Effects of Foreign Banks Presence on Emerging Economies: Evidence from Tanzania

Abstract

Foreign banks presence has increased rapidly since 1990 where emerging economies lifted restrictions in their financial systems. Currently the ownership of foreign banks in many developing countries is more than 50%. Academically the positive effects of foreign banks participation are widely accepted in these emerging markets. However unlike studies of foreign investment in real sectors, little has been done to understand the negative effects from foreign banks to domestic banks and society in general. The importance of such understanding is crucial, especially after the break out of the global financial crisis and pandemic Covid 19 which raises certain concerns regarding the market – driven model of these emerging markets. The paper highlights this trend and survey the existing literature in order to explore the effects of foreign banks presence in emerging economies paying particular attention to Tanzania banking sector. It has been observed that; Competition and efficiency, stability and access to credits are among the effects that have been influenced by foreign banks participation. The descriptive results also revealed that foreign banks perform better in term of ROA and ROE than domestic banks in Tanzania during 2017 – 2021, but the performance of foreign banks is unstable and risky as compared to domestic banks.

Keywords: Foreign banks presence, Domestic banks, Emerging Economies, Return on Asset, Return on Equity.

DOI: 10.7176/RJFA/14-12-04

Publication date:June 30^th 2023