International Banking


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International Banking

  2. 2. International Banking <ul><li>International banks can be characterised by the type of services they provide that distinguish them from domestic banks </li></ul>
  3. 3. International Banking <ul><li>Major Functions : </li></ul><ul><li>Facilitate imports and exports of their clients – trade financing </li></ul><ul><li>2. Arrange for foreign exchange – cross-border transactions and foreign investments </li></ul><ul><li>3. Assist in hedging exchange rate risk </li></ul><ul><li>4. Trade foreign exchange products for their own account </li></ul>
  4. 4. International Banking <ul><li>Major Functions : </li></ul><ul><li>5. Borrow and lend in the Eurocurrency market </li></ul><ul><li>6. Participate in international loan syndicate – lending to MNCs- project financing and to sovereign governments – economic development </li></ul><ul><li>7. Participate in underwriting of Eurobonds and foreign bonds issues </li></ul>
  5. 5. International Banking <ul><li>Major Functions : </li></ul><ul><li>8. Provide consultancy and advice on hedging strategies, interest rate and currency swap financing and international cash management services </li></ul><ul><li>Banks providing all the above are commonly </li></ul><ul><li>known as universal banks or full service banks </li></ul>
  6. 6. Top 10 Global Banks in 2009 Switzerland UBS 10 US Citigroup 9 Japan Mitsubishi UFJ Financial Group 8 US JP Morgan Chase & Co 7 France Credit Agricole Group 6 UK HSBC Holdings 5 France BNP Paribas 4 UK Barclays Bank 3 Germany Deutsche Bank 2 UK Royal Bank of Scotland 1
  7. 7. Types of International Banking Offices <ul><li>Correspondent Bank : </li></ul><ul><li>Two banks maintain a correspondent bank account with one another </li></ul><ul><li>Helps MNCs clients to conduct business worldwide through his local bank or its contacts </li></ul>
  8. 8. Types of International Banking Offices <ul><li>Representative Offices : </li></ul><ul><li>A small service facility staffed by parent bank personnel to assist MNC clients – </li></ul><ul><li>They assist MNC clients with information about local business practices, economic information, credit evaluation of customers etc. </li></ul>
  9. 9. Types of International Banking Offices <ul><li>Foreign Branches : </li></ul><ul><li>Operates like a local bank but legally is a part of the parent bank </li></ul><ul><li>Subject to both the banking regulations of its home country and the country in which it operates </li></ul>
  10. 10. Types of International Banking Offices <ul><li>Subsidiary and Affiliated Banks : </li></ul><ul><li>A subsidiary is a locally incorporated bank that is either wholly owned or owned in major part by a foreign parent </li></ul><ul><li>An affiliate bank is one that is only partially owned but not controlled by its parent </li></ul><ul><li>Both operate under the banking laws of the country in which they are incorporated </li></ul>
  11. 11. Types of International Banking Offices <ul><li>Offshore Banking Centers : </li></ul><ul><li>An offshore banking centre is a country whose banking system is organised to permit external accounts beyond the normal economic activity of the country </li></ul><ul><li>IMF recognises the Bahamas, Bahrain, the Cayman Islands, Hong Kong, the Netherlands Antilles, Panama and Singapore as major offshore banking centers </li></ul>
  12. 12. Types of International Banking Offices <ul><li>Offshore Banking Centers : </li></ul><ul><li>Offshore banks operate as branches or subsidiaries of the parent bank </li></ul><ul><li>The primary activity of offshore banks are to seek deposits and grant loans in currencies other than the currency of the host government </li></ul>
  13. 13. <ul><li>Offshore Banking Centers : </li></ul><ul><li>The offshore banks function with lower spreads: </li></ul><ul><li>They are unregulated institutions ( low reserve requirements and no deposit insurance) </li></ul><ul><li>They are not subject to interest rate ceilings </li></ul>Types of International Banking Offices
  14. 14. <ul><li>Offshore Banking Centers : </li></ul><ul><li>They can take advantage of low tax location </li></ul><ul><li>High degree of competitiveness- low margins, low overheads </li></ul><ul><li>No pressure from domestic government </li></ul>Types of International Banking Offices
  15. 15. Euro-Money <ul><li>As per definition of money, the components of domestic money are : Currency and demand deposits ( narrow definition) </li></ul><ul><li>In the same way, Euro-money comprises of Euro-deposits and Euro-currency money mobilised by banks and financial institutions in a currency other than of a country in which they are located </li></ul>
  16. 16. Euro-Money <ul><li>The market which consists of such banks and financial institutions is called Euro-money market or Euro-currency market </li></ul><ul><li>Such institutions have grown worldwide, such as London, New York, Luxembourg, Hong Kong, Singapore etc. </li></ul><ul><li>They are also called as offshore markets </li></ul>
  17. 17. How is Euro-money Created?... <ul><li>A national currency becomes part of offshore currency market when it is transferred to a bank outside its own monetary system </li></ul><ul><li>Which also means the deposit is made in that segment of banking structure which is not regulated by the central bank of the country which has issued the currency </li></ul>
  18. 18. International Banking <ul><li>International banking relates to financial intermediaries that bid for time deposits and make loans in the offshore market </li></ul><ul><li>It is an unregulated market involving greater risk </li></ul><ul><li>It is a wholesale segment of lending and deposit activity </li></ul>
  19. 19. International Banking <ul><li>International banking brings together borrowers and lenders from same country or different countries </li></ul><ul><li>They are substitutes for the domestic banking system </li></ul>
  20. 20. Growth of Euro-money Market <ul><li>The rapid growth of these markets is due to: </li></ul><ul><li>Depositors receive better interest rate on </li></ul><ul><li>deposits </li></ul><ul><li>Borrowers can borrow more, possibly at </li></ul><ul><li>lower interest rate than they can at home </li></ul>
  21. 21. Euro-Deposits <ul><ul><li>The deposits denominated in currencies </li></ul></ul><ul><ul><li>made outside the domestic banking </li></ul></ul><ul><ul><li>system’s operation are called Euro-deposits </li></ul></ul><ul><ul><li>They are more risky </li></ul></ul><ul><ul><li>They are conventional short term non- </li></ul></ul><ul><ul><li>negotiable-deposits ( 30 days or 90 days) </li></ul></ul><ul><ul><li>A large part is of CDs ( certificate of </li></ul></ul><ul><ul><li>deposits) – negotiable – traded in secondary </li></ul></ul><ul><ul><li>market </li></ul></ul>
  22. 22. <ul><li>Thank you </li></ul>