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This essay attempts to examine the concept and trend towards globalisation of the banking system. The attempt
further analyses the implication and impact of this on developing countries against fears which erupted in some
of the countries such as Ghana where attempts by the present Government between 2003 and 2004 to privatise
the state's Ghana Commercial Bank was met with massive public resistance. The effort is also against the
background of the banking crises, which erupted in many emerging economies following the latter's freeing of
financial borders to global banking. The effort also dilates on other pertinent issues which will try to focus on
the growing debate surrounding foreign banks in view of the mixed interpretations accorded their operations
over the past decades in most emerging markets. The Debate Political and economic theorists as well as viewers
of the international financial landscape have argued that developing countries did use several economic policy
measures to control foreign bank participation in their domestic economies prior to the 1990's advent of
financial liberalisation. It is also argued that these measures were signs, which sufficiently suggested feelings of
unwillingness, uncertainties and suspicions on the part of these emerging economies to open up their domestic
systems for external participation following political independence. Against this background however, there is
also the new era of globalisation, which compelled an increasing trend towards integration of economies in
terms (Birdsall, 1999) not only of information and technology, goods and services, but, a process of the
internationalisation of the banking system, dating back to 1970's. The feature, it is arguable, thus effectively
triggered an avalanche of rapid innovations in the capital markets, securitisation and growth of direct finance. Its
attendant operational environment, no doubts, also affected and influenced the organisation and performance of
international finance, banking and the economic situations of nations. As a historical antecedent,
internationalisation of the banking industry between the time and 1970's and the 1990's (Rana, 2002), was also
witnessed by a gradual, progressive relaxation of capital control by poor nations. Debt Crises and International
Capital Added to the above was the economic policy advocacy of the International Monetary Fund (Driscoll,
1993) purported to flexibly respond to the global changing needs of its growing membership. Chief among
them, being the challenges of the 1980's debt crises with a number of heavily indebted developing countries
unable to repay what they owe to commercial banks, and to governments of member countries. As argued by
Drsicoll "global banking influenced and encouraged the need to stimulate inward portfolio and direct investment
within economies". As a global demand, the policy also saw the creation of various regional bodies, among
others, the European Monetary Union (EMU) with the aimed of adopting what was eventually termed the
Euroland. In theory, globalization of the banking system means opening up of the domestic financial market for
foreign participation. It also represented implications of rapid growth in overseas portfolio investment, such as
the establishment of mutual funds, insurance firms, pension funds etc. Having been led mainly by UK and US
institutional investors, increases in cross-border activity in the financial sector, bank branching, alliances and
mergers, became common place. Financial globalisation is thus understood to be of advantage to the world
economy since it can facilitate access by borrowers to a larger pool of global savings and subsequently
enhancing investment opportunities. Global banking, it is argued, bring about positive impact in the broad
context of innovativeness through the process of customer satisfaction, cost reduction, improvement in product
and services and results in risk and activity expansion, especially in poor countries.

For example, in Latin America (Del-Negro and Kay, 2002), it is believed that the internationalisation of the
banking sector has ushered in a new era. The authors maintained "one of the main benefits of the presence of
foreign banks in Latin America was that the global banks produced a decline of systemic risk". An empirical
instance was the case of Argentina which banking payment collapsed due to negative systemic risk factors in its
banking system with a low of 43% only in foreign equity. Thus there is an economic rationale for this optimism
for foreign bank entry into developing economies. It is argued for example by experts that if an intermediation
sector is purely domestic, any financial crises erupting in that economy, such as a major currency depreciation
or government bankruptcy, is a systemic shock. Resultantly, this could cause the collapse of that entire
economic system, researchers argued. There is also a rationalization in theory which suggest that if international
banks with the advantage of huge capital base and internationally diversified portfolio of local banking capital
operate in a developing country, the degree of bank runs to be suffered by such an economy could reduce and
hence a boost to economic growth.

