World Financial Crisis and Emerging Market Bank Performance: A Bank Efficiency Study
The ongoing global financial crisis has caused great turmoil in the developed world’s banking sector, and in September 2011 most of the developed world is still struggling to recover from the crisis. As a result, the emerging market (EM) banks, represented by the BRIC banks, are increasing in importance in the global market. According to Bloomberg data, 44% of the top 100 banks are EM banks, an increase from 21% and 30% in 2002 and 2007, respectively.
The Beijing based think tank examines a large swath of major banks in the BRIC countries (Brazil, Russia, India and China) to assess just how well these banks performed in the years before and during the 2007–2008 financial crisis and what factors explain their performance.
Some of SIEMS more notable findings include:
The banking sector of China was the least affected during the crisis, while Russia’s one was affected the most.
BRIC banks increased in efficiency due to the rapid economic growth and rising GDP in these countries.
Among the BRIC countries, Brazil and China have an institutional and macroeconomic environment that is more conducive to the profit efficiency of its banking sector.
The relatively high level of bank capitalization and loan loss reserves helped to improve the efficiency level of the BRIC banks before and during the global financial crisis.
The research notes that the major banks in the BRIC countries are facing some challenges. For instance, the non-performing loans are likely to rise in the Chinese banking sector as a result of the massive stimulus package during 2007-2008. The Indian banking industry needs further consolidation. The Brazilian banks rely heavily on short-term borrowing from the domestic and international investors and this may cause concerns about a liquidity problem and rising non-performing loans in the country’s banking sector. The recovery of the Russian banking sector has been slow since 2009 despite decent GDP growth.
The monthly brief concludes that going forward, the BRIC banks have a stable perspective and they have the potential to increase their influence in the world banking market if they can meet their future challenges successfully.