Assessing the Effects of Overseas Banks Entry on the Performance of Domestic Banks and the Economy in Selected Sub-Saharan African Countries: a Lesson for Ethiopia
No Thumbnail Available
Date
2024-07-18
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
The main purpose of this study is to assess the effects of overseas banks’ entry on domestic bank
performance and the economy in selected Sub-Saharan African countries. The time under
scrutiny is from 2005 to 2020. To this end, both primary and secondary data were employed. A
two-step system of generalized method of moments (GMM) was adopted to identify the effects of
overseas banks’ entry on domestic bank performance and the economy. Overseas bank assets
share is used as a proxy for overseas banks’ entry. Accordingly, domestic bank performance is
positively determined by overseas banks’ entry, while economic performance (nominal gross
domestic product (GDP) per capita) is negatively determined by overseas banks’ entry. The
study finding reveals that there exists no significant difference between globalized Sub-Saharan
Africa (SSA) countries and Ethiopia as far as the domestic bank performance is concerned. The
finding also indicates that overseas banks’ entry will bring enormous opportunities for domestic
banks such as capital, technology, more efficient processes, new service channels, systems, and
expertise. In the case associated with overseas bank entry, the study identified challenges that
include loss of potential customers, unfair competition, transmitting external shocks, and talent
drains. The implications of the study include the government and central bank’s need to
formulate an appropriate strategic response to minimize the destructive outcomes of overseas
bank entry on the performance of domestic banks and the economy.
Keywords: - Overseas banks entry, domestic bank performance, economic performance, and
generalized method of moments (GMM)