INTERNATIONAL BANKING
MUSTACHO, KARISSA JUN
BANKING
The business of banking has been defined under section 5(b)
of the banking regulation act, 1949 as “Accepting, for the
purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise and withdraw able by
cheque, draft, or otherwise”.
A bank is a Financial Institution whose primary activity is to
act as a payment agent for customers and to borrow and lend
money.
INTERNATIONAL BANKING
• International Banking can be referred as a subset of commercial
banking transactions and activities having a cross border and/or
cross currency element.
• International Banking is an arrangement of financial service by a
residential bank of one country to the residents of another country.
• The industry was transformed in the 1970s. Until then most banks
concentrated on their home markets, considering themselves as
domestic institutions that handled foreign business.
INTERNATIONAL BANKING
• With the rapid expansion of international networks, the banking sector
occupies a pivotal position in the global economy as it has access to the
capital, the technological capabilities, and the international network to
facilitate these activities.
• The operations of an international trade of services, that have as a
consequence either the creation and management of financial means, or
the mediation in the frame of national financier system, or the transport
of capital from surplus units of country in another, are called
“International Banking Activity”.
INTERNATIONAL BANKING
• Undertake International Lending
All claims of domestic banks offices on foreign residents
Claims of foreign bank offices on local residents
Claims of domestic bank offices on domestic residents in
foreign currency
IBs – SERVICES OFFERED
• International Banks do everything domestic banks do and:
Arrange trade financing
Arrange foreign exchange
Offer hedging services for foreign currency receivables and
payables through forward and option contracts
Offer investment banking services
• Borrow or lend in Eurocurrency market
• Underwrite Eurobonds and foreign bonds
IBs – SERVICES OFFERED
• International banks provide services to those engaged in
international trade and investment: risk-sharing, liquidity,
information.
• Like domestic banks, international banks accept deposits and
lend.
• International banks lower transactions costs and lower
information costs.
TYPES OF INTERNATIONAL BANKING OFFICES
Correspondent Banks
Edge Act Banks
Foreign Branch Banks
Subsidiaries and Affiliate Banks
Off-Shore Banking Centre
CORRESPONDENT BANKS
• Involves the relationship between a minimum number of two
banks which includes those that are in different countries.
• Generally used by MNCs for their international banking.
• Are in small size.
• Provides services to those clients who are out of their country.
• Provide income for large banks.
EDGE ACT BANKS
• Edge Act Banks are based on the constitutional amendments of
1919.
• It conducts business internationally under a Federal Charter
while being physically located in U.S.
FOREIGN BRANCH BANKS
• These bank operates like a local bank but it is legally part of the
parent, not a separate entity.
• It follows the rules and the regulations of both countries i.e.,
home country and host country.
• Most popular means of internationalizing bank operations.
SUBSIDIARY AND AFFILIATE BANKS
• A Subsidiary Bank is locally incorporated in one country either
partially or wholly owned by a foreign parent bank.
• An Affiliate Bank is one that is only partially owned by a foreign
parent but operates independently.
• These both operates under the banking laws of the country in
which they are incorporated.
• They are allowed to underwrite securities.
OFF-SHORE BANKING CENTRE
• A country whose banking system is organized to permit external
accounts beyond the normal scope of local economic activity.
• They are independent of the banking regulations of the particular
country.
IMPORTANCE OF INTERNATIONAL BANKING
Knowledge Advantage
The foreign bank subsidiary can draw on the parent bank’s
knowledge of personal contacts and credit investigations for use
in that foreign market.
Low Marginal Costs
Managerial and marketing knowledge developed at home can
be used abroad with low marginal costs.
IMPORTANCE OF INTERNATIONAL BANKING
Prestige
Very large multinational banks have high perceived prestige,
which can be attractive to new clients.
Regulatory Advantage
Multinational banks are often not subject to the same
regulations as domestic banks.
IMPORTANCE OF INTERNATIONAL BANKING
Wholesale Defensive Strategy
Banks follow their multinational customers abroad to avoid
losing their business at home and abroad.
Retail Defensive Strategy
Multinational banks also compete for retail services such as
travelers checks, tourist and foreign business market.
IMPORTANCE OF INTERNATIONAL BANKING
Transactions Costs
Multinational banks may be able to circumvent government
currency controls.
Growth
Foreign market may offer opportunities to growth not found
domestically.
Risk Reduction
Greater stability of earnings due to diversification.
BENEFITS OF INTERNATIONAL BANKING
Accessibility
Flexibility
International Transactions
Accounts Maintenance
CHALLENGES OF INTERNATIONAL BANKING
Currency Risk
Political Risk
Reputation Risk
Systematic Risk
Liquidity Risk
Operational Risk
Credit Risk
CHALLENGES OF INTERNATIONAL BANKING
According to Jessica Schubert – July 2017
Not Making Enough Money
Consumer Expectations
Increasing Competition from FinTech Companies
CHALLENGES OF INTERNATIONAL BANKING
According to Noushin Khushrushahi – October 2017
Macroeconomic Risk
Regulation
Criminality
Political Interference
Technology Risk
TRENDS IN INTERNATIONAL BANKING
Banks are getting serious about Blockchain
Automation is the future face of Customer Interaction
Artificial Intelligence – Chatbots
Cashless Society
Cybersecurity needs external, expert intervention
Collaboration beats competition
Technology Management
TRENDS IN INTERNATIONAL BANKING
FinTech and BigTech
Reimagining the Workforce
WORLD’S TOP 10 INTERNATIONAL BANKS
1. Industrial & Commercial Bank of China $3.62 Tr.
2. China Construction Bank Corporation $2.94 Tr.
3. Agricultural Bank of China $2.82 Tr.
4. Bank of China $2.63 Tr.
5. HSBC Holding (England) $2.57 Tr.
6. JPMorgan Chase & Co. (New York) $2.45 Tr.
7. BNP Paribas (French) $2.443 Tr.
WORLD’S TOP 10 INTERNATIONAL BANKS
8. Mitsubishi UFH Financial Group (Japan) $2.44 Tr.
9. Bank of America (U.S.) $2.15n Tr.
10. Credit Agricole Group (French) $1.91 Tr.
WORLD’S LARGEST INTERNATIONAL BANKS
Citigroup U.S.
Mizuho Bank/Mizuho Corp. Bank Japan
HSBC Holdings U.K.
Bank of America U.S.
JP Morgan Chase U.S.
Deutsche Bank Germany
Royal Bank of Scotland Group U.K.
WORLD’S LARGEST INTERNATIONAL BANKS
Sumitomo Mitsui Banking Group Japan
Hypo Vereinsbank Germany
UFJ Bank Ltd. Japan
