1

INTERNATIONAL BANKING

Submitted by:
Ashish
Bhardwaj
Roll no.-09
MBA(gen) A
 2
LEARNING OBJECTIVES

What is International Banking???

Services offered by International Banks
Types of International Banks
Reasons / Importance of Int. Banks
How it Works Practical Example
Major Risks Faced by International Banks
 3
WHAT IS
INTERNATIONAL
TheBANKING
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 it has access to
the capital, the technological capabilities, and the
international network to facilitate these activities.
4
CONTD
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.
 5
CONTD

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
 6
IB SERVICES OFFERED
International Banks do everything domestic
banks do and:
Arrange trade financing.
Arrange foreign exchange.
Offer hedging services for foreign currency
receivables and payables through forward and option
contracts
Offer investment banking services (where allowed).
Borrow or lend in Eurocurrency market
Underwrite Eurobonds and foreign bonds.
7
CONTD
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
 8 TYPES OF INTERNATIONAL
BANKING OFFICES

1. Correspondent bank
Banks located in different countries
establish accounts in other bank
Provides a means for a banks MNC clients
to conduct business worldwide through his
local bank or its contacts.
Provides income for large banks
Smaller 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
 9
CONTD.

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 banks
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 MNCs local customers.
It is useful when the bank has many MNC clients in
a country
 CONTD.
10

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)
Foreign branches are not subject to Canadian reserve
requirements or deposit insurance
Compete with host country banks at the local level
Most popular means of internationalizing bank
operations
11
CONTD.

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.
 12
CONTD.

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.
Banks operate as branches or subsidiaries of the parent bank
Primary credit services provided in currency other than host
country currency
Reasons for offshore banks
Low or no taxes, services provided for nonresident clients, few or
no FX controls, legal regime that upholds bank secrecy
The IMF recognizes the Bahamas, Bahrain, the Cayman
Islands, Hong Kong, the Netherlands Antilles, Panama,
Singapore as major offshore banking centers
 REASONS FOR
INTERNATIONAL
BANKING
Low Marginal Costs
Managerial and marketing knowledge developed at
home can be used abroad with low marginal costs.

Knowledge Advantage
The foreign bank subsidiary can draw on the parent
banks knowledge of personal contacts and credit
investigations for use in that foreign market.

Home Nation Information Services

Local firms in a foreign market may be able to obtain
more complete information on trade and financial
markets in the multinational banks home nation than is
obtainable from foreign domestic banks.

11-13
 CONTD
Prestige
Very large multinational banks have high perceived
prestige, which can be attractive to new clients.

Regulatory Advantage
Multinational banks are often not subject to the same
regulations as domestic banks.

Retail Defensive Strategy

Multinational banks also compete for retail services such
as travelers checks, tourist and foreign business market.

11-14
 CONTD
Growth
Foreign markets may offer opportunities to growth not
found domestically
Transactions Costs
Multinational banks may be able to circumvent
government currency controls.

Risk Reduction
Greater stability of earnings due to diversification

11-15
16
HOW IT WORKS???
17 CONTD
18
INTERNATIONAL BANKS
KEY RISKS
International lending risk
Country risk
Credit Risk
Currency Risk
Foreign Exchange Risk
19
WORLDS LARGEST INTEL.
BANKS
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
UFJ Bank Ltd. Japan