Banking in emerging markets has traditionally been characterized by government control, restrictions on borrowing and lending rates, and financial repression. However, in the 1990s regulators were forced to deregulate and liberalize financial markets due to macroeconomic pressures and technological advancements. This led to privatizations, mergers and acquisitions, and greater foreign bank participation in emerging markets. While foreign bank entry can benefit these economies, it also presents some concerns around reduced information availability and exposure to external shocks. Banking crises remain a risk and are often preceded by financial liberalization, with causes including inefficient bank management, imprudent lending, macroeconomic slowdowns, and currency crises.

1. BANKING IN EMERGING AND
TRANSITION ECONOMIES

2. Emerging and transition countries
Central and Eastern Europe
Southern Europe and Central Asia
South Asia
East Asia and Pacific
Latin America and the Caribbean
Middle East and North Africa
Sub-Saharan Africa

4. Table 17.2 Output growth and inflation
Real GDP Inflation
95-2003 2004 2010 2011 95-2003 2004 2010 2011
Asia 6.6 7.8 9.7 7.8 4.2 4.4 5.7 6.5
China 8.5 9.5 10.4 9.2 3.0 3.9 3.3 6.5
India 5.9 7.1 10.6 7.2 5.2 6.7 3.3 5.4
Latin America 2.0 5.9 6.2 4.5 11.2 6.6 6.0 6.6
Brazil 2.1 5.2 7.5 2.7 9.3 7.5 5.0 6.6
Mexico 2.5 4.4 5.5 4.0 16.6 5.2 4.2 3.4
Central Europe 3.7 4.8 4.5 5.3 10.2 3.9 5.3 5.3
Russia 2.4 7.1 4.3 4.3 49.5 10.2 6.9 8.5
Turkey 3.7 8.9 9.2 8.5 64.9 10.6 8.6 6.5
Middle East 4.1 5.5 4.9 3.5 9.2 8.3 6.9 9.6
Africa 3.7 5.1 5.3 5.1 15.6 7.7 7.4 8.2

5. Banking in emerging markets ;
--Government control
--Restrictions on borrowing and lending
rates

6. Financial repression Strong intervention of
government in financial markets
- Maintaining the monopoly
- Restricting entry
- Strictly controlling

7. FINANCIAL REPRESSION INCLUDES;
 Control over interest rate
 Controls over lending
 Directed landing
 High reserve requirements
 Restrictions on entry of banks and other financial
intermediaries
 Restrictions on entry of foreign financial intermediaries
 Nationalisation of financial institutions

8. In 1990’s regulators forced by ;
- Macroeceonomic pressures
- Fast technological developments
-Changes in global markets
Several changes have forced structural
changes,
- Removal of ceilings on deposit rates
- Removal of the prohibition on interest payments

9. Deregulation and financial liberalisation’ve long
been considered a positive force ;
-increasing efficiency by imposing competition
-removing regulations that distort economic activity

10. Financial deregulation has certainly made it
easier for intermediaries to cross industry and
national boundaires.
It has also fostered technological progress.
Financial innovation includes the development of
new instruments.

11.  Owing to the recent technological
changes,emerging economies’ banking markets
are in a position to skip a stage of financial
development.

12.  Emerging markets see the development of new
delivery channels as an important part of the
development of their retail and commercial
banking activities , both because of the
growing avaibility of IT and
telecommunication technologies and the
relatively lower cost of delivery compared to
bank branches.

13. PRIVATISATIONS
 Transfer of government services or assets
to the private sector. State-owned assets
may be sold to private owners, or
statutory restrictions on competition
between privately and publicly owned
enterprises may be lifted.

14. ADVANTAGES OF PRIVATISATION
-Private enterprise is more responsive to customer complaints and
innovation.
-Privatisation leads to lower prices and greater supply.
-Competition in privatisation increases differentiation.
DISADVANTAGES OF PRIVATISATION
-Privatisation is expensive and genarates a lot of income in fees for
specialist advisers such as banks
-The privatised businesses have sold of or closed down unprofitable
parts of business and so services eg transport in rural areas have
got worse
-Wider share ownership did not really happen as many small investors
took their profits and didn’t buy anything else.

15. MERGERS AND ACQUİSİTİONS
 Merger is a financial tool that is used for
enhancing long-term profitability by expanding
their operations. Mergers occur when the
merging companies have their mutual consent as
different from acquisitions, which can take the
form of a hostile takeover.
 Acquisitions or takeovers occur between the
bidding and the target company. There may be
either hostile or friendly takeovers. Reverse
takeover occurs when the target firm is
 larger than the bidding firm.

