Founded in 1984, EFG Hermes is the prime investing bank in the Middle East and is recognized as the parts market leader in securities securities firm, plus direction, investing banking, private equity, and research. The house has a proud history of invention, market leading and dedicated client service.
The Firm is listed on the Egyptian and London Stock exchanges. It employs over 1000 people from more than 25 nationalities and services clients from 9 states across the part.
A strong civilization, rooted in nucleus rules, governs all facets of EFG Hermes concern from its interaction with clients to the development of employees.
EFG Hermes prioritizes client demands as the get downing point of all its concern projects and client satisfaction is its ultimate end.
The Firm strives to further win-win relationships with clients and concern spouses, constructing relationships about high grades of common benefit and trust.
As an employer, EFG Hermes values and respects all persons engaged in its concern: the Firm shows its professionals the same honestness and unity that it requires of them in their traffics with clients.
The Firm is steadfastly committed to its corporate societal duty. It values creativeness in persons and is a steadfast truster in the power of teamwork. EFG Hermes aims to present excellence in everything it does, fostering its market leading and repute by systematically giving its best. It applies creativeness and invention to all its merchandises and services, tackling its rational capacity and expertness to add existent value to clients. EFG Hermes is strongly committed to maximising stockholder value.
EFG Hermes aim is to assist authoritiess, companies and investors in the Middle East be more successful financially.
EFG Hermes offers its clients a complete spectrum of investing services, including securities securities firm, investing banking, plus direction, private equity and research.
The Firm provides insight into regional markets gained from old ages of transactional experience and on the land expertness. Coupled with an matchless path record of executing, attachment to the highest planetary criterions of trade direction, the broadest regional footmark and a globally experient squad of professionals, EFG Hermes provides odd ability to help clients in accomplishing success in the part.
EFG Hermes Securities Brokerage is the part ‘s largest and taking Securities securities firm house. The Firm ‘s direct presence in Egypt, the United Arab Emirates, Saudi Arabia, Oman, Kuwait, Lebanon, Jordan, Syria and Qatar allows it to supply an alone diverseness of merchandises and services to institutional, broker-dealer, fund director and high-net-worth and retail clients. The Firm besides trades in three other regional markets indirectly: Morocco, Bahrain, and Palestine.
Securities Brokerage led Arab markets overall in 2010, as the top securities firm house in Egypt with a market portion of 13.9 % and the top securities firm house overall in the UAE. Securities Brokerage besides took the 2nd topographic point ranking for Kuwait with a market portion of 15.06 % and 3rd topographic point in Oman, while posting strong market portion public presentations in Qatar, with 6.18 % , and Bahrain, 6.12 % . In Saudi Arabia, EFG Hermes was ranked in 3rd topographic point among independent agents in the Kingdom.
The stopping point of 2010 besides saw Securities Brokerage achieve important advancement in Jordan following its direct market entry through the acquisition of Tadawol, a local Jordanian securities firm house. In merely under six months, EFG Hermes jumped 35 topographic points in the rankings, from the fiftieth topographic point to 15th in December, while shuting the 4th one-fourth at figure 21 overall with a 1.75 per centum market portion.
In acknowledgment of single demands, EFG Hermes was the first regional agent to offer a fully fledged retail securities firm scheme with EFG Hermes Phone for securities firm executing and launched an online trading platform for Egypt, UAE, KSA and Oman. With both English and Arabic interface, EFG Hermes Online allows round the clock entree to stock and hard currency places, dealing history and statements, whether minutess have been executed online or via EFG Hermes Phone. “ Online ” has rapidly grown to the figure one online concern in Egypt and is turning rapidly in other markets. In add-on, the Firm has built the largest regional subdivision web with 11 subdivisions covering Egypt ‘s different governorates and continues to spread out to increase the convenience of trading with it.
With a public presentation path record dating back to 1994, EFG Hermes Asset Management ranks among the taking fund directors dedicated to the Middle East and North Africa part with about USD 4.7 billion in assets under direction as of December 2010. EFG Hermes Asset Management systematically outperforms regional benchmarks solidifying its competitory offering in the part. The squad ‘s superior path record and regional penetration have allowed the house to pull high quality professionals from across the part and abroad.
