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The Impact of Foreign Bank Entry on the Efficiency and Sustainability of Domestic Banks in Developing Countries: A Meta-Frontier Approach

Year: 2024

Type: article

Abstract: This study, which investigates the impact of foreign bank entry on the efficiency and sustainability of domestic banks in developing countries using a Meta-Frontier analysis to estimate efficiency scores, presents findings of significant importance to banking and finance. By incorporating financial, social, and environmental sustainability proxies—such as efficiency, loan portfolio composition, and macroeconomic conditions—this study assesses whether foreign competition enhances or undermines the long-term stability of domestic banking sectors. The results show that while foreign banks can improve financial efficiency, they may destabilize domestic banks, notably smaller or less capitalized institutions. Additionally, the findings suggest that banks with higher investments in SME lending and green projects demonstrate better social and environmental sustainability. Policymakers and financial institutions must consider these dual effects when promoting foreign bank entry.

Source: Sustainability

DOI: 10.3390/su162410932

Authors: Fathi Bouzidi, Aida Nefzi

Institutions: University of Tabuk, University of Sousse

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: gold

Estimated APC paid: $2,728