Before starting the tug of war about which one is more profitable- domestic or foreign banks, lust us enlighten ourselves with what exactly domestic and international banks are and their ways of working.
Domestic banks are home banks that are opened and operated with the geographical boundaries of the country. On the contrary, international banks transverse geographical boundaries. Transactions of several countries are done by international banks. They deal with multiple currencies, whereas, domestic banks use the single currency. Domestic banks have their registered office in one country, but foreign banks, though have their headquarters in a particular country, they operate worldwide. Domestic bank has to comply with the local laws of the country it is registered in. For a foreign bank, it has to adhere to both the local laws of the country it has the headquarter in and also the laws of the country that it is operating in. Domestic banks do not worry about the fluctuations in foreign currency, but it is a huge concern for international banks. When it comes to multinational companies, they rely on foreign banks for continuing the usual financial operations for growth and economic developments. The companies use foreign financial institutions to invest a large number of funds, aiming to expand their business globally. These companies have tie-ups with various other MNCs and hence, use international banks.
A bank’s profitability and liquidity count on the number of assets it holds. In 2019, the international banks seemed to make good profits worldwide, leaving behind the regional banks. Chinese banks dominated the list by holding the top four rankings. The American banks followed the list by securing fifth to eighth positions in the list. British banks overcame the crisis due to Brexit and raised their profits by one third. In Asia, Vietnamese banks had growth by a third, but due to the reorganization of the banking sector, Indian banks’ profit fell by 44%. Japanese banks, too, had a poor profit and it was down by 30%. The global profit of international banks in 2019 was $1135 billion.
Foreign banks are more profitable than domestic banks when they operate in a host country whose banking sector is less competitive and when the parent bank in the home country is highly profitable. As the GDP rates of several countries have fallen down, foreign banks’ profit margins increased. Changes in bank administration of a regional bank pave way for the international banks to raise their profit.