With a committedness to investing excellence and client service, each member of the EFG Hermes Asset Management squad brings his/her expertness and penetration to the bow. The deepness of the Firm ‘s apprehension of the MENA part complements the comprehensiveness of its merchandise offering, enabling EFG Hermes Asset Management to command strong public presentation across changing authorizations.
In footings of client service, EFG Hermes Asset Management maintains a proactive attack to client offering, invariably germinating to supply solutions to its clients ‘ demands by spread outing its merchandise platform harmonizing to the squad ‘s investing positions.
1.1.1 Investing Banking
Serving a strong regional client base of taking private companies, authoritiess and transnational corporations, EFG Hermes tailors its solutions to assist run into the client ‘s fiscal and strategic aims. Its consultative services cover the full spectrum of public and private minutess including amalgamations and acquisitions, restructuring, denationalizations and the issue of equity and debt capital.
EFG Hermes has experience in a broad scope of sectors including telecom, media and engineering, fiscal establishments, nutrient and drinks, building, oil and gas, petrochemicals, public-service corporations and power, cordial reception and health care. The Firm adopts a team-based attack to its concern in each sector, tackling its endowment, cognition and experience to work in the involvements of its clients.
1.1.2 Amalgamations and acquisitions
As a regional house with planetary criterions, EFG Hermes has successfully completed about USD 48 billion of M & A ; A minutess and USD 13 billion of equity minutess. The Firm ‘s scope of services offered includes: placing possible acquisition/divestiture marks, making elaborate rating analysis and transactional constructions, trade executing and developing fairness sentiment.
EFG Hermes prides itself on a proved path record in structuring and put to deathing capital raising minutess on behalf of taking regional clients. It has successfully raised important sums of capital for its clients as Lead Manager, reding private corporations and public entities on their initial public offerings, secondary offerings, and private arrangements. The Firm ‘s strongest plus in this concern is its extended distribution arm with its nucleus strength in the MENA part.
EFG Hermes has acted as Arranger/ Lead Manager for a figure of of import minutess. The Firm prides itself on its ability to run into clients ‘ demands with high quality and frequently pioneering merchandises: EFG Hermes remains the lone Investment Bank to hold offered an Egyptian USD denominated discounted exchangeable bond.
1.1.5 Private equity
Private equity is one of the most constituted private equity directors in the Middle East and North Africa ( MENA ) part.
From the Firm ‘s offices in Cairo and Dubai and by leveraging EFG Hermes ‘ on-the-ground presence in Beirut, Damascus, Doha, Kuwait, Muscat and Riyadh, its range covers the full MENA part.
Over the past 13 old ages, the Firms has raised more than USD 1.5 billion over 9 financess. Furthermore, in April 2009, it announced the launch of InfraMed, a EUR 1 billion substructure fund.
In 1997, the Firm launched its first USD 54 million private equity fund, Horus I Fund, which was followed by the USD 29.5 million Middle East Technology Fund ( METF ) and Jordan Technology Fund ( JTF ) in 2000.
In 2003, EFG Hermes formed a strategic confederation with CIIC to pull off its so USD 321 million fund, the largest private equity vehicle in Egypt at the clip.
In 2004, it launched the EGP 50 million Technology Development Fund I ( TDF I ) , which was followed by the USD 155 million EFG Capital Partners II in 2005 and the USD 46 million Horus Food and Agribusiness in 2006.
In 2007, the Firm raised EFG Capital Partners III, its largest fund to day of the month which closed at USD 575 million. The Firm ‘s latest fund was the Technology Development Fund II ( TDF II ) , which was launched in 2008 with the size of EGP 215 million.
As of 31 December 2010 and through Horus I, EFG Capital Partners II and III and Horus Food and Agribusiness financess, the Firm has invested USD 570 million in 36 companies and achieved 25 issues with returns numbering USD 354 million, recognizing additions of USD 146 million.
The current EFG Capital Partners II and III and Horus Food and Agribusiness portfolio consists of 11 companies.
