Foreign Banks Entry, Banking Sector Performance and Financial Development in Tanzania: Further Evidence

DATE PUBLISHED
June 5, 2019
SECTION
Articles

Abstract

This paper investigates the effects of foreign banks existence on performance of the banking sector and financial development in Tanzanian during the period 2000 -2016. We hypothesize that foreign banks have had a positive influence on the performance of domestic banks as measured by income and cost indicators.

Further, study findings suggest that increased foreign banks entry is associated with increased financial inclusion since financial liberalization increases as foreign banks set up branches and domestic banks became foreign owned. The econometric results show that foreign bank entry is associated with higher financial inclusion and improved domestic banking sector performance and overall financial development.

Keywords

Tanzania, Banks, Financial Development

References

Bank of Tanzania (2007) “The Second Generation Financial Sector Reforms”. Dar es Salaam, Bank of Tanzania

Bank of Tanzania (2015) “Tanzania Mainland’s 50 Years of Independence: A Review of the Role of the Bank of Tanzania (1961-2011)” Dar es Salaam, Bank of Tanzania

Bayraktar, N. and Y. Wang (2005) “Foreign Bank Entry and Domestic Banks Performance: Evidence using Bank –Level Data”. www. Bayraktar-Wang-oct 12-05.pdf.

Boyd, J.,R. Levine and B. Smith (2000) “The Impact of Inflation on Financial Sector Performance” Journal of Monetary Economics, 47,221-248

Bremus, F. M.(2000) “Cross-border Banking, Bank Market Structure and Market Power :Theory and Cross-country Evidence” Journal of Banking and Finance, 25(5), 242-259

Brown, M., Steven Oghan, Alexander Popoor and Pinar Yesin (2011) ‘Who Needs Credit and Who Gets Credit in Eastern Europe? Economic Policy, vol.26.pp 93-130

Bruno, V. and R. Hauswald (2012) “The Real Effects of Foreign Banks. www.Hauswald1 pdf

Claessens, S and Van Horen (2011) “Foreign Banks: Trends, Impact and Financial Stability” DNB Working Papers, 330

Cho, K R. (1990) “Foreign Banks Presence and Banking Market Concentration: The Case of Indonesia”. Journal of Development Studies, vol. 27 no 1, pp 98-110

Claessens, S and Van Horen (2012) “Being a Foreigner among Domestic Banks: Asset or liability?” Journal of Banking and Finance, vol. 36, 1276-1290

Claessens, S. and N. Van Horen, (2013). “Foreign Banks: Trends and Impact”. Journal of Money, Credit and Banking, Supplement to Vol. 46, No. 1, 295-326,

Claessens, S. A., Dermiguc-Kunt and H. Huizinga (2001) “How Does Foreign Entry Affect Domestic Banking Markets” Journal of Banking and Finance, vol. 25 no.5 pp. 891-911

Claessens, S. (2013) ‘The impact of Foreign Banks’ DNB Working paper no. 370

Chopra, A.(2007) “Opening up to Foreign Banks: Harnessing the Benefits and Avoiding the Pitfalls” IMF

De Has, R. and van Lelyveld (2014) ‘Multinational Banks and the Global Crisis: Weathering the Perfect Storm” Journal of Money, Credit and Banking, vol.46

Detragiache E, T.Ttressel and P. Gupta (2008) ‘Foreign Banks in Poor Countries: Theory and Evidence’. Journal of Finance, Vol. 63 pp 2123-2160

Djankov S., C. Mcliesh and A. Shleifer (2007) “Private Credit in 129 Countries” Journal of Financial Economics, 84,299-329

Giamenti, M. and S. Ongena (2009)”Financial Integration and firm performance: Evidence from Foreign Bank Entry in Emerging Markets”. Review of Finance, 13(2), pp.181-223

Gormley, T. A. (2010) “The impact of foreign bank entry in emerging markets: Evidence from India” Journal of Financial Intermediation, 19 (1),pp.26-51

Hernes, N. and R. Lensink (2003) “The Impact of Foreign Bank Entry on Domestic Banks in LDCs: An Econometric Analysis in; T. Towaiski, R Lensink and V. Vensel, eds. Foreign Banks and Economic Transition, Pozman, Pozman University Press, pp. 129-146

