NOVEMBER 8, 2017 – The rising level of restrictions imposed on foreign banks operating in developing countries has been assessed as an impediment to growth in those countries, the World Bank Group has said.
According to the global financial institution, the restrictions, which took off since the 2007 to 2009 financial crisis have hampered growth prospects by limiting the flow of much-needed financing to companies and households.
Consequently, sustainably providing and extending the maturity structure of finance becomes a key policy challenge in the search for economic growth and shared prosperity.
The bank, in its latest report titled: “Global Financial Development Report 2017/2018: Bankers Without Borders”, also noted that international banking can have important benefits for development, “but is no panacea, and carries risks.”
For Nigeria and other developing economies, their policymakers would do well to consider how to maximise the benefits of cross-border banking, as well as minimising its costs simultaneously.
Besides, there is growing international evidence, which suggests that foreign investors hold more long-term domestic debt than domestic investors.
The World Bank Group President, Jim Yong Kim, pointed out that as aspirations continue to rise all over the world, and the banking sector evolves, there is a critical question- “Will finance be a friend or foe in the fight to end poverty?”
“International banking does create risks of exporting instability, especially for countries with poor regulations and institutions, and those risks need to be mitigated.
“But without a competitive banking sector, the poor will not be able to access basic financial services, many businesses will be locked out of markets, and growth in developing countries will stall,” he said.
The 2007-2009 crisis and economic downturn prompted an extensive re-evaluation of the benefits and costs of international banking, and led to restrictions that brought a decade-long surge in financial services globalisation and cross-border lending to a halt.
However, a renewed call is sweeping across the globe for developing countries to reconsider the value of international banks as critical gateways to global credit and faster economic growth, even as they continue to manage risks.
Detailing the current position in the use of long-term finance, which is defined as all financing for a time frame exceeding one year, the report said it is more limited in developing countries, particularly among smaller firms and poorer individuals.
Still, where long-term finance exists, the bulk is provided by banks, while the use of equity, including private equity, is limited for firms of all sizes.
Also, market failures and policy distortions have a disproportionate effect on long-term finance, suggesting an important role for policies that address these failures and distortions.