16. FOREIGN BANKS

17. Foreign ownership of banks in selected emerging economies - BIS ( 2005 )
Assets owned by banks with 50 % or Assets owned by banks with more than
Country more foreign ownership ( as ½ of total 10% but less than 50% foreign
banking sector assets ) ownership ( as % of total banking
sector assets )
1990 2000 2002 1900 2000 2002
Hong Kong 45.7 87.2 88.6 3.7 7.2 6.2
India 21.0 42.7 40.0 - 4.0 5.0
Korea n.a 32.7 32.3 n.a. 7.5 14.4
Malaysia 22.3 24.9 25.2 34.1 30.5 38.7
Singapore 89.4 75.5 76.0 n.a. n.a. n.a.
Thailand - 5.9 5.8 n.a 45.8 48.6
Argentina 17.0 48.1 41.6 n.a 13.4 12.7
Brazil n.a. 25.2 21.5 n.a 7.0 6.2
Chile 18.6 33.1 44.8 5.5 16.5 3.0
Colombia 3.7 18.0 16.4 6.6 13.7 13.6
Mexico 0.3 54.6 81.9 n.a. 0.3 0.6
Peru - 32.6 30.6 10.5 9.2 14.4
Venezuela n.a. 49.7 37.4 n.a. 7.7 0.8
Russia 7.2 9.5 8.1 5.5 3.1 2.3
2.9 3.6 3.3 0.8 - -

18. Participation of state , private and foreign banks in selected Latin
American banking systems
Country State Private Single largest
banks Total EU USA Other foreign
banks country
Argentin 32.5 19.1 48.4 33.6 12.1 2.7
a Spain ( 17.9
%)
Brazil 46.0 27.0 27.0 15.7 5.3 6.1
Spain ( 5.3 % )
Bolivia 18.2 56.5 25.3 10.4 4.5 10.4
Spain ( 10.4 %
)
Chile 12.9 45.5 41.6 32.4 5.5 3.8
Spain ( 30.6 %
)
Peru 10.8 43.2 46.0 34.8 5.6 5.6
Spain ( 17.1 %
)
Mexico - 17.7 82.3 53.7 23.7 4.8
Spain ( 41.5 %

19. A NUMBER OF CONCERNS
 A large foreign banking presence can reduce the
information available to host country supervisors
 A large foreign bank’s presence casn expose a country
to shocks due purely to external events affecting the
parent bank
 The issue of foreign currency-denominated lending
 Foreign banks ‘cherry pick’ the best firms, leaving the
domestic banking sector with a weakened lending
purtfolio
 Foreign banks concentrate on large and more profitable
firms , leaving small and meduim-sized enterprises for
domestic banks

20. FOREİGN OWNERSHİP AND REGULATORY REFORM

22. FOREİGN İNVESTMENT İN CHİNESE BANKS

23. DİTRİBUTİON

24. BANKİNG CRİSES
NPLs was at least 10 percent of total assets
• Cost of rescue operations was > 2 percent of
GDP
• Banking problems resulted in a large scale
nationalization of banks
• Emergency measures, such as deposit
freeze, prolonged bank holidays, generalized
deposit guarantees were introduced

25. Some Stylized Facts on Banking Crisis
• Banking crises have become more frequent and severe -
Three
fourths of the IMF’s member countries, have experienced
significant banking sector problems since the 1980s .
• Most of the recent financial crises had banking sector
weaknesses at the core:
Mexico (1994), Turkey (2000), Korea (1997) etc.

26. • Banking crises often preceded by financial
liberalization.
• Banking crises are more severe in developing
countries
• Severity depends on reversal of capital flows
• More of banking crises are Twin Crises

27. IDENTFIYING THE CAUSES OF BANKING CRISES
Several bank specific factors and macro-
economic shocks micro-economic may cause
a banking crisis:
– Bank specific characteristics
• Inefficient management
• Imprudent lending decisions

28. – Macroeconomic factors
• Growth slowdown
• Terms of trade
• Currency Crises
• Appreciation of the real exchange rate
• Stock market and property prices crash
• Capital outflows

29. -Microeconomic factors
-poor banking practise
-principal-agent incentive problems
-overstaffing
-restrictive labour practices

31. Five types of loan performance categories are recommended by the
IMF for external reporting purposes and these include:
1) Standard.Credit is sound and payments current.
2) Watch.Subject to conditions that if uncorrected,could raise corcerns about
full repayment.
3) Substandard.Full repayment is in doubt due to inadequate
protection.Interest or principal overdue (90 days +).
4) Doubtful.Assets for which collection is considered improbable.Interest cipal
overdue(180 days +).
5) Loss.Virtually uncollectible.Interest or principal overdue (1 year +).