A study on the factors affecting the efficiency and profitability of selected foreign universal and commercial banks after liberalization

• Main Authors: Bongco, Michelle Celina L., Cafranca, Jessi Ann G., Cochon, Patricia Anne S., Salonga, Maria Angela P.
• Format: text
• Language: English
• Published: Animo Repository 2006
• Subjects: Banks and banking > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14199
• Institution: De La Salle University

This paper aims to determine the factors that affect the profitability, efficiency and short-term funding of foreign banks after liberalization. For efficiency, the researchers used the efficiency ration, which is Net Income after Taxes over Total Operating Revenues, and profitability was measured using Net Interest Margin and Return on Assets. In order to assess foreign entry after the liberalization, the researchers used 3 alternative measures, specifically Foreign Market Share, Capitalization, and Short-term Funding. The group selected 7 universal and commercial foreign banks that have been granted with full banking authority and are deemed entirely established in the Philippines. The coefficient values were estimated using Linear Regression, which is assumed to be the best method of estimation through the test of significance, multicollinearity, and heteroscedasticity. The analysis of these coefficient values has led the researchers to determine that: 1.) There is participation by the foreign banks in competition and their market share directly facilitate the generation of income 2.) Deposit taking activities of foreign banks is important for obtaining net income due to minimal costs incurred for expanding branch network 3.) High net worth clients of foreign bank's are likely to be charged with high interest rates on deposits, which reduces net interest margin 4.) Capitalization of foreign banks do not have a direct impact on their lending activities. These findings affirm that the objectives of the liberalization policy are met on enhancing competition in the banking industry.