1.2 Credit Libanais
Credit Libanais was established in July 12, 1961, as a Lebanese articulation stock company. The Bank ‘s ownership is split between EFG HERMES CL HOLDING SAL with 63.738 % of the portions capital and CIH BAHRAIN INTERNATIONAL HOLDING SAL with 25.203 % .The staying 11.059 % is owned by other single and institutional stockholders.
1.2.1 Pioneering Role
Since its constitution in 1961, Credit Libanais distinguished itself with the long experience and know-how it acquired over the old ages. Credit Libanais – one the oldest Bankss runing on the local sphere – has proved its leading place in the Lebanese banking industry through legion pioneering stairss, such as the acquisition of other Bankss since 1977, the last of which has been American Express Bank operations in Beirut ( 2000 ) , the debut of the electronic Point of Sale ( POS ) web in 1993, the constitution of the first nation-wide ATM web, International Payment Network ( IPN ) , and the issue, in 1996, of Euro Certificates of Deposits listed on international stock exchanges, which was the first operation of its sort in Lebanon.
Credit Libanais has become a taking retail bank by virtuousness of its inventions: overhauling its retail loaning policies and processs every bit good as enrolling extremely qualified, gifted forces. On the Corporate Banking forepart, Relationship Managers maintain a sharper focal point on big domestic corporate clients.
The Bank has besides played a pioneering function in the state ‘s card endeavor and payment web. The fiscal public presentation of Credit Libanais Group clearly reflects the success of the Bank ‘s scheme to accomplish sustainable growing at rates. Such public presentation strengthens the Bank ‘s placement on the list of taking local Bankss, corroborating, one time once more, the soundness of its enlargement schemes both locally and internationally.
Quality control is underlined by the Bank ‘s making for the ISO 9001:2000 Certification for Quality Management System since 2003.
The Bank offers its clients specialized fiscal services, through its activities and those of its legion subordinates, a broad array of services, including retail, corporate, investing and Islamic banking, leasing, micro-finance, every bit good as Small and Medium Enterprises ( SMEs ) support. The Bank is a innovator in e-banking services, runing a broad web of ATMs and POS, an advanced Call Centre and cyberspace banking services that allow clients easy and firmly entree the Bank, wherever they may be in the planetary small town.
The Bank is a innovator in the field of advanced technological services, including Internet banking, Customer Service Center, Phone banking, WAP banking and Television banking. This scheme is in line with the Bank ‘s client focal point policy which aims at supplying clients with convenient entree to the Bank from the privateness and comfort of their places or offices.
Credit Libanais besides furnishes quality criterions in capital markets and private banking merchandises and instruments, traded on both domestic and international markets. The Bank is an active participant in the co-management of all autonomous Eurobonds issues and is considered a major market shaper on the Lebanese fixed income securities market.
1.2.3 Cooperation Partnerships
The Bank develops and maintains strategic concerted partnerships with legion international organic structures, the.Arab Trade Financing Program ( ATFP ) , the Inter Arab Investment Guarantee Corporation ( IAIGC ) , the Islamic Corporation for the Insurance of Investments and Export Credit ( ICIIEC ) , the European Investment Bank ( EIB ) , the Saudi Development Program ( SDP ) , and the International Finance Corporation ( IFC ) .
Locally, Credit Libanais squads with Kafalat Sal in a concerted partnership meant to supply competitory funding strategies to Small and Medium Enterprises runing in the industrial, touristry, agricultural, technological and traditional trades sectors. Additionally, the Bank set up an confederation with Berytech, Lebanon ‘s premier brooder, in an enterprise to advance, develop and keep venture capital operations in the state, chiefly to start-ups.
Credit Libanais aims to go the preferable bank in Lebanon, by clients and employees likewise. The Bank continues to develop a respected, successful and advanced fiscal establishment, which embodies the nucleus values of client focal point, teamwork and quality public presentation.
To win in its corporate mission, the Bank has developed a new attack to serving retail clients and marketing its many merchandises. The Bank has turned each subdivision into a one-stop-shop that offers clients a broad assortment of merchandises and services to run into specific demands.
In add-on, the Bank has introduced a customer-oriented attack toward its corporate clients. Relationship Directors have been designated to put the full Bank at their corporate clients ‘ disposal by supplying bespoke solutions to run into their demands.