Other arguments further abounds that with the globalisation of the banking industry, developing countries are
better infused with adequate access to improved quality and efficient availability of financial services to
customers. In Swaziland and Lesoto for example (Ipangelwa, 2001), through the involvement of foreign
operations in those economies, investment is facilitated in certain business ar eas with high cost recovery.
Ironically, these initial high costs acted as a disincentive and normally unattractive for local banking support.
Another impact is that internationalisation of the banking industry increases employment, leading to increased
consumption, idustrialisation and high productivity. Arguably foreign banks are also credited with increased
revenues to developing states through taxation, which in turn transforms into the provision of needed social
services by governments. For example, prior to the trend towards globalisation of the banking system, foreign
(McCullum, 2000) involvement in Tanzanian, and Ethiopian economies, was 5% and 2% respectively. The
trend did however, change with Tanzania, currently recording a high of 56% foreign banking attraction in
proportion to domestic banking. Within a similar context, Ethiopia has also become a source of an anticipated
surge of a high percentage attraction. The implication is that this is expected to result in a contagion or spread of
economic benefits, such as effective risk management, transparency and efficient financial management through
the legacies of technological transfer into such economies. Other benefits (Cho, 1990) include an engendered
domestic competition resulting in improved financial system architecture and engineering such as increases in
accounting standards, effective auditing, adequate financial services marketing and sound banking management.

Global banking does not only provide investment fund for poor economies, it is argued, (Osunsede and Gleason,
1992). Foreign banks improve domestic economies through the system's potentials to offer expertise,
establishing appropriate financial and economic structures which are indispensable for the smooth functioning
of a free-enterprise system. By the injection of financial and human expertise by international banks, developing
countries are assisted to create a congenial atmosphere for economic growth. For example in 1985, multinational
banks in conjunction with other donor agencies assisted and lent at concessionary interest rates to emerging
states. In Ghana for example this facilitated developmental processes in the energy, transportation and
communication sectors of the economy. Countries such as Nigeria and the then peaceful Ivory Coast
transformed such credits into infrastructure to reform their economies ostensibly to eliminate institutionalised
mismanagement and improved growth rate among others. Reservations and Fears Having noted the above
contribution representing the roles global banking play in development economies, the question is whether that
is all what there is in the system's relationship with least developed countries (LDC's)? This can relate further to
another concern regarding the extent to which global banks takes stake in influencing growth patens in
developing economies. Foreign entry into the economy of developing countries, as outlined above, is essential.
International banks can also constitute strong stimuli for financial liberalization.

However, the above gains notwithstanding, participation of international banks in emerging economies may be
argued to have its devastating socio-economic impact on such countries. Viewed as integral to the World Trade
Organization (WTO) protocol on the General Agreement on Trade in Service (GATS) and accepted as such by
Third World nations (Communication and development Research, ibid.) the free operation of foreign banks in
the latter's economies can have its negative implications. It may also bring to the fore a re -examination of the
protracted disagreement between Ghanaian government officials and its public through the escalated fears which
shrouded the sale of its premier GCB. The fact that seen documents suggested the sales bid is more likely to be
reinitiated through freshly renewed pressure by the IMF, also rendered concerns more tangible. As recently
argued by an industry watcher, ³multinational banks are largely business enterprises which operations are driven
by intense profit motives´. He feared that as a result, the y are influenced by and bear specific corporate profiles.
These, he argued, include selective choice and disadvantaged determination of strategic regional locations to
which they are sited. This, render it significant to observe inferences that even though there is the attraction for
multinationals into developing economies, this drive is limited to conditions that the global systems are
interested only in markets of multinational enterprises (MNE) presence which can offer them a comfortable
clientele base. The implication of these selective market motives in global banking strategy, it can be argued,
translated in the restrictive and proportionate distribution of their presence in Eastern European economies. For
example in the region, Hungary is the only country with a comparatively significant investment of a 25% strand.
It is followed by Poland and the Czech Republic which respectively attracted a mere 11% and 2 % in foreign
bank participation. This scenario thus re-emphasis the varied interpretation by academics and governments of
global banking, their rationales in the domestic market of developing countries and the corresponding impact
they create. A study of efficiency and competition effect (Claessens, Demerguc -Kunk and Huizinga (2001)
showed for example that quite opposite to the above good attributes of global banking for least developing
countries (LDCs), foreign banking in Indonesia created economic strains in that country. Empirically, a
comparative analysis between Indonesian foreign banks and local banks provided a yawning gap in financial
market competition resulting in reduced profitability and non-interest income. The Ghanaian Experience It is
also noted that foreign operations in developing countries do result in the reduction of interest margins to
domestic intermediaries. It means that by squeezing local banks into this position as the latter is compelled to do
so through the strategies and struggles to compete, the local intermediadairy ends up being pushed out of
market. The result may not be far fetched since domestic employment in the sector stands to suffer. In Ghana for
example, the aftermath of foreign bank participation in its domestic operation resulted in the retrenchment
(Business News, 1999) or the sacking of several of the sectors labour force in the mid1990's. This was due to the
preconditions of the foreign financial interests' willingness to work only with a relative and selectively least
number of people among other reasons.

