Foreign and Domestic Banks: A Comparison for Customer Satisfaction and Perception

1775 Words Jun 19th, 2018 8 Pages
In an effort to develop an efficient and competitive financial system, many countries have liberalized financial services, especially the banking sector since 1960’s. Many countries want to enhance their banking sector so they decided to liberalize their financial sector. Over the last decade many economies are liberalizing their financial sectors, including opening up their banking systems to foreign competition to enhance their domestic banking sector efficiency. Policymakers have come to realize that the presence of foreign financial service providers can benefit the consumers, the financial industry, and the economy all together. One of the reasons for undertaking this policy by the policy makers in many countries was the much-needed …show more content…
On the other hand the increased presence of foreign banks is associated with reductions of profitability, non-interest income and overall expenses of domestic banks while competitive pressure from foreign banks increases the efficiency of domestic banks.
Ross Levine (1996) argued that foreign banks will promote financial development of any economy directly by providing high-quality banking services and indirectly as well, by three means. First, they can encourage domestic banks to improve quality of their services and cut costs; secondly, they can encourage the advancement of accounting, auditing, and rating institutions; and third they can exaggerate pressures on governments to enhance the legal, regulatory, and supervisory systems underlying financial activities. Some analyst found that foreign banks promote capital inflows and these increased capital inflows stimulate economic growth in developing country.
The countries which have stronger banking systems with good bank supervision prevented the difficulties that occurred in the crisis countries. The benefits of foreign bank entry in the home country’s banking system can be narrated as follows:
• Foreign banks help the domestic banks to prevent themselves from financial crisis.
• It can encourage adoption of best practice in the banking industry as foreign banks come with better skills in banking industry,
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