, and Singapore) that are included in the database. This
reduces the sample by 225 banks.
302 : MONEY, CREDIT AND BANKING

TABLE 1
NUMBER OF BANKS BY HOST COUNTRY, AGGREGATES BY INCOME LEVEL AND REGION

1995 2000 2005 2009

Number Share Number Share Number Share Number Share

All countries
Domestic 3,192 0.80 3,064 0.74 2,861 0.71 2,617 0.66
Foreign 788 0.20 1,069 0.26 1,165 0.29 1,330 0.34
Total 3,980 1 4,133 1 4,026 1 3,947 1
Income groups
OECD
Domestic 1,067 0.82 1,092 0.80 1,102 0.78 1,068 0.76
Foreign 238 0.18 280 0.20 311 0.22 329 0.24
Total 1,305 1 1,372 1 1,413 1 1,397 1
Other high income
Domestic 79 0.66 74 0.66 63 0.60 62 0.60
Foreign 40 0.34 38 0.34 42 0.40 41 0.40
Total 119 1 112 1 105 1 103 1
Emerging markets
Domestic 1,484 0.82 1,313 0.74 1,159 0.70 1,011 0.64
Foreign 328 0.18 473 0.26 486 0.30 572 0.36
Total 1,812 1 1,786 1 1,645 1 1,583 1
Developing countries
Domestic 562 0.76 585 0.68 537 0.62 476 0.55
Foreign 182 0.24 278 0.32 326 0.38 388 0.45
Total 744 1 863 1 863 1 864 1
Region
East Asia and Pacific
Domestic 261 0.82 277 0.81 296 0.81 290 0.76
Foreign 56 0.18 64 0.19 68 0.19 93 0.24
Total 317 1 341 1 364 1 383 1
Eastern Europe and Central Asia
Domestic 673 0.85 610 0.72 510 0.62 418 0.53
Foreign 115 0.15 235 0.28 310 0.38 374 0.47
Total 788 1 845 1 820 1 792 1
Latin America and Caribbean
Domestic 604 0.75 485 0.66 400 0.65 369 0.61
Foreign 197 0.25 254 0.34 215 0.35 233 0.39
Total 801 1 739 1 615 1 602 1
Middle East and North Africa
Domestic 147 0.82 135 0.77 120 0.72 103 0.64
Foreign 32 0.18 40 0.23 46 0.28 57 0.36
Total 179 1 175 1 166 1 160 1
South Asia
Domestic 134 0.93 144 0.91 149 0.91 141 0.87
Foreign 10 0.07 15 0.09 15 0.09 22 0.13
Total 144 1 159 1 164 1 163 1
Sub-Saharan Africa
Domestic 227 0.69 247 0.63 221 0.58 166 0.48
Foreign 100 0.31 143 0.37 158 0.42 181 0.52
Total 327 1 390 1 379 1 347 1

NOTE: OECD includes all core OECD countries. Other high-income countries include all countries classified as high income by the World
Bank in 2000 but not belonging to the OECD. Emerging markets include all countries that are included in the Standard & Poor’s Emerging
Market and Frontier Markets indexes and that were not high-income countries in 2000. Developing countries include all other countries. The
regions represent the regional classification as used by the World Bank.
STIJN CLAESSENS AND NEELTJE VAN HOREN : 303

Numbers Share

1600 0.40

1400
0.35
1200

1000 0.30
800

600 0.25

400
0.20
200

0 0.15
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Number of foreign banks Share of foreign banks

FIG. 1. Number and Share of Foreign Banks, 1995–2009.

and deregulation in many advanced and developing markets as well as by some


financial crises. At the same time, the number of foreign-owned banks increased
by 69%. These differing trends mean that the relative importance of foreign banks
increased substantially, from a share of 20% in 1995 to 34% in 2009. Figure 1 shows
this steady increase in the number of foreign banks present, from 788 in 1995 to
1,330 in 2009, and in the foreign share.
While there was a steady increase in presence, foreign bank entry did fluctuate
over the period (Figure 2). It was especially high in the late 90s and early 2000s and
again in 2006–07. This reflected in part waves of reforms, including the opening up
of Eastern Europe and other transition economies, and the liberalization of entry by
East Asian countries. It also reflected the rapid financial globalization that took place
before the crisis. Entry peaked in 2007, though, and slowed down markedly after the
start of the crisis. While 2008 still saw entries at levels similar to 2005, entries in
2009 were the lowest in the period. Many banks in important home countries suffered
capital losses and, due to market forces or government interventions, were forced to
consolidate, limiting their interest in new foreign investments. At the same time,
countries affected by the crisis became less attractive as investment opportunities.
Although entries dominated over the whole sample period, foreign banks did exit
markets, with 2001 standing out with 47 banks exiting, mostly due to various crises
affecting emerging markets. While the recent crisis negatively affected entry in 2009,
it hardly impacted exits, which remained at earlier levels. Parent banks, apparently,
did not (yet) feel the need to close or sell their foreign affiliates, probably because
many affiliates were located in countries at the time only marginally affected by
the crisis and/or with substantial long-term growth opportunities (with fixed costs
304 : MONEY, CREDIT AND BANKING

Numbers
140
120
100
80
60
40
20
0
-20 NA
-40
-60
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Entry Exit

FIG. 2. Number of Entries and Exits of Foreign Banks, 1995–2009.


NOTE: As the database starts in 1995, the number of foreign banks that exited the market in that year cannot be determined.

involved in setting up a foreign affiliate large, exits are in general not driven by
short-run fluctuations but by longer-run opportunities).
While foreign bank presence increased in general, the trends and current penetra-
tions differ greatly across host countries (see Tables A1 and A2 in the Appendix for
individual country data). Figure 3 shows for 129 countries in our sample the share of
foreign banks in terms of numbers for 1995 and 2009. Two observations stand out.
First, foreign bank penetration increased substantially over the period, but with im-
portant differences across countries. This is also clear from Table 1, which provides
information on foreign bank presence by income group (OECD, other high-income
countries, emerging markets, and developing countries) and region.5 In terms of
increases, differences between income groups are substantial. In OECD and other
high-income countries, the number of foreign banks grew by 38% and 2.5%, respec-
tively, between 1995 and 2009, but in emerging markets by 74% and in developing
countries by 113%. Especially in emerging markets and developing countries foreign
banks thus became more important, with market shares of 36% and 45% in 2009,
respectively, up from 18% and 24% in 1995. In these countries, foreign banks now
play important roles in financial intermediation, with average loan, deposit, and profit

5. The OECD group only includes the core OECD countries and other high-income includes all
countries classified as high-income by the World Bank in 2000 but not belonging to OECD. This implies
that current OECD countries like Hungary, Czech Republic, Poland, Slovakia, and Korea are included in
the emerging market group. Slovenia, which already was a high-income country in 2000, is included in
the other high-income group. Emerging markets includes all countries that are included in the Standard &
Poor’s Emerging Market and Frontier Market indexes and that were not high-income in 2000. All other
countries are included in the group developing countries. A number of countries that were low-income
in 2000 but that are now in the Frontier Market Index (Bangladesh, Cote d’Ivoire, Ghana, Kenya, and
Zimbabwe) are included in the developing countries group.
STIJN CLAESSENS AND NEELTJE VAN HOREN : 305

FIG. 3. Foreign Bank Presence, 1995 and 2009.


