Foreign investment in emerging economy banks, as measured by cross-border acquisitions, rose from about $2.5 billion in 1991-95 to $51.5 billion in the following five years and $67.5 billion from 2001 to October 2005, the BIS said in a quarterly report.
"Foreign ownership exposes local banking systems more directly to changes in global conditions," said the BIS, a bank serving the world’s central banks.
The banking sector in many emerging economies is over 50 percent controlled by foreigners, with control exceeding 80 percent in Hungary and Mexico and reaching nearly 100 percent in some Baltic states, the BIS said.
The result, said the BIS, is that closer cross-border ties and the trend of globalization will make closer cooperation between national central banks increasingly important.
Foreign involvement is good overall for the target economies, the BIS said, exposing local players to international competition, promoting efficiency and improving prices.
But a series of issues, including the fact that foreign structures sometimes don’t fit the needs of local regulators and that decisions are made abroad, underscores challenges faced by emerging market regulators, said the BIS.
An explosion in lending to households has raised stability issues for some host country authorities, particularly in central and eastern Europe, where household credit increased by an annual average of 17 percent between 2000 and 2004.
Some of this growth can be explained by rapid economic expansion and the scarceness of credit before the arrival of foreign banks. But much of it can also be explained by a rush to benefit from more profitable lending, said the BIS.
Bank Austria, a division of Italy’s UniCredito and part of the largest bank group in eastern Europe, boasts that the average margin of return in many eastern European countries — as measured by the difference between the average deposit and loan rate — is 6 percentage points, double the return in the euro currency zone, said the BIS.
"The development underscores the need for host country authorities to have adequate information to assess the activities of all financial institutions in their markets," said the BIS, which is home to the Basel Committee on Banking Supervision, the global standard-setter for banking regulations.
