Mutual attraction is required for success in any type of relationship. For banks around the world, they have long been drawn to the emerging markets and now with the economies of the west being on shaky ground, international banks are finding them to be irresistible. Six years ago, the loans from international banks being borrowed by those in developing countries were a mere $1.1 trillion compared to the astonishing $4 trillion by the end of last year. The expertise of international banks and the crunch on credit have caused the emerging markets to consider once more the relationship with these institutions.
The tighter conditions of the markets of the international banks have a considerable effect on the bank credit flow toward emerging markets. If international banks were to pullback, local banks would face the hardships of filling the gaps left in areas like projects for infrastructure.
Another concern is to what extent the effectiveness of the policy for domestic money will be weakened by the increase in ownership by foreign banks. Bank-lending rates for domestic banks go down in a country and the rates of portions owned by foreign banks goes up.
Foreign banks stir up competition as well as bring forth new products and increase credit access. Emerging markets should not reconsider their relationship too hastily.
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18 May, 2008