306 : MONEY, CREDIT AND BANKING

shares between 42% and 50%. Perhaps not surprisingly, in many OECD countries
most financial intermediation remains done by domestic banks, with average foreign
bank loan, deposit, and profit shares of about 20%.
Within the emerging market and developing country group though, substantial
regional differences exist. Growth rates over this period were by far the highest in
Eastern Europe and Central Asia (225%) and at 47% foreign bank penetration in this
region is now the second largest. Increases were also large in South Asia (120%), but
as the base was very low, penetration in this region remains relatively limited, only
14%. Latin America saw very strong growth early in the period, but after 1999, in
the aftermath of the Argentine and Brazilian crises, many foreign banks exited the
region and new entries remained limited until investment picked up again in 2006.
Still in Latin America shares went up considerably, from 25% to 39%. Foreign bank
penetration in Sub-Saharan Africa, already high in 1995 at 31%, in part due to past
colonial links, only further rose over the sample period and in 2009 over 50% of the
banks active in the region were foreign owned.
Second, even though foreign banks are now present in almost all countries (in 1995
20 countries did not have any foreign bank present whereas in 2009 only 12 countries
did so), their market shares differ widely across countries, with presence generally
negatively related to the level of development of the host country. Especially in many
emerging markets and developing countries in Eastern Europe and Central Asia,
Latin America and Sub-Saharan Africa foreign banks now capture at least 50% of
the domestic banking sector.
Figure 4 shows the relative foreign bank presence across all 129 host countries in
terms of numbers (left panel) and assets (right panel) in 2009, from the top 10 to the
bottom 10 countries. It highlights how large differences in market shares are varying
from over 90% in the top six host countries to single-digit percentages in the bottom
21 host countries. Similarly, the range of asset shares varies also much. The drop in
asset share though is steeper below the middle range compared to that in the number
share. This reflects that host countries tend to have either many large or few small
foreign banks.
Foreign bank ownership does not only differ substantially across host countries,
but it also varies importantly by home country as some countries export more banks
than others do. Table 2 shows that in absolute numbers, not surprisingly, OECD
countries export the largest number of foreign banks, 883 in 2009, and emerging
markets and developing countries much fewer, 268 and 97, respectively. Exports
did become less concentrated, however, as investments from emerging markets and
developing countries increased more over time. While the number of foreign banks
owned by OECD home countries increased by 58% over the sample period, those
owned by other high-income countries, emerging markets and developing countries
grew by 125%, 84%, and 102%, respectively. Although the majority of parent banks
today are still from an OECD country (with a strong concentration in some countries),
28% of foreign banks in 2009 was owned by a bank from an emerging or developing
country.
STIJN CLAESSENS AND NEELTJE VAN HOREN : 307

Top 10 countries Top 10 countries

11-20 11-20

21-30
21-30

31-40
31-40
41-50
41-50
51-60
51-60
61-70
61-70
71-80
71-80
81-90
81-90
91-100

91-100
101-110

111-120 101-110

121-129 111-115

0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100
Share in numbers (%) Share in assets (%)
excludes outside values excludes outside values

FIG. 4. Foreign Bank Presence by Top Host Countries, 2009.


NOTE: The figure ranks all host countries by the share of foreign banks in the domestic banking system in terms of numbers
(left pane) and assets (right pane) as of 2009. For each group of 10 host countries, it shows the median, quartiles, and
minimum and maximum.

The rise in foreign banks reflects established investors from the same countries
further increasing the number of banks they own and the entrance of investors from
new countries. While in 1995, 78 home countries were active as foreign investors, in
2009 this increased to 97, mostly due to a growing importance of emerging markets
and developing countries as investors. While in 1995 46 different emerging markets
and developing countries owned foreign banks abroad, by 2009 this number had
increased to 59. As a result, foreign ownership has become less concentrated. In 1995
the five biggest investors (France, Germany, the Netherlands, the United Kingdom,
and the United States) owned 45% of all foreign banks. By 2009, this percentage had
dropped to 38%.
Figure 5 highlights this large variation in home country origin. It shows (left panel)
the distribution across home countries in their share of foreign banks active in 2009
in terms of numbers. Countries like United Kingdom (10.3%), United States (8.5%),
and France (7%) together represent 25% of global foreign bank investment, whereas
countries below the top 30 each have market shares of 1% or less. Similarly, asset
shares (right panel) vary from double digits for the top two home countries (United
Kingdom 14.8% and United States 11.1%) to 1% or less for any home country
outside the top 20. Again, the falloff in asset share is steeper than for the number
308 : MONEY, CREDIT AND BANKING

TABLE 2
NUMBER AND SHARE OF FOREIGN BANKS FROM HOME TO HOST INCOME GROUPS, 1995 AND 2009

Host income group

OECD OHI EM DEV Total

Number and share of foreign banks from No. Share No. Share No. Share No. Share No. Share
home country present in host country

1995

Home income group


OECD 197 0.35 24 0.04 246 0.44 93 0.17 560 1
Other high income 9 0.29 0 0.00 14 0.45 8 0.26 31 1
Emerging markets 28 0.19 13 0.09 52 0.36 52 0.36 145 1
Developing countries 4 0.08 3 0.06 15 0.31 26 0.54 48 1
2009

Home income group


OECD 272 0.31 18 0.02 413 0.47 180 0.20 883 1
Other high income 10 0.14 4 0.06 38 0.54 18 0.26 70 1
Emerging markets 40 0.15 17 0.06 94 0.35 117 0.44 268 1
Developing countries 7 0.07 2 0.02 25 0.26 63 0.65 97 1

NOTE: OECD includes all core OECD countries. Other high-income countries include all countries classified as high-income by the World
Bank in 2000 but not belonging to the OECD. Emerging markets include all countries that are included in the Standard & Poor’s Emerging
Market and Frontier Markets indexes and that were not high-income countries in 2000. Developing countries include all other countries.

share, indicating that the top home countries “export” relatively many, large banks,
while the rest of the countries only export a few, smaller banks.
The data assembled provide a unique perspective on foreign bank presence as they
allow for documenting home-host relations. Studying these bilateral patterns high-
lights another important heterogeneity: strong income- and region-related patterns.
Looking at the diagonal entries in Table 2 shows that banks from OECD countries
tend to invest mostly in emerging markets or in other OECD countries. And banks
from emerging markets tend to invest in developing countries or emerging markets,
while banks from developing countries tend to invest in other developing countries or
emerging markets. So banks seem to seek out those host countries that are relatively
similar in income levels to their home market, presumably after taking into account
competition and profit opportunities. Comparing the top and bottom panels of Table 2
shows that this pattern has strengthened over time among developing countries, high-
lighting the increasing role of South–South investment in foreign bank ownership, as
analyzed by Van Horen (2006).
Furthermore, foreign bank entry also tends to be regionally concentrated (Table 3).
Splitting countries in four broad geographical regions that cut across income groups
(America, Asia, Europe, and Middle East, and Africa), we see that both in 1995 and
2009 the share of foreign banks coming from countries within the region is always
more than 50% (the diagonal in Table 3). The highest intraregional share in 2009 is,
maybe surprisingly, found for Middle East and Africa, more than 70%. In all regions
except America, the intraregional share has increased over time, which mirrors the
STIJN CLAESSENS AND NEELTJE VAN HOREN : 309

Top 10 countries Top 10 countries

11-20 11-20

21-30 21-30

31-40 31-40

41-50 41-50

51-60 51-60

61-70 61-70

71-80 71-80

81-90 81-90

91-97 91-92

0 1 2 3 4 5 6 7 8 9 10 0 2 4 6 8 10 12 14 16
Share in numbers (%) Share in assets (%)
excludes outside values excludes outside values

FIG. 5. Foreign Bank Exports by Top Home Countries, 2009.