Credit Libanais has re-aligned its organisational construction in order to heighten client focal point. Its new construction Fosters decentalisation of duties and decently defines the relationship and answerability among concern units.
Credit Libanais will go on to keep a prima place in technological developments and the recognition card endeavor. In this manner, the Bank will develop further its nucleus concern activities by stressing both fee-based and non-interest income.
The Bank believes that employees are its most valuable assets. Teamwork and cooperation among divisions are keys to presenting superior quality service. The Bank ‘s civilization is performance-based leting each unit to put its concern aims and commensurate wagess with public presentation.
The resolute doggedness and diligence of Credit Libanais ‘ squads of direction and staff are pillar factors the Bank capitalizes on to stay, for the old ages to come, among the best executing Bankss in the industry, one that aims at presenting highest criterions of quality services to clients in Lebanon and worldwide. By making so, Credit Libanais ensures sustainable growing for stockholders, stakeholders and employees likewise.
1.3 Strengths and failings
In the followers, the strengths and failings of EFG Hermes will be enumerated along with Credit Libanais ‘ , the commercial banking division of the EFG Hermes group.
EFG Hermes is the Arab universe ‘s prime investing banking house and the market leader in securities securities firm, plus direction, investing banking, private equity and research.
EFG Hermes serves a full scope of clients from authoritiess and corporations to institutional and single investors.
EFG Hermes securities securities firm leads in the diverseness of its merchandises, services and the strength of its arrangement power.
EFG Hermes Securities Brokerage is the part ‘s largest and taking Securities securities firm house.
EFG Hermes has the longest path record in the MENA part, independent buy-side research, on the land presence and a full scope of investing offerings, enabling the house to supply an exceeding plus direction service.
In deepness industry expertness, the strongest transactional path record in the part and the highest quality squad of professionals, provide clients with alone advice and executing.
EFG Hermes is the ideal spouse for investors in the MENA part
Private Equity within EFG Hermes has a path record of more than a decennary of puting in a diversified set of sectors, including touristry and existent estate, fiscal services, industrials, edifice stuffs, oil and gas, nutrient and agriculture, FMCG and retail.
Credit Libanais SAL operates as a planetary supplier supplying a full scope of banking services channeled through an extended web of 65 subdivisions in Lebanon, a subdivision in Limassol, Cyprus ; a subdivision in Manama, Bahrain and a Representative Office in Montreal, Canada.
Credit Libanais SAL besides is a innovator in the field of e-banking and reaps the benefits of a big web of international letter writers around the Earth.
Credit Libanais SAL holds a licence to run in some West African states.
EFG Hermes ‘ activity is chiefly involved in investing banking. Its commercial banking activity is still minor.
EFG Hermes ‘ state hazard is really high since its activity is based in the MENA part ( viz. Egypt ) ; a part that is witnessing political and economical jobs.
EFG Hermes public presentation and growing slowed down for the last two old ages.
Despite the importance of the positive consequences of Credit Libanais, these consequences ca n’t preponderate the hapless public presentation of the group in the other activities.
Purpose of the survey
2.1 Opportunities and menaces
Although the Lebanese banking sector has proven its outstanding public presentation and remains the strongest economic sector in the state, its activity faces some menaces and could profit from some chances.
The chances can be summarized as follows:
The copiousness of hard currency influxs since 2008 following the planetary fiscal crisis where many Lebanese exiles and even foreign subjects transferred their hard currency to Lebanese Bankss seeking security. This gives a strong chance for Lebanese Bankss to fund their schemes and fulfill more clients ‘ demands.
The turning consciousness of people for the importance of banking merchandises and services forms an chance for Bankss to accomplish better market incursion in the hereafter where many merchandises ( such as bancassurance ) will be easier to sell to clients than earlier.
The consequence of globalisation widens the skylines of Bankss through the possibility of geographical enlargement. Actually, this is the chief and most of import chance for Lebanese Bankss in general and for Credit Libanais more specifically. The latter holds a licence to run in states members of the West African Economic and Monetary Union. The West African Economic and Monetary Union ( besides known as UEMOA from its name in French, Union economique et monetaire ouest-africaine ) is an organisation of eight West African provinces. It was established to advance economic integrating among states that portion the CFA franc as a common currency. UEMOA was created by a Treaty signed at Dakar, Senegal, on 10 January 1994, by the caputs of province and authoritiess of Benin, Burkina Faso, Cote d’Ivoire, Mali, Niger, Senegal, and Togo. On 2 May 1997, Guinea-Bissau, a former Portuguese settlement, became the organisation ‘s 8th ( and merely non-Francophone ) member province.