The event also resulted in the stoppage of much needed flexible loan facilities to domestic small and medium
scale (SMEs) industries as loan portfolio has been diverted to the interest of multinationals operating in Ghana.
There has also been a focused of global banks' preference for corporate banking than to individual retail
customers in that country. Significantly, Ghana's economy is largely engineered by and dependent more on
small and medium scale enterprises (SME's). The sector, also constitute the country's main commercial and
industrial segment and employs over 65% of the labour force. The intervention of foreign banking therefore, in
the country's domestic economy might not therefore be yielding required results, it is often observed. Arguments
arising out of a study recently conducted by a research group with contribution from the writer, for example,
concluded that in Ghana, ³this aspect of financial market segmentation and domination facilitated a substantial
relative reduction in corresponding aggregate tax contribution, productivity, savings and consumption´. The
study argued ³the trend is a focused economic engineering syndrome and catalyst for unemployment and a
stifled developmental growth process. It emphasized that as an impact, the country's economy has continue to
suffer major difficulties, including the collapse of majority of its local industries, and inaccessible investment
funds. What this means is that by suspending these vital local business chains from effective economic
functioning as in the case of Ghana, through credit denials, the entire domestic business sector, which are
previously dependent on credit, would suffer detrimental consequences. The argument and or evident as to
whether the above negative consequences, are generally representative and empirically ensue in all developing
countries which have extensive foreign bank operation was however, not proven by the study. This difficulty
may also account for the unending debate and argument for global banking including those of Mullineux and
Murinde, (2001) and its impact on the economic growth of least developed countries. Their study sufficiently
argued as in Berger etal, (2002), that it has become an accepted tradition that, generally, foreign banks, by their
peculiar orientation, do deny local businesses in poor countries of funds such as in Ghana. Developing Countries
and Internal Weaknesses Weaknesses in regulatory and supervisory environment, might have also partially
accounted for the foreign banks' lack of effective contribution to host emerging markets, especially those in
Sub-Saharan Africa. Financial systems management and disclosure standards are usually known to be inferior in
African economies compared with the levels of this in the developed world, argued Peek and Rosengren etal
(2000). The effect is that with this tr aditionally low standard of supervisory mechanism, the domestic regulator
(governments) becomes even weaker in regulating foreign operators who enter the system. Apart from this, it is
observed that since foreign banks are susceptible or prone to regulatory influences from their home countries,
the difference in regulation, adherence and subtle non-compliance to this may have adverse effects on host
nations. Logically this inability to exercise control can be negative, as government regulators do not strate gise
for effective power and adequate facility to compel compliance. A research document recently seen listed the
extent of domestic economic bleeding poor country's economy are exposed to through instances of these
variables. As the document blamed this on the incompetent and misplaced priorities of African politicians, it
marveled at the degree of docility and negative complicity of the continent's intellectuals. It agued ³this
collective inaction from a cream of its 'leadership citizens' exposed these poor countries to the vulnerability of
foreign manipulation´. Dangerous implications, such as illegal money laundering, hard currency transfer, the
disregard for domestic policies and insensitivity to domestic economic shocks among others, are therefore
common place and impacts negatively on these emerging economies, the document argued. Analysts also noted
the tendency of foreign operations impacting negatively on the economic growth of developing countries. The
commitment and strength of legal regimes and obligation under, which international banks operate and the
extent to which this applies to domestic depositors in developing countries also came under scrutiny. The import
of this view can be likened to the bitter economic shock, which was empirically expe rienced in Ghana when a
multinational bank - Bank for Credit and Commerce International (BCCI), became insolvent. As its activities
were suspended, most of the bank's customers' deposits became irrecoverable. It means that as a subsidiary
operating in Ghana, both the bank and the domestic regulating system did not provide the neccessary legal
opportunities where credit can be recovered in case of bankruptcy or instant closures. In contrast, to the bank's
failure to re-imburse customers in Ghana, subsidiaries in the developed world duly refunded depositors and
discharged other commercial and legal obligations to their creditors. The issue here is that the parent holdings of
global banks which subsidiaries operate in developing countries normally present themselves as not liable under
such circumstances where internal economies are themselves defective of required regulatory machineries. This
development even make it blurred the distinction between subsidiaries in local economies and parent firms in
the advanced states. The scenario, arguably though, presents clear cases of bad faith and the incidents of the
global banks' discriminate and limited economic agenda for developing economies against the latter's inherent
internal weaknesses.