NOTE: The figure ranks all home countries by the share of foreign banks from that country in total foreign banks active
in terms of numbers (left pane) and assets (right pane) as of 2009. For each group of 10 home countries, it shows the
median, quartiles, and minimum, and maximum.

trend toward greater intraregional activity found in trade.6 This pattern may not
surprise since research has shown that foreign banks tend to follow their customers
and therefore tend to enter countries with strong trade linkages (e.g., Goldberg and
Grosse 1991). In addition, studies have found that banks tend to invest in countries
that are (geographical and/or institutional) close (e.g., Galindo, Micco, and Serra
2003, Buch and De Long 2004). Claessens and Van Horen (2014) show, however,
that not only absolute distances matter but also the distance of competitor countries.
Finally, it is important to realize that foreign banks vary much with respect to
their business models, size, and profitability. Some of this heterogeneity is shown
in Figures 6(a)–(f).7 The loan-to-deposits ratio is a proxy for the degree to which
a bank is active in traditional forms of financial intermediation, that is, lending.
This ratio tends to vary much across foreign banks (Figure 6a), indicating that some
foreign banks are financing their lending mostly from (local) deposits, while others
importantly use additional sources of (wholesale) funding. Foreign banks also tend to
have significant liquid assets relative to total assets (Figure 6b), reflecting conservative

6. As shown by Whalley and Xin (2007), trade has become increasingly more regional over the last
three decades, which they explain by the proliferation of regional free trade agreements.
7. We use 2007 balance sheet information in Figure 6 to avoid results being contaminated by the
financial crisis.
310 : MONEY, CREDIT AND BANKING

TABLE 3
NUMBER AND SHARE OF FOREIGN BANKS FROM HOME TO HOST REGIONS, 1995 AND 2009

Host region

Number and share of America Asia Europe MEA Total


foreign banks from home
country present in host
country No. Share No. Share No. Share No. Share No. Share

1995

Home region
AMERICA 116 0.61 23 0.12 40 0.21 10 0.05 189 1
ASIA 15 0.16 52 0.57 15 0.16 9 0.10 91 1
EUR 93 0.22 37 0.09 235 0.55 62 0.15 427 1
MEA 2 0.03 4 0.05 17 0.22 54 0.70 77 1
2009

Home region
AMERICA 128 0.58 24 0.11 56 0.25 12 0.05 220 1
ASIA 22 0.17 83 0.63 19 0.14 8 0.06 132 1
EUR 121 0.15 61 0.08 522 0.66 85 0.11 789 1
MEA 4 0.02 11 0.06 32 0.18 130 0.73 177 1

NOTE: Countries are grouped in four geographical regions irrespective of the income level of the countries. “America” includes Canada,
the United States, and all countries in Latin America and the Caribbean. “Asia” includes all countries in Central, East, and South Asia and
the Pacific countries including Japan, Australia, and New Zealand. “Europe” includes all Western and Eastern European countries. “MEA”
includes all countries in the Middle East and North and Sub-Saharan Africa.

management. The variation is again large, however, as the ratio ranges between 5%
and 80%.
In terms of solvency, foreign banks tend to have ratios of capital to risk-weighted
assets similar to domestic banks, which on average hold 18% capital (Figure 6c).
This suggests that many foreign banks are also conservative with respect to their
capital buffers, as international guidelines suggest capital adequacy requirements of
8%. Nevertheless, a substantial number of foreign banks still have relatively low
capital ratios. In terms of performance, foreign banks tend to slightly underperform
domestic banks with returns on assets in general hovering at or below the 2% level
(Figure 6d). This may surprise since foreign banks, with greater access to know-how,
technology, and lower cost of funds, are generally believed to be quite profitable.
Some of this lower profitability probably reflects foreign banks’ specific activities;
for example, they could have more conservative portfolios. However, it may also
reflect differences in the origin of foreign banks and the ease by which they operate
in foreign countries.8
Figure 6(e) shows the ratio of deposits to liabilities, which indicates the importance
of wholesale funding relative to traditional deposits. Here large variations also exist,

8. Claessens and Van Horen (2012) show that the profitability of foreign banks is importantly affected
by home, host, and institutional factors. They find, for example, that foreign banks perform better when
from a high-income country and when regulations in the host country are relatively weak. Also foreign
banks from home countries with the same language and similar regulation as the host country tend to
perform better. These factors explain some of the differences in the simple averages.
STIJN CLAESSENS AND NEELTJE VAN HOREN : 311

a. Loans-to-deposits b. Liquidity ratio


.3

.3
.2

.2
Fraction

Fraction
.1

.1
0

0
0 .5 1 1.5 2 2.5 0 .2 .4 .6 .8
l_
d
epm lq
im
_

c. Capital ratio d. ROA


.4

.4
.3

.3
Fraction

Fraction
.2

.2
.1

.1
0

0
0 .2 .4cp
am
_
.6 .8 -.02 0 .02 ra
om
_
.04 .06 .08
e. Deposits-to-Liabilities f. Foreign banks share in assets
.4

.8
.3

.6
Fraction

Fraction
.2

.4
.1

.2
0

.4 .6 d
l
_
m .8 1 0 .2 .4 .6

FIG. 6. Balance Sheet and Performance Measures of Foreign Banks, 2007.


NOTE: The vertical lines represent the averages across domestic banks. Loans to deposits equals total loans to deposits.
Liquidity ratio measures liquid assets divided by total assets. Capital ratio equals the capital divided by risk-weighted
assets. ROA measures return on assets. Deposits to liabilities equals deposits divided by liabilities. Foreign bank share in
assets equals total assets of a foreign bank divided by total assets in the banking system of the country in which the bank
is located. All balance sheet and performance measures are measured in 2007.

but on average foreign banks have a deposit-to-liability ratio of about 73%, the same
as domestic banks. Finally, Figure 6(f) shows how most foreign banks represent
only a small share of total banking system assets in respective host markets, with
shares generally less than 10%. As noted, however, some individual foreign banks
are significant in local banking systems, in some cases with shares over 30%.
Summarizing, our data show not only that foreign banks have become much more
important over the last two decades in many countries’ banking systems, but also that
there is much heterogeneity in investment patterns. In the next section, we examine,
taking this heterogeneity into account, one prominent and controversial question: the
impact of foreign bank ownership on the provision of credit.

3. FOREIGN BANKS AND DOMESTIC CREDIT CREATION

In this section we examine the link between foreign ownership and the provision of
credit to the private sector. The extent to which foreign banks contribute to financial
sector development is possibly one of the most controversial aspects of foreign bank
312 : MONEY, CREDIT AND BANKING

presence. Although some studies have looked at the relationship between private
credit and foreign bank ownership, surprisingly little is known under what condi-
tions foreign ownership positively relates to private credit and when negatively. The
recent financial crisis has given further impetus to this question. Given the substan-
tial differences across foreign banks, as highlighted, allowing for various types of
heterogeneity can be important when studying this issue.

