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.

With the rapid expansion of international networks, the

banking sector occupies a pivotal position in the global
economy as:
Ithas access to the capital,
The technological capabilities, and
International network to facilitate these activities.
 Banks monitor the business sector through the evaluation, pricing,
and credit-granting functions.
 In this context, the operations of an international trade of services,
that have as a consequence either
 The creation and management of financial means, or
 The transport of capital from surplus units of country in an other,
or
 The mediation in the frame of national financier system are called
“International Banking activity”.
 Banking transactions crossing national boundaries

 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
 International Banks do everything domestic banks do and:
o Arrange trade financing.
o Arrange foreign exchange.
o Offer hedging services for foreign currency receivables and
payables through forward and option contracts
o Offer investment banking services (where allowed).
o Borrow or lend in Eurocurrency market
o Underwrite Eurobonds and foreign bonds.
 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.

 International financial regulation can lead to innovation in banking

1. Correspondent bank
Banks located in different countries establish accounts in
other bank
Provides a means for a bank’s MNC clients to conduct

business worldwide through his local bank or its contacts.

Provides income for large banks
oSmaller foreign banks that want to do business ,say in the U.S., will
enter into a correspondent relationship with a large U.S. bank for a
fee
2. Representative office
A small service facility staffed by parent bank personnel that is
designed to assist MNC clients of the parent bank in dealings with
the bank’s correspondents.
No traditional credit services provided

Looks for foreign market opportunities and serves as a liaison

between parent and clients
Useful in newly emerging markets

Representative offices also assist with information about local

business customs, and credit evaluation of the MNC’s local
customers.
It is useful when the bank has many MNC clients in a country
3. Foreign Branch: A foreign branch bank operates like a local
bank, but is legally part of the parent, not a separate entity.

Subject to both the banking regulations of home country and

foreign country.
Reasons for establishing a foreign branch

More extensive range of services (faster check clearing, larger

loans)
Compete with host country banks at the local level

Most popular means of internationalizing bank operations

Operating a foreign branch bank may be considerably complicated
because of the dual banking regulations
 http://www.trendingtopmost.com/worlds-popular-list-top-10/2017
-2018-2019-2020-2021/business/largest-foreign-banks-india/
 Doha Bank
 Bank of Bahrain and Kuwait
 Bank of America
 Barclays Bank
 DBS Bank
 Royal Bank of Scotland
 Deutsche Bank
 HSBC India
 Standard Chartered Bank
 Citi Bank
4. Subsidiary and Affiliate Bank

A subsidiary bank is a locally incorporated bank that is either

wholly owned or owned in major part by a foreign parents.
An affiliate bank is one that is only partially owned, but not
controlled by its foreign parent.
Both subsidiary and affiliate banks operate under the banking laws
of the country in which they are incorporated.
They are allowed to underwrite securities.
Subsidiary Bank:
A type of foreign bank that is incorporated in the host country but is
considered to be owned by a foreign parent bank.
The subsidiary bank only needs to operate under the host country's
regulations.
One of the drawbacks of operating a subsidiary bank is that the amount
of loans that the bank can make is much less than what a foreign branch
bank can make.
one benefit that makes up for that drawback is a subsidiary bank's
ability to underwrite securities.
5. Offshore Banking Center
A country whose banking system is organized to permit external
accounts beyond the normal scope of local economic activity.
The host country usually grants complete freedom from host
country governmental banking regulations.
oBanks operate as branches or subsidiaries of the parent bank

oPrimary credit services provided in currency other than host

country currency
oReasons for offshore banks:

-Low or no taxes, services provided for nonresident clients, few or no FX

controls, legal regime that upholds bank secrecy
Low Marginal Costs
Managerial and marketing knowledge developed at home
can be used abroad with low marginal costs.

Knowledge Advantage
oThe foreign bank subsidiary can draw on the parent bank’s
knowledge of personal contacts and credit investigations
for use in that foreign market.
 Home Nation Information Services
o Local firms in a foreign market may be able to obtain
more complete information on trade and financial
markets in the multinational bank’s home nation than is
obtainable from foreign domestic banks.

 Prestige
o Very large multinational banks have high perceived
prestige, which can be attractive to new clients.
 Regulatory Advantage
o Multinational banks are often not subject to the same
regulations as domestic banks.

 Wholesale Defensive Strategy

o Banks follow their multinational customers abroad to
avoid losing their business at home and abroad.

 Retail Defensive Strategy

o Multinational banks also compete for retail services such
as travelers checks, tourist and foreign business market.
 Transactions Costs
o Multinational banks may be able to circumvent
government currency controls.

 Growth
o Foreign markets may offer opportunities to growth not
found domestically

 Risk Reduction
o Greater stability of earnings due to diversification
 International lending risk

 Country risk

 Credit Risk

 Currency Risk

 Foreign Exchange Risk

 Host country banking and legal regulations

 Hinder the liberty of the banks to advance loans.

 Probability of default would be more.

 It refers to the possibility that sovereign borrowers of a
particular country may be unable or unwilling.

 And other borrowers unable, to fulfil their foreign

obligations for reasons beyond the usual risks which
arise in relation to all lending.
 A credit risk is the risk of default on a debt that may
arise from a borrower failing to make required
payments. 

 In the first resort, the risk is that of the lender and

includes lost principal and interest, disruption to cash
flows, and increased collection costs.
 Currency risk, commonly referred to as exchange-rate
risk, arises from the change in price of one currency in
relation to another.
 Investors or companies that have assets or business
operations across national borders are exposed to
currency risk that may create unpredictable profits and
losses
 Also called FX risk, currency risk, or exchange rate risk
- is the financial risk of an investment's value changing
due to the changes in currency exchange rates.
 This also refers to the risk an investor faces when he
needs to close out a long or short position in a foreign
currency at a loss, due to an adverse movement in
exchange rates.
 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.
 Sumitomo Mitsui Banking Group Japan
 HypoVereinsbank Germany
 UFJ Bank Ltd. Japan
 Globalization and Financial Crises
 Tools of Country-risk and Credit-risk Analysis and
Management
 International Coordination of Bank Regulation
 Financial Discipline
 The Agenda for Policy Makers
 The Age of Internet Banking and Finance
 Enhanced transparency and data transmission,
 Assisting countries in their preparation of integration into the
global economy and for free capital flows,
 Strengthening national financial systems,
 Ensuring that the private sector takes responsibility for its lending
decisions, and
 Enhancing further the role of the international financial
institutions and cooperation among them and with the
international forums
 Theories Relating to Growth and Profit Opportunities

 Theories Concerning Leveraging of Strengths

 Theories Pertaining to Client Activities

 Theories Relating to Risk Management

 Miscellaneous Theories of Multinational Banking

 Type and volume of foreign business;

 Resource requirements; and

 Host-country legal and regulatory structure.