³With enormous resource base, human and material, global banks are usually better equipped for effective
competition´, international financial analysts argued. This leads to unfair distribution of domestic market shares
and a threat to local banking operations - it is emphasized. By implication, as local financial systems suffer, it
can, as well negatively impact on the availability of credit to small and medium enterprises especially middle
and low income consumers. The corresponding effect of this is the fact that when economies experience
financial instabilities and declining credit, governments turn to lose the means to protect domestic markets.
Experiences of the Asian Tigers There are other essential linkages that can trigger local economic difficulties
with the involvement of multinational banking in domestic operations. Prior to financial liberalisation, banking
was more of a domesticated business. As global as it is, multinational bankers now work together with and
influence local policymakers. It is argued that international barriers and regulations to private banking have
become ineffective. Although multilateral banking, had increased loan avenues to governments and businesses
and had improved the quality of domestic banking, its ventures due to their short-term nature. But as soon as
some international lenders began withdrawing their funds, others quickly followed the lead. The result was an
unprecedented financial meltdown in the form of a contagion which spread throughout Asia. This financial bust
caused by the multinational operatives affected those economies as money impact has been negative. In Asia for
example, foreign bank loans to Korean banks totaled $89 billions in 1997 out which $78 billion had a maturity
of less than one year. For reasons of quick turn-over, Koreans businesses channeled these loans into speculative
ventures rather than it being invested in tangible projects. The risk, it is argued, is that global banks have no
allegiance to host emerging economies. Their presence might thus not be designed for the latter's ultimate good
and can be detrimental to the financial stability of these countries through the disruption of indigenous credit
markets. Collective Approach From the foregoing, it can be argued that issues of multinational banking and the
impact of this on the economic growth of developing countries may continue to be debated. In Ghana, seen
discussion documents on the foreign takeover of Ghana Commercial Bank pointed at a reintroduction by the
government through a propelled IMF process. The merit or not of this must in fact engage the honest attention
of politicians. Professionals, academics and the business community for example should not relinquish this vital
economic discussion process to Trade Unions and financial industry workers only. This is pertinent as the more
the angles of policy debates on the subject, the more it would present equally educative and strategic economic
fronts. For example, it cannot be gainsaid denying the fact that global banks brings into the developing
economies, the benefits of banking efficiency, increased competition, financial stability and wider portfolio
diversification. What is important here must be viewed from the background of developing countries and
resource limitations towards sound economic management and increased growth. By the intervention of foreign
bank entry, a stable source of supposedly limited facilities, such as credit need be provided. The assumption
presuppose that this will enable banking and financial intermediation in poor countries such as Ghana, to offer
expected robust economic activity especially as the subsidiaries of these big international banks, can rely on
parent firms for capital funding as and when needed in host economies.

On the other hand, it is pertinent to note the extent of ills the presence of non-regulated global banking systems
can inflict on host countries in term of their inherent undue competition, which in turn goes to cripple domestic
banks. Further to this is the tendency to deny the local financial arena of vital market share, resulting in reduced
interest margin, low commercial activity and their discriminate concentration on selective customer base - a
tendency, which denies local enterprises of equal opportunities for credit. The risk in global banking as observed
from the analysis, also pointed to the latter's level of sophistication, complex, powerful regulatory and
supervisory mechanisms falling outside the control and management of host countries and the relative economic
dangers of this to their economic development. With these in-balances, it may be necessary for the international
community, especially major players of the global financial environment, notably the IMF, World Bank and
emerging nations alike to design more appropriate human centered economic intermediation system than what
prevails now for poor countries. Basel II, presently, mercilessly needs workable input in the midst of fierce
disagreement even from the United States of America and yet is in the offing. The African region can also raise
its voice by emulating this or the collective technical and strategic approach of the Asian region and form a
coalition of experts within its financial industry for a collective presentation of its peculiar regional formula,
especially at foreign entry regulatory level.