3.1 Methodology
To assess the impact of foreign bank ownership, we use cross-country regression
analyses to test whether foreign bank presence is associated with higher or lower
levels of private credit and which host country and bank characteristics may drive
this relationship. Detragiache, Gupta, and Tressel (2008) develop a theoretical model
that predicts a negative relationship between foreign bank presence and private credit
for low-income countries. Studying a sample of 89 low- and lower-middle-income
countries, they find that foreign bank presence is indeed negatively related to private
credit. Since they did not include other countries, however, the generality of this
result is not obvious. And, as is true for many cross-country studies, it may be due
to other, omitted factors. Our sample consists of 111 countries for which we have
information on foreign bank presence and private credit, allowing us to examine the
robustness of this finding to a number of host country characteristics. Furthermore,
as the database includes the identity of the home country of the foreign bank, we can
study whether the effects vary by foreign bank home country.
Our dependent variable is the ratio of private credit to GDP (from the IMF Inter-
national Financial Statistics). We take the 3-year average (2005–07) to smooth out
business cycle fluctuations. Our independent variable of interest, Foreign presence,
is the ratio of foreign bank assets to total bank assets in the country, measured as of
2004 to limit as much as possible endogeneity concerns.9
As control variables, we add a number of variables known to affect the level of
private credit in an economy (see, e.g., Djankov, McLiesh, and Shleifer 2007), all
also measured as of 2004. The first variable is the overall level of development in
the country as measured by GDP per capita, with more developed countries having
generally a higher level of private credit. We control for Inflation as it has been shown
to adversely affect financial depth. In addition, we include two variables capturing
host countries’ institutional quality as related to the ease of doing banking business:
the availability of information to creditors (Creditor info), and the cost of enforcing
contracts (Enforcement contracts). Both these variables come from the World Bank’s
Doing Business indicators.
The obvious drawback of this type of cross-sectional regression is that the market
share of foreign banks could be endogenous to the host country’s financial develop-
ment, including private credit. As also pointed out by Detragiache, Gupta, and Tressel

9. When asset information is too limited in a particular country in 2004 to get a reliable estimate for
Foreign presence we use the 2005 asset share instead.
STIJN CLAESSENS AND NEELTJE VAN HOREN : 313

(2008) the bias could, however, run both ways. On the one hand, foreign banks might
be more willing to enter countries where (for other reasons) financial development is
particularly low as they expect these markets to grow faster. On the other hand, busi-
ness prospects might be worse in countries with low levels of development, making
foreign banks more reluctant to enter. As the bias is thus not obvious, we continue
using OLS regressions with robust standard errors.

3.2 Empirical Results


Table 4 presents the results of our cross-country regression. Using all 111 countries
in our sample, we find a negative correlation between the presence of foreign banks
and private credit to GDP (column 1). A one standard deviation increase in Foreign
presence is associated with a decline in private credit of 5 percentage points, eco-
nomically significant, since the average ratio of private credit to GDP in our sample
is 50%. We also find some evidence of a nonlinear relationship (column 2). This,
however, is mostly driven by a few outliers: high-income countries with very large
financial sectors compared to the size of their economy that are either dominated by
foreign banks (Hong Kong, Ireland, and New Zealand) or with hardly any foreign
banks (Iceland). When we exclude these countries, we find again a negative (linear)
relation that is even stronger (not reported).
In terms of our control variables, we find (as expected) GDP per capita to be
generally positively associated with more financial development and inflation with
less financial development. Access to creditor information has a positive impact on
financial sector development, but is imprecisely estimated. In general, the longer it
takes for contracts to be enforced, the less credit is created, but this effect is often
also imprecisely estimated.
In order to test whether the relationship between foreign bank presence and the
provision of private credit is conditional on certain host country features, we next
study a number of subsamples of host countries. First, we test whether the impact of
foreign bank presence differs between the group of developing countries, emerging
markets, and high-income countries. The results in Table 4, columns 3–5 show that
this is indeed the case. We find that foreign bank presence is only negatively related
to private credit in developing countries. A one standard deviation increase in Foreign
presence is associated with a decline in private credit of 5 percentage points (compared
to a mean private-credit-to-GDP ratio of 20% in this group of countries). This confirms
the results of Detragiache, Gupta, and Tressel (2008) that for low-income countries
foreign bank presence is negatively related with private credit.
Second, we look at the relative importance of foreign banks in the host country.
A number of studies have found evidence that the behavior of foreign banks might
be related to their relative importance in the host country. For example, Claessens
and Lee (2003) find fewer spillovers with more limited entry. And Cull and Martinez
Peria (2008) show that in countries where foreign banks hold more than 10% of the
assets, private credit was significantly higher than in countries with shares less than
10% before, during, and after crises. Since the relative importance of foreign bank
314
:

TABLE 4
PRIVATE CREDIT AND FOREIGN BANK PRESENCE—HOST COUNTRY HETEROGENEITY

[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11]
Developing Emerging High income Foreign banks Foreign banks Cost contract Cost contract Credit information Credit information
All countries countries markets countries <50% market share>50% market share enforcement high enforcement low low high

Foreign presence−0.174** −0.635** −0.155*** −0.041 0.136 −0.288* −0.071 −0.246* −0.110* −0.209** −0.127
(0.018) (0.028) (0.003) (0.723) (0.604) (0.057) (0.674) (0.096) (0.080) (0.010) (0.377)
Foreign presence 0.511*
(0.070)
MONEY, CREDIT AND BANKING

− squared
GDP per capita 0.000*** 0.000*** 0.000 0.000 0.000 0.000*** 0.000*** 0.000*** 0.000 0.000*** 0.000***
(0.000) (0.000) (0.778) (0.891) (0.913) (0.000) (0.000) (0.000) (0.122) (0.001) (0.000)
Inflation −0.007*** −0.006*** −0.004*** −0.025*** 0.062 −0.009*** −0.004 −0.007* −0.004 −0.005*** −0.020*
(0.000) (0.001) (0.001) (0.000) (0.392) (0.001) (0.258) (0.082) (0.161) (0.005) (0.056)
Creditor info 0.022 0.027* 0.028** −0.010 0.106 0.037* −0.017 −0.026 0.043** 0.006 0.026
(0.175) (0.100) (0.011) (0.605) (0.280) (0.099) (0.204) (0.711) (0.028) (0.715) (0.357)
Enforcement −0.000 −0.000 −0.001** −0.002** 0.009 −0.001 0.001 −0.000 −0.001*** −0.001 0.013
(0.592) (0.913) (0.044) (0.022) (0.646) (0.410) (0.341) (0.987) (0.001) (0.148) (0.444)
Constant 0.239*** 0.262*** 0.259*** 0.664*** 0.297 0.302*** 0.072 0.426 0.291*** 0.301*** 0.040
(0.000) (0.000) (0.000) (0.000) (0.718) (0.000) (0.649) (0.266) (0.000) (0.000) (0.911)
No. of obs. 111 111 46 39 26 76 35 57 54 56 55
R2 0.640 0.647 0.462 0.267 0.089 0.577 0.878 0.608 0.396 0.629 0.572

