The Impact of FDI into the South African banking sector: Spillover Effects and Efficiency
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This disssertation investigates spillover effects in the South African SA banking sector using a number of different perspectives and methods. First, I used an adapted model developed by Claessens et al., (2001) and extended by Uiboupin (2005) to identify the effect of the foreign banks’ re-entry on the domestic banks’ performance after the apartheid regime change. The results show that the foreign banks’ entry has an effect on the before-tax profit of domestic banks and increases the competition in SA banking market. Then I further the investigation from an efficiency perspective using a cost efficiency model for the same bank panel. The results show that on average foreign banks are 28% more efficient that domestic banks. But the results show that over the period 2000-10 both categories of banks increased their efficiency level by around 10% and that the origin of the banks as well as their size were the main factors responsible for the efficiency gap. Then results from the implemention of a survey I designed, using an adapted version of Kraft (2002) for the foreign banks and branches, confirm that the entry of foreign banks contributed to the modernisation of the SA banking sector and to the introduction of new products and best practices, leading to the conclusion that spillover effects were localised in the limited segment of the SA wholesale banking. I analyse the impact of recent FDIs in SA banking sector, in terms of knowledge transfer and spillovers. The results show that the acquisition of ABSA (an SA big four) by Barclays (a British bank) generated increased efficiency. That was not the case for the Standard Bank (another of the SA big four), of which a 20% share was acquired by ICBC. The results show that these recent FDIs have no significant impact on competitiors’ behaviour and strategy.
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