The attempt further analyses the implication and impact of this on developing countries against fears
which erupted in some of the countries such as Ghana where attempts by the present Government
between 2003 and 2004 to privatise the state?s Ghana Commercial Bank was met with massive public
resistance. The effort is also against the background of the banking crises, which erupted in many
emerging economies following the latter's freeing of financial borders to global banking. The effort
also dilates on other pertinent issues which will try to focus on the growing debate surrounding
foreign banks in view of the mixed interpretations accorded their operations over the past decades in
most emerging markets.

The Debate

Political and economic theorists as well as viewers of the international financial landscape have
argued that developing countries did use several economic policy measures to control foreign bank
participation in their domestic economies prior to the 1990's advent of financial liberalisation. It is
also argued that these measures were signs, which sufficiently suggested feelings of unwillingness,
uncertainties and suspicions on the part of these emerging economies to open up their domestic
systems for external participation following political independence. Against this background however,
there is also the new era of globalisation, which compelled an increasing trend towards integration of
economies in terms (Birdsall, 1999) not only of information and technology, goods and services, but,
a process of the internationalisation of the banking system, dating back to 1970's. The feature, it is
arguable, thus effectively triggered an avalanche of rapid innovations in the capital markets,
securitisation and growth of direct finance. Its attendant operational environment, no doubts, also
affected and influenced the organisation and performance of international finance, banking and the
economic situations of nations. As a historical antecedent, internationalisation of the banking industry
between the time and 1970's and the 1990's (Rana, 2002), was also witnessed by a gradual,
progressive relaxation of capital control by poor nations.

Debt Crises and International Capital

Added to the above was the economic policy advocacy of the International Monetary Fund (Driscoll,
1993) purported to flexibly respond to the global changing needs of its growing membership. Chief
among them, being the challenges of the 1980's debt crises with a number of heavily indebted
developing countries unable to repay what they owe to commercial banks, and to governments of
member countries. As argued by Drsicoll "global banking influenced and encouraged the need to
stimulate inward portfolio and direct investment within economies". As a global demand, the policy
also saw the creation of various regional bodies, among others, the European Monetary Union (EMU)
with the aimed of adopting what was eventually termed the Euroland.

In theory, globalization of the banking system means opening up of the domestic financial market for
foreign participation. It also represented implications of rapid growth in overseas portfolio
investment, such as the establishment of mutual funds, insurance firms, pension funds etc. Having
been led mainly by UK and US institutional investors, increases in cross-border activity in the
financial sector, bank branching, alliances and mergers, became common place. Financial
globalisation is thus understood to be of advantage to the world economy since it can facilitate access
by borrowers to a larger pool of global savings and subsequently enhancing investment opportunities.
Global banking, it is argued, bring about positive impact in the broad context of innovativeness
through the process of customer satisfaction, cost reduction, improvement in product and services and
results in risk and activity expansion, especially in poor countries.

For example, in Latin America (Del-Negro and Kay, 2002), it is believed that the internationalisation
of the banking sector has ushered in a new era. The authors maintained "one of the main benefits of
the presence of foreign banks in Latin America was that the global banks produced a decline of
systemic risk". An empirical instance was the case of Argentina which banking payment collapsed
due to negative systemic risk factors in its banking system with a low of 43% only in foreign equity.
Thus there is an economic rationale for this optimism for foreign bank entry into developing
economies. It is argued for example by experts that if an intermediation sector is purely domestic, any
financial crises erupting in that economy, such as a major currency depreciation or government
bankruptcy, is a systemic shock. Resultantly, this could cause the collapse of that entire economic
system, researchers argued. There is also a rationalization in theory which suggest that if international
banks with the advantage of huge capital base and internationally diversified portfolio of local
banking capital operate in a developing country, the degree of bank runs to be suffered by such an
economy could reduce and hence a boost to economic growth.

