Abstract:
This dissertation analyses foreign bank penetration in Thailand and its effects on value creation, the diffusion of financial innovations as well as lending and stability over the period 1997 to 2005 using quarterly and semi-annual data. By making a clear distinction between hybrid banks and foreign branches, the main findings with respect to the former are that the presence of hybrid banks appears to have (i) contested the position of domestic banks and improved the functioning of the domestic banking market, although it may not be unequivocally beneficial in terms of value creation, (ii) had a positive effect on the probability of adoption of financial innovations, with hybrid banks found to be early adopters, and (iii) had a beneficial effect on total loan growth, but seems to have affected the distribution of credit. The analyses show that the mode of entry and the organisational form matter as does the size of the foreign shareholding. The findings recommend that foreign equity participation in locally incorporated banks should be further liberalised, but concomitantly suggest a phased approach accompanied by careful supervision and regulation to avoid any adverse outcomes. These policy implications are useful for countries like Thailand who have to decide whether and how to open their markets further.
