FACTORS AFFECTING THE PERFORMANCE OF FOREIGN-OWNED BANKS IN AUSTRALIA- A CROSS-SECTIONAL STUDY

This study extends the existing literature of international banking by constructing a model of foreign intermediaries in Australia. An unres olved question is establishing those factors that result in banking ac ross borders. While a variety of theories attempt to explain internati onal banking, empirical tests are sparse (Mahajan, A., Rangan, N., Zar dkoohi, A., 1996. Journal of Banking and Finance 20, 283-306). This st udy considers if the results to date apply in non US settings. Foreign bank size was found to be a positive function of bank licence, parent size and time in Australia, and a negative function of Australian net interest margins and fees. The negative sign on net interest margins and fees is consistent with De Young, R., Nolle, D., 1996. Journal of Money, Credit and Banking 28, 622-636. Foreign bank profits were a pos itive function of Australian net interest margins and fees. There was limited evidence of defensive expansion. This paper concludes that for eign bank size is explained well by the existing theories of internati onal banking, but a wider model is appropriate for foreign bank profit s. (C) 1998 Elsevier Science B.V. All rights reserved.