Other arguments further abounds that with the globalisation of the banking industry, developing
countries are better infused with adequate access to improved quality and efficient availability of
financial services to customers. In Swaziland and Lesoto for example (Ipangelwa, 2001), through the
involvement of foreign operations in those economies, investment is facilitated in certain business
areas with high cost recovery. Ironically, these initial high costs acted as a disincentive and normally
unattractive for local banking support. Another impact is that internationalisation of the banking
industry increases employment, leading to increased consumption, idustrialisation and high
productivity. Arguably foreign banks are also credited with increased revenues to developing states
through taxation, which in turn transforms into the provision of needed social services by
governments. For example, prior to the trend towards globalisation of the banking system, foreign
(McCullum, 2000) involvement in Tanzanian, and Ethiopian economies, was 5% and 2%
respectively. The trend did however, change with Tanzania, currently recording a high of 56% foreign
banking attraction in proportion to domestic banking. Within a similar context, Ethiopia has also
become a source of an anticipated surge of a high percentage attraction. The implication is that this is
expected to result in a contagion or spread of economic benefits, such as effective risk management,
transparency and efficient financial management through the legacies of technological transfer into
such economies. Other benefits (Cho, 1990) include an engendered domestic competition resulting in
improved financial system architecture and engineering such as increases in accounting standards,
effective auditing, adequate financial services marketing and sound banking management.

Global banking does not only provide investment fund for poor economies, it is argued, (Osunsede
and Gleason, 1992). Foreign banks improve domestic economies through the system's potentials to
offer expertise, establishing appropriate financial and economic structures which are indispensable for
the smooth functioning of a free-enterprise system. By the injection of financial and human expertise
by international banks, developing countries are assisted to create a congenial atmosphere for
economic growth. For example in 1985, multinational banks in conjunction with other donor agencies
assisted and lent at concessionary interest rates to emerging states. In Ghana for example this
facilitated developmental processes in the energy, transportation and communication sectors of the
economy. Countries such as Nigeria and the then peaceful Ivory Coast transformed such credits into
infrastructure to reform their economies ostensibly to eliminate institutionalised mismanagement and
improved growth rate among others.

[eservations and Fears

Having noted the above contribution representing the roles global banking play in development
economies, the question is whether that is all what there is in the system's relationship with least
developed countries (LDC's)? This can relate further to another concern regarding the extent to which
global banks takes stake in influencing growth patens in developing economies. Foreign entry into the
economy of developing countries, as outlined above, is essential. International banks can also
constitute strong stimuli for financial liberalization.

However, the above gains notwithstanding, participation of international banks in emerging

economies may be argued to have its devastating socio-economic impact on such countries. Viewed
as integral to the World Trade Organization (WTO) protocol on the General Agreement on Trade in
Service (GATS) and accepted as such by Third World nations (Communication and development
Research, ibid.) the free operation of foreign banks in the latter's economies can have its negative
implications. It may also bring to the fore a re-examination of the protracted disagreement between
Ghanaian government officials and its public through the escalated fears which shrouded the sale of
its premier GCB. The fact that seen documents suggested the sales bid is more likely to be reinitiated
through freshly renewed pressure by the IMF, also rendered concerns more tangible. As recently
argued by an industry watcher, ?multinational banks are largely business enterprises which operations
are driven by intense profit motives?. He feared that as a result, they are influenced by and bear
specific corporate profiles. These, he argued, include selective choice and disadvantaged
determination of strategic regional locations to which they are sited. This, render it significant to
observe inferences that even though there is the attraction for multinationals into developing
economies, this drive is limited to conditions that the global systems are interested only in markets of
multinational enterprises (MNE) presence which can offer them a comfortable clientele base.

The implication of these selective market motives in global banking strategy, it can be argued,
translated in the restrictive and proportionate distribution of their presence in Eastern European
economies. For example in the region, Hungary is the only country with a comparatively significant
investment of a 25% strand. It is followed by Poland and the Czech Republic which respectively
attracted a mere 11% and 2 % in foreign bank participation. This scenario thus re-emphasis the varied
interpretation by academics and governments of global banking, their rationales in the domestic
market of developing countries and the corresponding impact they create. A study of efficiency and
competition effect (Claessens, Demerguc-Kunk and Huizinga (2001) showed for example that quite
opposite to the above good attributes of global banking for least developing countries (LDCs), foreign
banking in Indonesia created economic strains in that country. Empirically, a comparative analysis
between Indonesian foreign banks and local banks provided a yawning gap in financial market
competition resulting in reduced profitability and non-interest income.

The Ghanaian Experience

It is also noted that foreign operations in developing countries do result in the reduction of interest
margins to domestic intermediaries. It means that by squeezing local banks into this position as the
latter is compelled to do so through the strategies and struggles to compete, the local intermediadairy
ends up being pushed out of market. The result may not be far fetched since domestic employment in
the sector stands to suffer. In Ghana for example, the aftermath of foreign bank participation in its
domestic operation resulted in the retrenchment (Business News, 1999) or the sacking of several of
the sectors labour force in the mid1990's. This was due to the preconditions of the foreign financial
interests' willingness to work only with a relative and selectively least number of people among other
reasons.

