THE EFFECTS OF GLOBALIZATION ON BANK PROFITABILITY


 


 


Globalization is the increasing interaction and integration of the world’s markets and


 


businesses. This process has materialized faster due to technological advancement


 


which makes it convenient for people to communicate and do business without distance


 


barriers. Widespread use of internet and modern telecommunications significantly


 


speed up this process. Achieving this has both positive and negative effects in various


 


aspects. This includes industrial, financial, economic, political, informational, language,


 


ecological, cultural, technical, and religious aspects. Globalization provides more


 


opportunities for growth and development. However, this process brings an increased


 


pressure and competition to businesses. Financial globalization could help in increasing


 


the growth rate in developing countries. Economic globalization can be measured


 


through the four economic flaws. This includes goods & services, labor, capital and


 


technology. Goods and services are mainly imports and exports/span> of a proportion of


 


national income or per capita of population. Labor or people are net migration rates;


 


inward or outward migration flows, caused by population. Capital is composed of


 


inward or outward direct investment as a proportion of national income or per head of


 


population. Technology are composed of international research & development flows;


 


proportion of populations (and rates of change thereof) using particular inventions


 


(especially ‘factor-neutral’ technological advances such as the telephone, motorcar,


 


broadband). Some of the countries with capital account liberalization have experienced


 


output collapses related to costly banking or currency crises. There is a great impact on


 


financial and banking system changes as globalization arise. Growth in financial sector


 


is the most important and dynamic institutional and structural evolution. Crisis in


 


financial and monetary system are marking the periods for adaptation and reforms to


 


global evolutions toward a free, private and open economy. Financial activities are


 


following the commercial exchanges. The payment flows are characteristic for monetary


 


and financial relations in the precursory stages of globalization. Financial organizations


 


like insurance companies, investment banks and commercial banks are involved in


 


transactional market. They make it possible for mergers and acquisitions. Tertiary


 


transnational and industrial companies are more and more involving in transactions in


 


financial markets. Financial operations of big international banks and multinational


 


companies contribute to integration of international financial markets. The capital


 


movements tend to become self-governing on a great extent, as against financing the


 


trade and production. Economic globalization is a determinant for changes in


 


international financial environment. Banking system becomes a market where


 


international financing is worked out through direct relations between the applicant and


 


the bank. Global extension of currency market is possible by changing this market in a


 


free market. Banking products are services by its nature and does not become obsolete.


 


It has a longer life cycle than non-banking products. The opportunities presented to the


 


finance organization as a result of globalization are as follows: opportunity to restructure


 


the finance function for greater value, access to a broader base of skilled workers at


 


competitive cost, greater access to capital, greater access and opportunity for finance


 


function innovation, access to differentiated, specialized skills not readily available in


 


existing geographies, opportunity to provide more diverse leadership to the finance


 


innovation.  International financial flows serve as an important catalyst for


 


domestic financial market development.  The larger the presence of foreign banks in a


 


country, the better the quality of its financial services and the greater the efficiency of


 


financial intermediation. Financial globalization has induced certain countries to


 


adjust their corporate governance structure in response to demands from


 


international investors and foreign competition. Domestic financial sector liberalizations


 


that were mismanaged have contributed to many crises that are associated with


 


financial integration. Financial globalization directs global savings to their highest


 


returns and, through a more complete range of more liquid international financial


 


markets, allows the better identification, pricing and trading of risk. There are great


 


potential advantages for global and national income growth from that development,


 


though also some new types of risk may be created at the same time. Technological


 


innovations has helped in globalization. Banks has adapt virtual banking through phone,


 


mobile and internet banking. This change was driven by competitive forces, changing


 


consumer preference and technological developments. Negative impact of globalization


 


are cybercrimes and volatility in global markets. Cybercrimes are difficult to be


 


controlled and identified. Volatility in global markets has a great impact on the banking


 


sector. Financial globalization is irreversible. Increasing globalization of the market


 


affects the corporate finance sector to a certain extent. It benefits corporate entities and


 


also its customers and clients. All countries should aim to embrace financial


 


globalization after weighing the risks involved.


 


 


 


 


Dr. Nicolas Pologeorgis. (2009). The Globalization Of Financial Services. Available: http://www.investopedia.com/articles/financial-theory/09/risk-free-rate-return.asp#axzz1RVFKRy8Z. Last accessed 8th July 2011.


 


M. Ayhan Kose, Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei. (2007). Financial Globalization: Beyond the Blame Game . Available: http://www.imf.org/external/pubs/ft/fandd/2007/03/kose.htm. Last accessed 8th July 2011.


 


Paolo Mauro and Jonathan D. Ostry. (2007). Putting Financial Globalization to Work. Available: http://www.imf.org/external/pubs/ft/survey/so/2007/res0816a.htm. Last accessed 8th July 2011.


 


 


 



Credit:ivythesis.typepad.com



0 comments:

Post a Comment

 
Top