Presentation on theme: "INTERNATIONAL BANKING TRENDS AND STRATEGIES"— Presentation transcript:
1 INTERNATIONAL BANKING TRENDS AND STRATEGIES CHAPTER 17INTERNATIONAL BANKING TRENDS AND STRATEGIES
2 CHAPTER OVERVIEW: I. RECENT PATTERNS II. ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEASIII. VALUE CREATION IN INTERNAIONAL BANKINGIV. COUNTRY RISK ANALYSIS
3 I. RECENT PATTERNS I. RECENT PATTERNS rapid growth in risk and complexity overthe last 2 decadesA. The Era of Growth (Causes)1. Growth in international business2. Energy Crisis of 19733. Loans to developing economies
4 RECENT PATTERNS 2. International Banking Crisis(1982) a. Energy Crisis (1973)OPEC nations accumulatedhuge (petro) dollar balancesb. Loans went to developingnations.c. OPEC funds dried up (1982)
5 RECENT PATTERNS d. Interest rates began to rise e. Mexico: August, 1982announced its inability tomake loan paymentsf. By spring, 198325 developing nations alsodefaulted - banking crisis!
6 RECENT PATTERNS 3. Baker Plan (1985) Goal: to support 15 developing nations through economic growthfailed.4. Brady Plan (1989)Goal: debt relief through forgiveness
7 RECENT PATTERNS 4. Brady Plan options: a. Banks given two 1.) Make new loans2.) Write off portions ofexisting loans in exchange for “Brady”bonds.3.) “Brady” bonds IMF backedb. Bank crisis ends by July 1992.
8 RECENT PATTERNS B. International Bank Regulations 1. Needed: well-defined supervisory structure2. Basle Agreement (1992)set risk-based banking standardsa. Banks must have minimum 8% ratio capital to assets
9 RECENT PATTERNSb. Capital adequacy standards revised to incorporate market riskc. Banks must focus more onprofit growthC. Japanese International Bank Expansion1. Recent expansion overseas2. Lately, retrenchment due to newBasle standards.
10 II. ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS A. Bank’s Foreign Market Approachdepends on1. Overall financial resources2. Level of market experience3. Int’l business volume4. Bank’s strategic plans
11 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS B. Correspondent Banking1. Definition:a bank located elsewhere thatprovides a service for another bank.2. Main function:to provide financing for affiliatesof MNCs.
12 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS 3. Advantages of Correspondent Bankinga. Low cost market entryb. Minimal staffing expensec. Multiple business sourcesd. Local banking opportunitiese. Network of local contacts
13 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS 4. Disadvantages of Correspondentsa. U.S. customers may be givenlower priorityb. Some credit forms prohibitedc. Irregular, not extensive credit results
14 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS C. Representative Offices1. Functions:a. to provide advisor servicesb. to speed up servicesc. to help loan generation*d. not authorized to directlyaccept deposits/make loans
15 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS 2. Advantages of Representative Officesa. Low-cost market entryb. Efficient deliveryc. Attracts additional businessd. Maintains existing business
16 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS 3. Disadvantages of RepresentativeOfficesa. Inability to more effectivelypenetrate marketsb. Expensivec. Qualified personnel difficultto attract
17 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS D. Foreign Branches-true international presence1. Functions:a. Same as rep. office*b. Authorized to accept deposits/make loans
18 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS 2. Advantages of Foreign Branchesa. Greater control over foreignoperationsb. Greater ability to offer direct,integrated customer servicesc. Better customer relations
19 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS 3. Disadvantages of Foreign Brancha. High-costb. Difficult and expensive totrain managers.E. Edge Act and Agreement Corporations:U.S. bank subsidiaries that may carryon international banking activities
20 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS 1. Edge Act Banksa. Physically located in U.S.b. Authorized to handle onlyinternational businessc. Customers: foreign or U.S.d. Authorized to accept foreigncurrency deposits/make loans.
21 ORGANIZATIONAL FORMS AND STRATEGIES IN BANK EXPANSION OVERSEAS G. International Banking Facilities (IBFs)can conduct international banking dueto U.S. government exemption.IBFs:a. Bookkeeping entriesb. Major Activities:accept deposits/make loansc. Exempt from Fed’s Regulation Qd. Closely linked to eurocurrency markets.
22 III. VALUE CREATION IN INTERNATIONAL BANKING A. Capital Adequacy1. If well-capitalized, competitive advantage ina. underwriting securitiesb. reducing cost of funding
23 VALUE CREATION IN INTERNATIONAL BANKING B. Human Resources and Banking Organization1. Competitive advantage:have an organization to exploitinformation to learn and toinnovate quickly2. Prepare/enable employees torecognize/respond to problems
24 VALUE CREATION IN INTERNATIONAL BANKING C. Information Systems1. To create competitive advantagea. requires large investmentin information technology
25 VALUE CREATION IN INTERNATIONAL BANKING D. Transaction-Processing Services1. Demand for seamless services ina. funds movementb. foreign exchangec. cash management
26 IV. COUNTRY RISK ANALYSIS -country-risk assessment predictspotential debt-repayment problemsA. Country Risk analysis1. Involves an examination ofa. Economic factorsb. Political factors