The event also resulted in the stoppage of much needed flexible loan facilities to domestic small and
medium scale (SMEs) industries as loan portfolio has been diverted to the interest of multinationals
operating in Ghana. There has also been a focused of global banks? preference for corporate banking
than to individual retail customers in that country. Significantly, Ghana's economy is largely
engineered by and dependent more on small and medium scale enterprises (SME?s). The sector, also
constitute the country?s main commercial and industrial segment and employs over 65% of the labour
force. The intervention of foreign banking therefore, in the country's domestic economy might not
therefore be yielding required results, it is often observed. Arguments arising out of a study recently
conducted by a research group with contribution from the writer, for example, concluded that in
Ghana, ?this aspect of financial market segmentation and domination facilitated a substantial relative
reduction in corresponding aggregate tax contribution, productivity, savings and consumption?. The
study argued ?the trend is a focused economic engineering syndrome and catalyst for unemployment
and a stifled developmental growth process. It emphasized that as an impact, the country's economy
has continue to suffer major difficulties, including the collapse of majority of its local industries, and
inaccessible investment funds. What this means is that by suspending these vital local business chains
from effective economic functioning as in the case of Ghana, through credit denials, the entire
domestic business sector, which are previously dependent on credit, would suffer detrimental
consequences. The argument and or evident as to whether the above negative consequences, are
generally representative and empirically ensue in all developing countries which have extensive
foreign bank operation was however, not proven by the study. This difficulty may also account for the
unending debate and argument for global banking including those of Mullineux and Murinde, (2001)
and its impact on the economic growth of least developed countries. Their study sufficiently argued as
in Berger etal, (2002), that it has become an accepted tradition that, generally, foreign banks, by their
peculiar orientation, do deny local businesses in poor countries of funds such as in Ghana.

Developing Countries and Internal Weaknesses

Weaknesses in regulatory and supervisory environment, might have also partially accounted for the
foreign banks? lack of effective contribution to host emerging markets, especially those in Sub-
Saharan Africa. Financial systems management and disclosure standards are usually known to be
inferior in African economies compared with the levels of this in the developed world, argued Peek
and Rosengren etal (2000). The effect is that with this traditionally low standard of supervisory
mechanism, the domestic regulator (governments) becomes even weaker in regulating foreign
operators who enter the system. Apart from this, it is observed that since foreign banks are susceptible
or prone to regulatory influences from their home countries, the difference in regulation, adherence
and subtle non-compliance to this may have adverse effects on host nations. Logically this inability to
exercise control can be negative, as government regulators do not strategise for effective power and
adequate facility to compel compliance. A research document recently seen listed the extent of
domestic economic bleeding poor country?s economy are exposed to through instances of these
variables. As the document blamed this on the incompetent and misplaced priorities of African
politicians, it marveled at the degree of docility and negative complicity of the continent?s
intellectuals. It agued ?this collective inaction from a cream of its ?leadership citizens? exposed these
poor countries to the vulnerability of foreign manipulation?. Dangerous implications, such as illegal
money laundering, hard currency transfer, the disregard for domestic policies and insensitivity to
domestic economic shocks among others, are therefore common place and impacts negatively on
these emerging economies, the document argued.
Analysts also noted the tendency of foreign operations impacting negatively on the economic growth
of developing countries. The commitment and strength of legal regimes and obligation under, which
international banks operate and the extent to which this applies to domestic depositors in developing
countries also came under scrutiny. The import of this view can be likened to the bitter economic
shock, which was empirically experienced in Ghana when a multinational bank - Bank for Credit and
Commerce International (BCCI), became insolvent. As its activities were suspended, most of the
bank?s customers? deposits became irrecoverable. It means that as a subsidiary operating in Ghana,
both the bank and the domestic regulating system did not provide the neccessary legal opportunities
where credit can be recovered in case of bankruptcy or instant closures. In contrast, to the bank's
failure to re-imburse customers in Ghana, subsidiaries in the developed world duly refunded
depositors and discharged other commercial and legal obligations to their creditors. The issue here is
that the parent holdings of global banks which subsidiaries operate in developing countries normally
present themselves as not liable under such circumstances where internal economies are themselves
defective of required regulatory machineries. This development even make it blurred the distinction
between subsidiaries in local economies and parent firms in the advanced states. The scenario,
arguably though, presents clear cases of bad faith and the incidents of the global banks' discriminate
and limited economic agenda for developing economies against the latter?s inherent internal
weaknesses.