NOTE: The table reports the results of a cross-section regression over a sample of 111 countries. The dependent variable is private credit to GDP averaged over the period 2005–07. Foreign presence equals the assets held
by foreign banks as a share of total assets in the country. GDP per capita is GDP in U.S. dollars divided by the population. Inflation is the log difference in the consumer price index. Creditor info captures the availability
to banks of credit information about borrowers, and Enforcement measures the costs that have to be made to enforce a basic business contract as a percentage of the debt value. All regressors are based on 2004 values.
Regression in columns [3], [4], and [5] include only countries that we categorized as developing countries, emerging markets, and high-income countries, respectively. For exact categorization, see main text. In column
[6] only countries are included where foreign banks hold less than 50% of the assets in the domestic banking system and in column [7] only those countries in which they hold more than 50%. In column [8] only countries
are included in which the cost of contract enforcement is above the median value in our sample of countries and in column [9] only those countries are included with below median level of enforcement cost. In column
[10] only countries are included with the level of available credit information below the median level of our sample of countries and in column [11] only those countries that are above the median level. The model is
estimated using OLS and the standard errors are robust. Robust p-values appear in parentheses. ***, **, * correspond to the 1%, 5%, and 10% levels of significance, respectively.
STIJN CLAESSENS AND NEELTJE VAN HOREN : 315

presence varies a lot across the countries in our sample, we can test the existence of
such a threshold effect as well. We split our sample between countries where foreign
banks control less than half of the assets and countries in which they hold more than
half. The results in the next two columns (6 and 7) show that the negative relation
between foreign bank presence and private credit is driven by countries where foreign
banks control less than half the assets. This suggests that in countries where foreign
banks are small, maybe as they enter through greenfield investments, they tend to
remain a niche player, targeting only specific customers and not adding to domestic
financial development. In contrast, in countries with greater presence, foreign banks
seem to engage more in financial intermediation.
Third, we investigate whether institutional characteristics known to affect the level
of private credit in an economy drive the relationships. We therefore split our sample
between countries where the costs of contract enforcement are high (above median
costs in our sample) and where they are low (below median), and between countries
where credit information is low (below median) and where it is high (above median).
We find that the general negative relationship between private credit and foreign
bank presence for emerging markets and developing countries seems at least in part
driven by those countries with high costs of contract enforcement and with low credit
information (columns 8–11). These regression results suggest it is important to allow
for various types of country heterogeneity when studying the effects of foreign bank
presence.
We also want to investigate whether foreign bank characteristics affect the relation-
ship between foreign bank presence and private credit. Specifically, we test whether
the distance of the parent bank to the host country affects the relationship between
foreign bank presence and the provision of credit. Both theoretical (e.g., Hauswald
and Marquez 2006) and empirical (e.g., Berger and DeYoung 2001, 2006, Mian
2006) studies suggest that foreign banks that are closer to the host country are better
equipped to provide loans as they can better process soft information. Furthermore,
the farther soft information is transmitted within the bank, the less useful it becomes
for making decisions as its quality deteriorates (for theory, see Aghion and Tirole
1997, Stein 2002; for empirical evidence, see Berger, Miller, et al. 2005, Liberti 2005,
Liberti and Mian 2009).
Therefore, one would expect the provision of credit to be more likely positively
correlated to foreign bank presence when banks from nearby countries have entered.
To test whether this is indeed the case, we interact Foreign presence with a variable
that indicates whether foreign banks active in a country are relatively close or distant.
This variable, Distant banks, is calculated for each host country as the (asset share-
weighted) average geographical distance between the host and home country of all
foreign banks active in the country.
Table 5, column 1 shows that foreign bank presence in emerging markets and
developing countries is only negatively related to private credit when foreign banks
are relatively distant, as the foreign bank presence variable itself is now actually
positive (but not significant), while the interaction variable is statistically significant
316 : MONEY, CREDIT AND BANKING

TABLE 5
PRIVATE CREDIT AND FOREIGN BANK PRESENCE—DISTANCE

[1] [2] [3] [4]


Emerging markets and Foreign banks < 50% Cost contract Credit information
developing countries market share enforcement high low

Foreign presence 0.343 0.632 −0.554 −0.221


(0.205) (0.376) (0.372) (0.398)
Foreign presence −0.067** −0.128 0.043 0.002
× Distant banks (0.048) (0.177) (0.617) (0.965)
GDP per capita 0.000* 0.000*** 0.000*** 0.000***
(0.078) (0.000) (0.000) (0.001)
Inflation −0.006*** −0.008*** −0.007* −0.005***
(0.001) (0.001) (0.082) (0.005)
Creditor info 0.021* 0.046** −0.028 0.006
(0.078) (0.046) (0.691) (0.720)
Enforcement −0.001** −0.000 −0.000 −0.001
contracts (0.015) (0.674) (0.939) (0.157)
Constant 0.323*** 0.276*** 0.442 0.301***
(0.000) (0.000) (0.248) (0.000)
No. of obs. 85 76 57 56
R2 0.393 0.584 0.609 0.629

NOTE: The table reports the results of a cross-section regression over different samples of 111 countries. The dependent variable is private credit
to GDP averaged over the period 2005–07. Foreign presence equals the assets held by foreign banks as a share of total assets in the country.
GDP per capita is GDP in U.S. dollars divided by the population. Distant banks equals the (asset share-weighted) average geographical
distance between the host country and the home country of all foreign banks active in the host country Inflation is the log difference in the
consumer price index. Creditor info captures the availability to banks of credit information about borrowers, and Enforcement measures the
costs that have to be made to enforce a basic business contract as a percentage of the debt value. All regressors are based on 2004 values. The
regression in column [1] includes only countries that we categorized as developing countries or emerging markets. For exact categorization,
see main text. In column [2] only countries are include where foreign banks hold less than 50% of the assets in the domestic banking system.
In column [3] only countries are included in which the cost of contract enforcement is above the median value in our full sample of (111)
countries, and in column [4] only countries are included with the level of available credit information below the median level The model is
estimated using OLS and the standard errors are robust. Robust p-values appear in parentheses. ***, **, * correspond to the 1%, 5%, and
10% levels of significance, respectively.

negative.10 This is in line with theoretical and empirical evidence that suggests that
distance makes it harder for foreign banks to extend credit. It also suggests that
the finding of Detragiache, Gupta, and Tressel (2008) that in low-income countries
foreign banks hurt private credit availability may be importantly driven by the distance
foreign banks have to the host country.
We next explore whether the impact on private credit of the relative distance of
the foreign banks active in the country matters as well in regard to the other host
country characteristics we studied in Table 4: the relative presence of foreign banks,
the costs of enforcement, and the quality of credit information. The results (columns
2–4) show that once we control for the relative distance of the foreign banks active in
the country, the impacts of foreign bank presence for these subsamples are no longer
statistically significant negative. This suggest that the negative relationships between
foreign bank presence and private credit we found in Table 4 for the same subsamples
are at least in part driven by the distance of the foreign banks to the host country

10. We take both emerging markets and developing countries together in this regression as otherwise
the sample would be too small to do meaningful interactions. However, when running the same regression
on both country groups separately the results are qualitatively the same, except that the interaction variable
is just insignificant (p-value of 0.14 in both cases).
STIJN CLAESSENS AND NEELTJE VAN HOREN : 317

(even though the interaction variable itself is not statistically significant). Although
one has to be careful to make any inferences about the direction of causality, these
results suggest that it is not so much the level of development or the institutional
environment of the host country that matters, but rather the fact that foreign banks
that are more remote tend to enter countries with such characteristics. And this large
distance between home and host countries in turn might make foreign banks engage in
cream-skimming activities, which then negatively affects overall credit developments.

