Determinants of cross-border banking. Like other financial services, banking is a global business and the competition for the customer base has increased. Banks in different countries are competing with each other to provide better banking services in their respective markets. This competitive edge has led banks to offer better services to their customers.
One of the main determinants of international banking is the level of profitability. Some countries have been in the business for a long time and therefore have developed their own set of operating procedures. On the other hand, there are countries that have been new entrants into the banking industry and are still very much experimenting with their strategies. And due to the large number of new entrants to the banking sector, the banking services offered by the country are also very much in demand.
Another determinant of international banking is location. Most of the banking transactions involve the transfer of money across borders. Therefore, banking establishments located in countries where the people have less time for travel, may have better odds of getting more customers. It is also a fact that the costs of doing business are lower in the countries near the countries where people go on holidays.
The importance of cross-border banking is not only in the interest of the bank. It has a significant impact on the country’s growth. Some studies have shown that cross-border banking actually have a positive effect on the economic development of a country. A country that is not developed enough to generate its own trade and does not benefit from cross-border banking can only benefit from it if there is a large demand for it in the rest of the world.
Banking also reflects the amount of freedom of the people living in a country. Countries where citizens have more freedom to choose the lender, the terms of payment and the choice of selecting an account, will have a greater demand for banking. Due to greater choice of service providers, competition in cross-border banking is good.
Determinants of cross-border banking are a result of three factors – geographical location, choice of lenders, and choice of accounts. There are a number of countries that are developing well in these three categories, but they do not cater for international banking. So, when such countries make a move towards international banking, it is wise for them to look for a lender that is located outside the country.
Another determinant of cross-border banking is the government policy. Countries that do not have some particular national policy to benefit from international banking will not be able to obtain the right capital for the business. For example, if the government of Canada decides to give a large portion of its equity to its citizens, it will have a harder time getting the bank to lend to run its own business.