UEMOA is a imposts brotherhood and currency brotherhood between the members of ECOWAS. Its aims include the followers:
Greater economic fight, through unfastened markets, in add-on to the rationalisation and harmonisation of the legal environment
The convergence of macro-economic policies and indexs
The creative activity of a common market
The coordination of sectoral policies
The harmonisation of financial policies
Among its accomplishments, the UEMOA has successfully implemented macro-economic convergence standards and an effectual surveillance mechanism. It has adopted a imposts brotherhood and common external duty and has combined indirect revenue enhancement ordinances, in add-on to originating regional structural and sectoral policies. A September 2002 IMF study cited the UEMOA as “ the furthest along the way toward integrating ” of all the regional groupings in Africa.
ECOWAS and UEMOA have developed a common program of action on trade liberalisation and macroeconomic policy convergence. The organisations have besides agreed on common regulations of beginning to heighten trade, and ECOWAS has agreed to follow UEMOA ‘s imposts declaration signifiers and compensation mechanisms.
The states members of this brotherhood are:
Benin ( Establishing Member )
Burkina Faso ( Establishing Member )
Ivory Coast ( Establishing Member )
Guinea-Bissau ( Joined on 2 May 1997 )
Mali ( Establishing Member )
Niger ( Establishing Member )
Senegal ( Establishing Member )
Togo ( Establishing Member )
It is good known that those states have big Lebanese communities established for many decennaries where they hold major companies and economic entities. This fact would be an extra chance for Lebanese Bankss, and Credit Libanais particularly, to easy establish banking activities in these states.
As for the menaces, the chief 1s are the undermentioned:
The ferocious competition between Bankss weighs heavy on net income borders. Banks tend to hold indistinguishable merchandise and service lines and deficiency distinction. As a consequence, clients ‘ keeping is going more hard with clip and net income borders tend to shrivel because of this competition.
The hard currency influx towards Lebanese Bankss is besides a menace. In fact, these sedimentations benefit from involvement rates. If Lebanese Bankss wo n’t be able to utilize these financess and put them in profitable undertakings, the paid involvement rates would surely impact the Bankss ‘ profitableness.
The Lebanese Bankss face a menace of Assets Liabilities Management where the distribution of portfolios in footings of loans ‘ classs arrived to a critical point particularly after a period of lodging loans overflow. Consequently, Lebanese Bankss need to earnestly supervise their portfolios to avoid future jobs caused by involvement rate hazard, liquidness hazard, and market hazard every bit good as capital demand duties.
2.2 Need for intercession
Literature on amalgamations and acquisitions and their features and interviews conducted with executives at Credit Libanais confirm that an entity acquired by another is non needfully in fiscal hurt. Indeed, the instance of acquisition of Credit Libanais by EFG Hermes is a perfect illustration. Prior to this acquisition, Credit Libanais enjoyed a strong fiscal place, demoing net income growing and an betterment in its cardinal fiscal ratios and indexs. However, this esteemed Lebanese bank has agreed to be acquired by a foreign group.
Consulting the causes and effects of this operation has highlighted two chief factors regulating this acquisition. First, the cause for which Credit Libanais has launched this operation is of strategic type. In other words, there were no fiscal causes but a desire to accomplish development and enlargement undertakings. In world, the Credit Libanais was taking for a alteration that will let it to implement its development programs particularly that this bank is licensed to run within the member states of the West African Economic and Monetary Union ; plans that require major investings that could be drawn from a large size acquirer such as EFG Hermes.
Second, the execution of these undertakings and the future success of the acquisition must be guaranteed by the conditions of acquisition. Credit Libanais knew really good that its scheme of holding to be acquired by another entity could non guarantee the realisation of its aims and outlooks if specific conditions could non be met during the dialogue. It is in this context that the two entities have agreed that the Bank will go on to run as an independent entity and does non undergo any major alteration.