Hernes, N. and R. Lensink (2004a) “The short- term effects of foreign bank entry on domestic bank behavior: Does economic development matter?” Journal of Banking and Finance, 28(3),pp.553-568

Hernes, N. and R. Lensink (2004b) “Foreign bank presence, domestic bank performance and financial development” Journal of Emerging Markets Finance, 3(2), pp. 207-229

IMF (2000) “International Capital Markets: Developments, Prospects and Key Policy Issues”. Washington DC, IMF

Jeon, B. N., M. P. Olivero and J. Wu (2011) “Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets” Journal of Banking and Finance,35 (4),pp. 856-875

Kilindo, A.A. L.(2009) ”The Effects of Foreign Banks Entry on Domestic Banks Performance in Tanzania.” UTAFITI JOURNAL, vol. 6. No.9

Lee, C. C., M.F. Husein, and H. W. Dai (2012) “How does foreign bank ownership in the banking sector affect domestic bamk behavior? A dynamic panel data analysis” Bulletin of Economic Research, 64(1), pp. 86-108

Lehner, M. and M. Schnitzer (2008) “Entry of foreign banks and their impact on host countries” Journal of Comparative Economics, 36 (3), pp.430-452

Lensink, R. and N. Hernes (2003) “The Short Term Effects of Foreign Bank Entry on Domestic Bank Behavior: Does Economic Development Matter?” Journal of Banking and Finance, vol.27

Lensink, R. and R. Naaborg (2007) “Does foreign ownership foster bank performance?” Applied Financial Economics, 17(11), pp. 881-885

Levine, R (1996) “Foreign Banks, Financial Liberalization and Economic Growth” in C.E. Barfield, (ed.) International Financial Markets: Harmonization Versus Competition. Washington D.C., AEI Press.

Levine, R (1997) “Financial Development and Economic Growth: Views and Agenda “Journal of Economic Literature, 33, 688-726

Levine, R (2001) “International Financial Liberalization and Economic Growth” Review of International Economics, 9(4), 688-702

Lotto, J. (2016) “Evaluation of Financial Performance of Foreign and Domestic Banks in Tanzania” European Journal of Business and Management, vol.8 no. 32

Majnoni, G., R. Shankar and E. Varhegy (2003) “The Dynamics of Foreign Bank Ownership: Evidence From Hungary”. World Bank Policy Research Working Paper 3114

Mrema, I.,(2004) “Determinants of Profitability of Domestic and Foreign Commercial Banks in Tanzania : A case study of Commercial Banks Listed in the Dar es Salaam Stock Exchange” Unpublished Dissertation submitted at Mzumbe University. Sclolar.mzumbe.ac.tz

Swai, J. P. and Mbogela,. (2014) “Does Ownership Structure Affect Banks Performance?: An Empirical Inquiry on Tanzania Bank Industry”. ACRN Journal of Finance and Risk Perspectives, vol. 3, issue 2. pp.47-66.

Tressel, T. (2008) “Foreign Banks in Poor Countries: Theory and Evidence.”Journal of Finance, Vol. 63, pp 2123-2160

Uiboupin, J. (2005) “Short –Term Effects of Foreign Bank Entry on Bank Performance of Selected CCE Countries” Working Paper of Estipank no.4 ww.bankofestipank.info

Wahid, S. and K. Rehman (2009) “Foreign Banks are More Efficient: A Myth or Fact?” International Journal of Business Management, 4-11, 116-126

Wang, Y and N. Bayraktar (2004) ‘Foreign Bank Entry, Performance of Domestic Banks and the Sequence of Financial Liberalization” e library, World Bank

World Bank (2000) ”International Capital Markets :Developments, Prospects and Key Policy Issues”. Washington DC, IMF

Yesim, H. (2015) “Comparative Analysis of Foreign and Domestic Banks in Georgia” International Journal of Finance and Accounting, 4.11, 52-59

Y Xu (2011) “ Towards a More Accurate Measure of Foreign Banks Entry and its Impact on Domestic Banking Performance; the Case of China’. Science Direct Journal of Banking and Finance, vol.35-4

Zajc, P. (2004) “The effects of foreign bank entry on domestic banks in central and eastern Europe” in M. Balling, F. Lieman, and A. Mullineux, (ed), Financial Markets in Central and Eastern Europe: Stability and Efficiency: 189-205.

Author Details

A. L. Kilindo