4. CONCLUSIONS

The potential benefits and risks of foreign bank presence have been studied for
some time. Still, little is known why foreign banks enter some markets and not
others, and how this relates to home and host country factors, including bilateral
aspects. In terms of impact, questions exist on whether, and if so how, foreign banks
improve the efficiency of domestic financial systems, increase financial sector de-
velopment and access to financial services, and enhance countries’ overall economic
growth. Furthermore, the crisis has highlighted that there can be risks associated with
cross-border banking and foreign bank presence. These developments have led to
an increased interest among academics and demand among policymakers for more
analyses on the benefits and risks of foreign bank presence, also relative to other
forms of international financial integration, to help guide regulatory reforms.
Research and policy questions being asked include: for which types of countries and
under which circumstances do foreign banks add the most to domestic financial sector
development; given that the impact of foreign ownership may be less advantageous
for countries with a certain characteristics, which institutions are most important
to improve when having greater foreign bank presence; when does the presence of
foreign banks help mitigate the effects of various shocks on host countries’ banking
systems and when do they not; do differences between types of foreign banks—
country of origin, size, degree of international operations, distance between home
and host countries etc.—and the relative presence of foreign banks affect their roles
in financial sector development and as risk absorbers or amplifiers; and what balance
sheets and performance indicators are most important to monitor for assessing foreign
banks’ role in domestic financial intermediation?
These and other issues will be well served by more in-depth research that in turn
can enhance policy recommendations on how to appropriately regulate foreign banks
and adjust institutional environments. The database documented and analyzed in
this paper can help with research on these topics. It shows that in many countries
foreign banks have become an important part of the local banking system, but also
that a lot of heterogeneity exists among foreign banks with respect to a number of
dimensions. At the same time, it makes clear that the impact of foreign banks on
financial development importantly depends on host country and bank characteristics
such as distance. As such, the paper highlights that when conducting research on
foreign banks it is very important to take this heterogeneity into account.
318 : MONEY, CREDIT AND BANKING

APPENDIX

TABLE A1
PERCENTAGE OF FOREIGN BANKS AMONG TOTAL BANKS, BY COUNTRY

Country 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

East Asia and Pacific 18 18 17 17 19 19 19 18 18 18 19 18 23 24 24


Cambodia 25 22 22 33 33 44 40 33 33 33 38 36 43 43 43
China 13 13 11 9 9 9 8 8 7 7 6 6 15 17 18
Indonesia 24 26 26 27 30 31 29 32 30 31 34 36 48 48 49
Korea Rep. 0 0 0 0 0 0 6 7 13 19 19 19 19 19 19
Malaysia 26 25 25 24 25 26 32 30 30 30 31 33 33 33 33
Mongolia 0 0 0 0 0 0 14 14 14 14 14 13 13 13 13
Philippines 12 15 15 16 17 17 16 14 12 14 14 14 15 15 13
Thailand 5 5 0 6 18 18 18 17 17 17 15 15 14 19 19
Vietnam 11 10 10 10 10 10 10 9 12 12 12 9 9 9 9
Eastern Europe and Central Asia 15 17 19 22 25 28 30 32 33 35 38 41 45 47 47
Albania 25 40 50 63 63 75 75 75 70 73 82 77 85 83 83
Armenia 17 17 17 23 29 29 36 38 38 43 50 64 64 69 75
Azerbaijan 5 10 10 14 14 14 14 10 10 10 10 10 14 14 14
Belarus 11 15 14 14 14 27 29 32 36 36 43 43 50 55 55
Bosnia-Herzegovina 11 17 20 17 21 27 43 45 43 44 52 52 58 57 57
Bulgaria 22 28 31 36 46 44 48 54 57 57 61 67 67 67 67
Croatia 6 13 18 23 28 31 33 33 26 28 32 35 43 43 43
Czech Republic 38 38 38 42 52 52 54 54 57 57 55 64 68 71 71
Estonia 8 8 8 11 29 43 43 43 43 57 71 71 71 71 71
Georgia 0 0 0 0 17 23 17 17 21 21 31 50 58 67 67
Hungary 67 68 73 74 78 78 81 79 83 85 85 90 93 93 92
Kazakhstan 20 15 29 38 35 33 34 34 31 31 32 36 39 39 39
Kyrgyzstan 50 20 43 43 38 38 38 38 50 63 63 63 63 63 63
Latvia 13 17 27 29 32 29 27 32 32 41 45 50 57 62 62
Lithuania 0 0 0 9 18 50 56 67 67 67 67 67 70 70 70
Macedonia 0 15 15 15 21 36 38 38 44 44 47 50 64 71 71
Moldova 8 8 21 27 31 31 31 31 31 31 31 38 41 41 44
Poland 30 38 44 52 61 62 67 70 69 69 75 71 71 70 71
Romania 19 21 32 39 45 57 57 63 70 70 74 81 85 81 81
Russia 7 7 8 9 9 9 9 11 12 13 14 15 17 19 19
Serbia & Montenegro 3 3 3 3 6 9 17 18 26 30 39 53 65 63 61
Slovakia 39 42 40 40 41 55 67 83 89 89 89 88 88 88 87
Turkey 13 13 12 14 15 15 15 20 21 21 24 35 41 41 41
Ukraine 4 4 9 12 13 15 17 19 18 22 27 32 39 44 46
Uzbekistan 20 27 25 23 23 21 20 20 20 19 18 18 24 24 24
Latin America and Caribbean 28 30 33 34 36 36 37 38 38 38 38 39 41 42 42
Antigua & Barbuda 14 13 13 13 13 13 13 22 22 22 22 22 33 33 33
Argentina 22 24 29 32 37 37 37 34 36 35 34 34 35 35 35
Barbados 50 50 50 50 50 50 50 50 80 100 100 100 100 100 100
Bolivia 27 27 29 42 45 45 45 45 45 45 45 40 40 40 40
Brazil 22 24 28 31 33 34 34 34 35 35 34 35 37 38 38
Chile 47 47 48 47 50 50 46 44 44 39 41 41 48 48 48
Colombia 20 23 27 29 28 29 29 29 25 23 24 28 28 28 28
Costa Rica 13 13 13 15 19 18 20 20 20 20 21 20 21 18 18
Cuba 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Dominican Rep. 5 5 5 5 4 4 6 9 11 12 12 10 10 10 10
Ecuador 18 17 18 18 22 23 18 15 15 15 15 15 15 15 19
El Salvador 18 25 46 46 46 54 58 58 58 58 64 82 90 90 90
Guatemala 11 11 17 17 20 21 21 21 23 22 23 26 36 41 41
Haiti 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Honduras 19 19 22 22 22 26 30 35 35 41 41 41 58 56 56