Now that the M & A ; A has been made and has proven its success, Credit Libanais desperately needs to implement its development scheme through practical steps in order to make its ain aims of accepting this M & A ; A operation. In other words, an intercession is needed to get down the alteration and light up the enlargement twinkle. The intercession is even more pressing since that rumours suggest that EFG-Hermes Holding may sell its 65 % interest in its capital ; rumours downplayed by Credit Libanais. Thus, clip is a factor non in favour for the Lebanese Bank that is in demand for the EFG Hermes Group ‘s fiscal capacity to concretize its development programs.
2.3 Anticipated consequences
The anticipated consequences of the intercession are the stretch of Credit Libanais ‘ aims from the M & A ; A operation in footings of geographical enlargement and funding support from EFG Hermes Group. In pattern, the intercession would open new skylines to Credit Libanais – and accordingly to the EFG Hermes Group – by perforating new markets and heightening its profitableness.
The determiners of banking internationalisation
Impregnation of local markets, net income chances, the integrating between the host state and the state of beginning every bit good as some specific benefits to transnational Bankss have mostly contributed to the enlargement foreign bank.
The gap of the fiscal systems of emerging and in passage states has besides played an of import function in this multinationalisation procedure. These determiners of foreign banking activity can be classified into two classs: the supply factors and demand factors.
3.1 Supply factors
Supply factors explain why Bankss look to spread out abroad. These factors chiefly concern the state of beginning and warrant the phantom of banking FDI ( Foreign Direct Investment ) .
3.1.1 The conditions in the transnational Bankss ‘ state of beginning
In most developed states, fiscal systems have undergone considerable alterations during the 1990s. These alterations have influenced the enlargement scheme of the European and American Bankss.
Fiscal integrating and European banking directives have led to a considerable moving ridge of bank consolidations. Banks seek to increase their size and to beef up their place on the market in expectancy of of import amalgamations and acquisitions that may happen among European Bankss. These motions of consolidation led to the increasing impregnation of the banking market in Europe and the United States.
The survey by Guillen & A ; Tschoegl [ 1999 ] on the enlargement of Spanish Bankss in Latin America emphasizes that the impregnation of the Spanish market led Bankss to seek new net income chances abroad and to beef up their place against the amalgamations and acquisitions expected by an increased European fiscal integrating. This tendency has been reinforced by the oligopolistic reactions of Spanish Bankss, a behaviour through which Bankss follow a rival sing the pick of nidation and international activities.
3.1.2 Factors specific to the bank
Several surveies have shown that larger Bankss are more likely to relocate abroad. This can be explained by the fact that these large Bankss by and large have transnational houses seeking banking services abroad as clients. In add-on, large Bankss are better able to work economic systems of graduated table associated with an activity outside the state of beginning and are encouraged to diversify hazards.
The most advanced and most effectual Bankss besides are more likely to relocate abroad ( Focarelli & A ; Pozzolo [ 2000 ] ) . Factors specific to the bank are besides of import in the pick of location.
Numerous surveies have shown that in developing states, and contrary to what is observed in developed states, foreign Bankss are better executing than local 1s. They have higher involvement borders and profitableness, every bit good as less of import general disbursals than domestic Bankss ( Claessens et al. [ 2001 ] ) .
3.2 Demand factors
Demand factors justify the pick of the host state since they represent the latter ‘s attractive force.
3.2.1 The gap of emerging states ‘ fiscal systems
The constitution of transnational Bankss in emerging and in passage states has long been hampered by regulative limitations in force.
The entry of foreign Bankss in these states has non been authorized until the mid-1990s. The governments ‘ place on the entry of foreign Bankss in Latin America has changed after the Mexican crisis ( Crystal et al. [ 2002 ] ) . Countries of Central and Eastern Europe have opened their markets to foreign strategic investors during the restructuring of their banking systems by privatising local Bankss ( chiefly weakened by their deficiency of competency, by the failure of their information systems and the weight of their non-performing loans ) . The moderation of ordinances in Asia took topographic point towards the terminal of the 1990s in the wake of the Asiatic crisis.
