A Study on the Impact of Foreign Bank Entry on the Financial Business Performance of Banks in Emerging Markets

This paper mainly presents a literature review and aims to organize the research on the relationship between the entry of foreign banks and operational efficiency of banks, especially in inducing the effect of foreign banks on the banks of emerging markets. This paper introduces some methods for measuring banks’ operational efficiency based on financial indicators, review the related literature on the effect of foreign banks on the banks of emerging markets, and assess the different viewpoints. Theoretical analysis and empirical evidence show that at the beginning of the entry of foreign banks, the efficiency of foreign banks is lower than that of domestic banks. However, through cross-border mergers and acquisitions, the efficiency of foreign banks increases gradually. The entry of foreign banks has a positive effect on the transition of operation structure, technological innovation, and business innovation of banks. However, the credit strategy of foreign banks has a likely adverse effect, leading to financial service market segmentation. Moreover, domestic banks are forced to take risks, which may decrease operational efficiency. The effect of foreign banks shows different results according to the different levels of economic development and random exogenous factors.