(Continued)
STIJN CLAESSENS AND NEELTJE VAN HOREN : 319

TABLE A1
CONTINUED

Country 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Jamaica 30 30 30 30 33 33 50 63 63 71 71 71 71 71 71
Mexico 32 38 44 44 43 49 48 56 56 54 50 47 46 48 48
Nicaragua 17 17 33 33 36 50 57 50 50 50 40 67 67 83 83
Panama 64 64 63 61 60 59 58 62 62 62 62 62 63 65 66
Paraguay 52 55 52 59 62 60 63 65 62 62 62 62 64 64 62
Peru 33 39 42 48 50 59 63 63 60 60 57 60 63 63 63
Trinidad & Tobago 43 43 50 44 44 44 44 44 44 44 56 56 56 67 67
Uruguay 77 77 77 74 74 73 76 80 78 77 77 81 81 81 81
Venezuela 10 15 16 25 25 25 24 28 22 24 26 26 24 26 22
Middle East and North Africa 20 20 20 22 22 24 24 25 27 28 30 34 37 37 38
Algeria 14 14 14 25 22 42 42 47 53 53 57 57 64 64 64
Bahrain 63 63 63 56 56 56 50 50 56 64 58 58 57 60 60
Egypt 6 6 9 13 16 16 19 19 19 19 21 44 52 52 52
Iran 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Jordan 11 10 10 10 10 10 10 10 10 20 30 30 30 40 40
Lebanon 28 28 29 31 30 33 33 34 34 32 34 35 40 38 38
Libya 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Morocco 33 33 29 36 36 36 36 31 36 40 36 40 40 40 50
Oman 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Saudi Arabia 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Tunisia 36 36 33 33 33 38 38 44 44 44 50 50 50 50 50
Yemen 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
OHI 38 38 38 39 41 39 41 44 44 43 45 44 44 44 44
Cyprus 55 57 57 57 57 57 60 62 62 58 60 60 60 60 60
Hong Kong 67 67 68 67 69 68 70 72 73 76 76 75 74 74 76
Israel 12 12 12 12 12 12 12 13 14 0 0 0 0 0 0
Kuwait 0 0 0 0 0 0 0 0 0 0 13 11 11 11 11
Qatar 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Singapore 41 41 41 48 52 50 50 55 55 55 55 55 55 55 52
Slovenia 12 12 12 13 14 14 19 29 29 30 33 33 33 39 39
United Arab Emirates 18 18 18 18 18 18 18 18 18 18 18 18 18 21 21
OECD 18 19 19 19 20 20 21 21 22 22 22 23 23 23 24
Australia 36 35 39 38 38 40 40 40 40 40 40 40 40 40 40
Austria 4 5 5 5 5 7 7 8 8 9 10 10 10 10 10
Belgium 33 33 32 33 34 35 39 39 39 36 38 38 38 39 42
Canada 41 41 44 44 44 40 40 40 42 42 41 41 41 41 41
Denmark 2 2 2 4 4 6 9 9 11 11 9 9 9 8 9
Finland 13 13 13 13 13 13 13 13 11 11 11 20 22 22 22
France 7 7 7 6 7 8 7 7 7 6 6 6 6 6 6
Germany 10 9 11 10 10 11 11 12 13 12 13 13 13 14 14
Greece 14 14 7 7 8 14 13 11 16 21 21 32 28 28 28
Iceland 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Ireland 79 81 81 82 79 79 83 86 86 86 86 87 87 87 87
Italy 3 3 3 4 5 5 5 5 5 5 5 6 10 10 10
Japan 0 0 0 0 0 0 1 1 1 1 1 1 2 1 1
Luxembourg 97 97 97 97 96 96 97 97 97 97 97 97 97 97 97
Netherlands 45 47 47 50 50 47 47 47 47 47 44 44 41 38 38
New Zealand 50 63 63 63 63 63 56 56 56 67 67 67 67 67 67
Norway 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Portugal 17 17 17 17 17 20 23 27 27 31 30 30 30 32 33
Spain 4 4 5 5 5 5 6 6 6 5 5 7 7 7 7
Sweden 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1
Switzerland 25 24 24 24 23 23 22 22 22 22 21 23 23 23 23
United Kingdom 42 45 46 47 48 48 48 49 51 53 54 54 56 57 57
United States 15 16 16 15 17 19 21 21 21 23 24 24 28 29 32

(Continued)
320 : MONEY, CREDIT AND BANKING

TABLE A1
CONTINUED

Country 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

South Asia 7 8 8 9 9 9 9 8 8 8 9 12 13 13 13
Bangladesh 0 5 5 5 3 3 3 3 3 3 3 3 3 3 3
India 6 6 6 8 8 8 8 9 9 9 10 11 12 12 12
Nepal 36 31 31 25 25 25 22 15 15 15 15 15 13 13 13
Pakistan 5 5 9 9 14 19 14 13 12 12 16 30 35 38 38
Sri Lanka 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Sub-Saharan Africa 31 32 33 34 37 38 39 38 39 41 43 49 50 52 53
Angola 50 40 40 40 50 50 50 50 44 44 50 50 50 50 50
Benin 83 83 83 83 86 86 86 86 75 75 78 78 78 78 78
Botswana 60 60 50 38 38 44 44 44 44 50 50 44 44 50 50
Burkina Faso 80 83 83 86 88 88 88 88 88 88 88 89 89 100 100
Burundi 17 17 17 17 17 17 17 17 17 17 17 20 25 50 50
Cameroon 50 50 43 43 38 56 56 56 56 56 56 60 64 73 80
Congo 40 50 50 50 50 50 57 57 57 57 57 63 63 63 67
Cote d’Ivoire 67 70 64 64 64 64 75 75 75 75 75 75 75 77 75
Ethiopia 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Ghana 45 46 40 40 40 40 43 40 47 53 58 52 48 48 48
Kenya 24 24 24 26 26 27 26 26 28 28 30 30 29 31 31
Madagascar 75 75 75 80 100 100 100 100 100 100 100 100 100 100 100
Malawi 43 43 43 43 43 38 50 50 50 50 50 43 43 43 43
Mali 20 17 17 29 38 38 43 38 38 38 38 44 44 56 56
Mauritania 25 20 20 20 17 17 17 14 14 14 14 14 25 38 38
Mauritius 55 58 67 67 67 69 64 67 73 73 71 71 67 69 69
Mozambique 33 33 83 86 100 100 91 91 90 90 90 90 90 91 91
Namibia 60 50 50 50 50 50 50 43 43 43 43 43 43 43 43
Niger 75 75 75 75 83 83 83 83 83 83 83 86 86 86 86
Nigeria 5 5 5 5 9 13 12 11 11 11 10 16 16 16 16
Rwanda 29 29 29 29 29 14 14 14 14 29 43 43 43 57 57
Senegal 50 50 50 50 60 60 64 64 64 64 64 77 85 83 83
Seychelles 33 33 33 25 25 25 25 25 40 40 40 40 40 40 40
South Africa 17 16 15 16 15 13 15 16 17 17 21 21 21 21 21
Sudan 9 9 9 9 8 8 8 0 8 13 13 20 27 27 27
Swaziland 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80
Tanzania 55 57 56 55 60 60 60 57 55 61 65 65 64 64 64
Togo 0 25 25 25 25 25 25 25 25 25 20 17 17 17 17
Uganda 47 53 56 60 67 67 67 71 71 71 71 79 79 76 82
Zambia 50 50 50 50 50 50 56 56 56 63 67 67 78 89 89
Zimbabwe 30 30 25 25 25 20 19 18 18 20 21 23 31 31 31
Total 21 22 23 25 26 27 28 28 29 29 30 32 34 34 35
STIJN CLAESSENS AND NEELTJE VAN HOREN : 321