The deregulating of the banking activity and the gap of fiscal systems to foreign competition, registered in the context of the liberalisation of capital motions, turn out to be a solution to the jobs caused by the little size of the fiscal systems of most states in these parts. Indeed, little size fiscal systems suffer from a large concentration of hazards as they are more vulnerable to external dazes and less able to insulate or incorporate incurred dazes. Financial services in such systems tend to be less diversified, more expensive and of lower quality than the fiscal services in larger systems. Indeed, the little size of the fiscal system bounds hazard variegation and liquidness maintaining. It makes the ordinance and supervising more expensive. Fiscal systems of little size are prone to low competition and high costs. Fiscal establishments can non to the full exploit economic systems of graduated table due to fiscal engineering. Therefore, the mediators would profit from operating in big fiscal systems to take advantage of increasing returns: “ systemic graduated table economic systems ” . Thus, unit costs lessening with the size of the fiscal system and intermediation borders are systematically lower.
Achieving economic systems of graduated table implies the being of a figure of fiscal services and a fast, secure and low cost payment system. However, in the smaller systems, clients are non merely obliged to pay for more expensive services but they do non even hold entree to all the services they need. In add-on, payment systems absorb considerable resources up to 5 % or more of minutess in the industrialised states ( Hancock et al. [ 1999 ] ) . They are likely higher in developing states. Indeed, the usage of cheques, electronic transportations and electronic money may necessitate a major development of Bankss.
Payment systems are besides characterized by web outwardnesss ( the value of an person is much greater than the ingestion of other persons of the same merchandise is of import ) . Network outwardnesss interact with economic systems of graduated table because the increasing figure of web users reduces the mean cost of utilizing the service. However, these web economic systems are non available in the little size fiscal systems. Although the figure of possible minutess is sufficient to bring forth important web effects, the fixed costs of set uping a peculiar type of payment system could be really high to warrant the debut of this system in a little fiscal system.
These disadvantages caused by the little size raises the inquiry about the of import additions in efficiency that can be generated through the enlargement of the fiscal system peculiarly by the entry of foreign Bankss. Like trade, the gap of the fiscal system could extenuate the disadvantages of little fiscal systems that have much to derive from opening their markets to foreign fiscal services.
In order to turn to the deficiency of competition, the high intermediation costs and the unequal supervising, several states – including states in passage – have decided to privatise their Bankss and to open their fiscal system to foreign Bankss.
3.2.2 The economic integrating between states
The grade of economic integrating between the host state and the state of beginning of foreign Bankss is estimated in the literature utilizing three variables: bilateral trade, geographical distance and non-financial FDI. In add-on, differences in linguistic communication, civilization and legal systems affect the integrating between the states doing operations more expensive.
One of the accounts given for the positive correlativity frequently observed between FDI in the banking sector and the integrating between the two states is that Bankss follow their clients to supply banking services abroad. When these Bankss do non supply of import services to local clients or transnational houses of different beginning, we can speak about “ defensive ” scheme of internationalisation, designed chiefly to keep bing relationships with clients and hence has a low impact on the economic system of the host state. Harmonizing to Pomerleano & A ; Vojta [ 2001 ] , Nipponese and Korean Bankss decide to relocate abroad chiefly to function the subordinates of transnational companies holding their central offices in the state of beginning.
However, it seems hazardous to deduce from the positive correlativity between FDI and non-financial bank FDI any sense of causality: transnational houses may good follow their Bankss abroad. In add-on, Bankss besides serve big domestic companies who need sophisticated banking services. If “ following the client ” may hold been an of import ground for the early enlargement of the internationalisation procedure, it seems that it has lost its decisive character over the old ages. In add-on, the grounds for the entry of foreign Bankss in emerging markets differ from entry into developed states: in the first instance, following the clients is surely a motive less of import, since foreign Bankss seem more interested in chances. Therefore, in their analysis of the behaviour of foreign Bankss in Argentina, Clarke et Al. [ 2000 ] reject the hypothesis that Bankss follow their clients across boundary lines. Similarly, harmonizing to Focarelli & A ; Pozzolo [ 2000 ] , the net income chances are the chief grounds for enlargement abroad.