ENTRY OF FOREIGH CAPITAL IN THE BANKING SECTOR: PROS AND CONS

Abstract

International banking is important for financial integration and economic growth. The basic assumption is that it provides banks an opportunity to determine their optimal size, to ensure economies of scale and scope, to diversify their activities and to increase their revenue. Thus, banks have the opportunity to improve allocation of resources and risk management, and thus increase profitability. The purpose of this paper is to determine the effect of the entry of foreign capital in the banking sector in general, to summarize the arguments for and against the entry of foreign capital in the banking sector using world literature on the subject. The methods used in this paper are analytical and comparative method. The results show that despite many conflicting opinions about the benefits of FDI in banking, it can be concluded that in general, the effects are relatively positive and carry many obvious benefits, in the form of increased borrowing, modernization of equipment and technology which is used by banks, and greater availability of bank services, considering investments in opening new branches in the country. With the entry of foreign banks and banking group sectors, the competition is intensifying, the prices of banking products and services are decreasing, and the number of banks on the market is reducing. The consolidation of the banking industry encourages strong competition with capable competitors, better quality of banks, cheaper capital cost, expansion of credit supply and offering new products and services by banks.