Foreign Bank Case Study

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CHAPTER ONE
INTRODUCTION

1.1 Introduction

Banking and Financial Institutional Act 1989 (BAFIA 1989) define the bank as a person which carries on banking business. A bank is a financial intermediary which accepts deposits and channels those deposits into lending activities. The lending activities can be carried out either directly or through capital markets. Bank act as payment agents by conducting and checking current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customer’s current accounts. In other word, bank is a financial institution which collects money as deposits from customers and uses the same to grant loans to other customers. It acts as a bridge between people who have
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They tend to have a more hierarchical structure, with the top management often sitting in a distant home country. According to O Al-Marashdeh (2005) foreign banks were operating in Malaysia from as early as 1875 with the establishment of the Standard Chartered Bank. Furthermore, the foreign banks entry is just like a coin has two sides. It either brings harms or potential benefits to domestic banks, therefore the finding of effect foreign bank entry towards domestic banks in Malaysia become important.
Foreign banks which based in another country that acted as a financial institution whose primary activity is to act as a payment agent for customers to borrow and lend. Foreign bank is a bankwith head offices outside the country in which it is located. Foreign bank is obligated to follow the regulations of both the home and host countries. Because the foreign banks loan limits are based on the parent bank’s capital. Foreign banks can provide more loans than subsidiary
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To collect more evidence on this issue, this study will compare the performance from seven sample domestic banks and three sample foreign banks in Malaysia in order to see the result.
In essence, the entry of foreign bank precisely have positive and negative implications which are affecting the performance of Malaysian domestic banks. On the other hand, the existence of foreign bank is positive in terms of product innovations, developments and technology (Burger, et al., 2001). Other than that, according to Stiglitz (1993), amongst others, have examined that due to more advanced technological system, it affects the domestic banks to increase its costs. Empirical evidence suggested that domestic banks are under performing than the foreign banks (Sufian & Habibullah, 2010). In this study, it is interesting to examine whether it will present the same result. As claimed by IJhomovich (2009) that due to the increased presence of foreign banks, it affects the performance of domestic banks and faces stiff competition. An explanation could be the fact that foreign bank with stronger capital can perform better than domestic

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