?With enormous resource base, human and material, global banks are usually better equipped for
effective competition?, international financial analysts argued. This leads to unfair distribution of
domestic market shares and a threat to local banking operations - it is emphasized. By implication, as
local financial systems suffer, it can, as well negatively impact on the availability of credit to small
and medium enterprises especially middle and low income consumers. The corresponding effect of
this is the fact that when economies experience financial instabilities and declining credit,
governments turn to lose the means to protect domestic markets.

Experiences of the Asian Tigers

There are other essential linkages that can trigger local economic difficulties with the involvement of
multinational banking in domestic operations. Prior to financial liberalisation, banking was more of a
domesticated business. As global as it is, multinational bankers now work together with and influence
local policymakers. It is argued that international barriers and regulations to private banking have
become ineffective. Although multilateral banking, had increased loan avenues to governments and
businesses and had improved the quality of domestic banking, its ventures due to their short-term
nature. But as soon as some international lenders began withdrawing their funds, others quickly
followed the lead. The result was an unprecedented financial meltdown in the form of a contagion
which spread throughout Asia. This financial bust caused by the multinational operatives affected
those economies as money impact has been negative. In Asia for example, foreign bank loans to
Korean banks totaled $89 billions in 1997 out which $78 billion had a maturity of less than one year.
For reasons of quick turn-over, Koreans businesses channeled these loans into speculative ventures
rather than it being invested in tangible projects. The risk, it is argued, is that global banks have no
allegiance to host emerging economies. Their presence might thus not be designed for the latter?s
ultimate good and can be detrimental to the financial stability of these countries through the disruption
of indigenous credit markets.

Collective Approach

From the foregoing, it can be argued that issues of multinational banking and the impact of this on the
economic growth of developing countries may continue to be debated. In Ghana, seen discussion
documents on the foreign takeover of Ghana Commercial Bank pointed at a reintroduction by the
government through a propelled IMF process. The merit or not of this must in fact engage the honest
attention of politicians. Professionals, academics and the business community for example should not
relinquish this vital economic discussion process to Trade Unions and financial industry workers only.
This is pertinent as the more the angles of policy debates on the subject, the more it would present
equally educative and strategic economic fronts. For example, it cannot be gainsaid denying the fact
that global banks brings into the developing economies, the benefits of banking efficiency, increased
competition, financial stability and wider portfolio diversification. What is important here must be
viewed from the background of developing countries and resource limitations towards sound
economic management and increased growth. By the intervention of foreign bank entry, a stable
source of supposedly limited facilities, such as credit need be provided. The assumption presuppose
that this will enable banking and financial intermediation in poor countries such as Ghana, to offer
expected robust economic activity especially as the subsidiaries of these big international banks, can
rely on parent firms for capital funding as and when needed in host economies.

On the other hand, it is pertinent to note the extent of ills the presence of non-regulated global banking
systems can inflict on host countries in term of their inherent undue competition, which in turn goes to
cripple domestic banks. Further to this is the tendency to deny the local financial arena of vital market
share, resulting in reduced interest margin, low commercial activity and their discriminate
concentration on selective customer base - a tendency, which denies local enterprises of equal
opportunities for credit. The risk in global banking as observed from the analysis, also pointed to the
latter?s level of sophistication, complex, powerful regulatory and supervisory mechanisms falling
outside the control and management of host countries and the relative economic dangers of this to
their economic development. With these in-balances, it may be necessary for the international
community, especially major players of the global financial environment, notably the IMF, World
Bank and emerging nations alike to design more appropriate human centered economic intermediation
system than what prevails now for poor countries. Basel II, presently, mercilessly needs workable
input in the midst of fierce disagreement even from the United States of America and yet is in the
offing. The African region can also raise its voice by emulating this or the collective technical and
strategic approach of the Asian region and form a coalition of experts within its financial industry for
a collective presentation of its peculiar regional formula, especially at foreign entry regulatory level.

The Author, James Kwela Azamesu has a specialization in International Finance and Banking with an
option for Banking Supervision. He also holds a second post graduate degree in Journalism from the
University of Wales, Cardiff, UK, with interests for Development Communication, Management and
Financial Research
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