TABLE A2
PERCENTAGE OF FOREIGN BANK ASSETS AMONG TOTAL BANK ASSETS, BY COUNTRY

Country 2004 2005 2006 2007 2008 2009

East Asia and Pacific 5 4 4 5 4 4


Cambodia .. 36 39 61 61 59
China .. 0 0 2 2 1
Indonesia 29 33 26 33 30 31
Korea Rep. 16 16 13 12 13 12
Malaysia 18 17 17 19 18 17
Mongolia 0 9 7 7 .. ..
Philippines .. 1 2 1 1 1
Thailand 3 3 2 5 7 6
Vietnam .. 2 1 1 1 1
Eastern Europe and Central Asia 51 42 43 42 42 40
Albania .. .. .. 93 94 91
Armenia .. 56 62 60 64 71
Azerbaijan 1 1 1 3 5 5
Belarus .. 14 12 19 19 18
Bosnia-Herzegovina 67 87 90 91 92 88
Bulgaria 72 71 74 76 80 80
Croatia 88 92 90 90 90 90
Czech Republic 84 83 84 86 85 84
Estonia 95 99 98 97 99 99
Georgia 13 32 66 66 66 66
Hungary 65 63 61 64 67 64
Kazakhstan 6 4 5 13 16 18
Kyrgyzstan .. 91 .. 67 .. ..
Latvia 51 58 64 65 66 66
Lithuania 91 92 92 92 93 92
Macedonia 54 54 56 63 69 68
Moldova 31 25 31 37 41 41
Poland 72 76 75 74 72 67
Romania 54 58 88 89 89 85
Russia .. 7 9 10 13 12
Serbia & Montenegro 57 69 84 82 75 74
Slovakia 95 92 91 90 92 88
Turkey .. .. 17 17 15 13
Ukraine 28 28 41 46 58 56
Latin America and Caribbean 35 35 35 33 33 29
Antigua & Barbuda .. .. .. .. .. ..
Argentina 29 27 26 28 29 28
Barbados 100 100 100 100 100 100
Bolivia 36 37 18 18 16 15
Brazil 19 21 23 23 19 19
Chile .. .. .. .. 37 33
Colombia 10 21 17 14 13 12
Costa Rica 26 27 23 36 36 34
Cuba .. .. .. .. .. ..
Dominican Rep. 12 9 9 8 7 7
Ecuador 12 11 12 13 13 15
El Salvador 38 50 80 97 97 96
Guatemala 11 11 12 13 32 32
Haiti .. .. .. .. .. ..
Honduras 31 32 30 47 46 49
Jamaica 84 87 87 88 95 91
Mexico 82 83 81 78 75 73
Nicaragua 31 22 30 48 68 67
Panama 48 47 56 66 .. ..
Paraguay 68 63 60 58 62 48

(Continued)
322 : MONEY, CREDIT AND BANKING

TABLE A2
CONTINUED

Country 2004 2005 2006 2007 2008 2009

Peru 41 49 48 48 50 48
Trinidad & Tobago 13 13 13 14 56 56
Uruguay 50 75 87 47 48 55
Venezuela 31 30 29 25 26 ..
Middle East and North Africa 13 15 17 19 17 18
Algeria 5 8 8 7 8 10
Bahrain 69 67 65 69 65 55
Egypt 10 12 21 25 25 25
Iran .. .. .. .. .. ..
Jordan 2 14 16 17 22 23
Lebanon .. .. .. 33 35 36
Libya .. .. .. .. .. ..
Morocco 19 18 31
Oman .. .. .. .. .. ..
Saudi Arabia .. .. .. .. .. ..
Tunisia 20 29 27 26 27 22
Yemen .. .. .. .. .. ..
OHI 52 51 49 46 45 47
Cyprus 15 19 22 22 23 19
Hong Kong 91 92 91 91 91 92
Israel .. .. .. .. .. ..
Kuwait .. 12 10 8 7 7
Qatar .. .. .. .. .. ..
Singapore .. 2 10 10 3 7
Slovenia 21 25 24 24 26 25
United Arab Emirates 3 3 1 1 2 2
OECD 9 11 11 12 11 11
Australia .. .. 5 5 3 3
Austria 26 22 19 22 25 23
Belgium .. 13 13 12 14 49
Canada 4 4 4 4 4 5
Denmark 7 20 19 18 18 20
Finland .. 55 65 65 67 65
France .. 5 5 6 6 6
Germany 5 24 14 11 12 12
Greece 4 4 13 14 14 14
Iceland .. .. .. .. .. ..
Ireland .. 40 43 42 36 35
Italy .. 1 3 7 6 6
Japan 0 0 0 0 0 0
Luxembourg 100 100 100 95 96 95
Netherlands .. 7 9 10 2 3
New Zealand .. .. 83 78 76 78
Norway .. 32 16 17 16 16
Portugal .. 16 15 15 15 15
Spain .. 2 2 2 2 2
Sweden 17 0 0 0 0 0
Switzerland 2 4 4 4 5 5
United Kingdom 9 11 12 14 19 15
United States 20 21 21 23 19 20
South Asia 5 5 8 8 7 7
Bangladesh 2 2 3 2 2 3
India 4 4 4 4 5 5
Nepal 22 14 20 16 14 13
Pakistan 29 23 48 50 51 53
Sri Lanka .. .. .. .. .. ..

(Continued)
STIJN CLAESSENS AND NEELTJE VAN HOREN : 323

TABLE A2
CONTINUED

Country 2004 2005 2006 2007 2008 2009

Sub-Saharan Africa 13 25 26 28 26 29
Angola 50 48 49 50 52 55
Benin .. 90 92 92 92 90
Botswana 77 77 69 72 66 64
Burkina Faso 77 79 80 76 100 100
Burundi 38 36 33 58 64 66
Cameroon 74 71 74 71 82 80
Congo 45 44 56 58 60 62
Cote d’Ivoire 89 90 100 .. .. ..
Ethiopia .. .. .. .. .. ..
Ghana .. .. .. 57 58 60
Kenya 46 46 46 39 38 38
Madagascar 100 100 100 100 100 100
Malawi 49 46 46 46 48 50
Mali 25 28 30 40 52 51
Mauritania 5 3 0 4 10 4
Mauritius 37 44 58 69 61 66
Mozambique .. 99 99 100 100 100
Namibia .. 62 46 45 53 54
Niger 68 72 74 69 .. ..
Nigeria .. .. 8 8 5 6
Rwanda 32 53 54 48 43 27
Senegal 56 62 68 93 93 92
Seychelles 57 52 57 60 65 61
South Africa .. 22 21 23 21 22
Sudan .. .. 8 19 20 20
Swaziland 82 80 81 83 81 88
Tanzania .. 92 93 93 58 57
Togo .. 0 0 .. .. ..
Uganda 88 89 95 95 86 89
Zambia 69 69 70 87 99 100
Zimbabwe .. .. .. .. .. 44
Total 11 12 12 13 13 13

NOTE: Foreign bank asset share is only reported when asset information is available in Bankscope for more than 60% of the banks active in
the country in that year. Since asset information is lacking in Bankscope for the vast majority of banks before 2004, we do not report asset
shares for any country before that year.
324 : MONEY, CREDIT AND BANKING

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