International banking will boost growth despite risks: World Bank

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A World Bank report has stated that the 2007-09 global financial crisis has been hampering the growth prospects of developing nations. Following the crisis, the restrictions that are pressed on foreign banks (that operate in developing countries) limit the flow of financing to households and businesses.

A World Bank report has mentioned that international banking will help in boosting growth of developing nations, despite inherent risks.

The World Bank stressed on the benefits of cross-border banking in its annual report titled ‘Global Financial Development Report 2017/2018: Bankers without Borders’. The report stated that policymakers in developing economies should look to maximise the benefits of international banking while reducing costs.

Jim Yong Kim, World Bank Group President, stated that international banking does have its own set of risks, such as exporting instability. This is particularly relevant for countries with poor regulations. He stated that these risks will have to be mitigated with proper planning. Additionally, Kim said that the absence of a robust banking structure will prevent the poor from accessing basic financial services. This can also be detrimental to businesses and the overall growth of the nation.

The World Bank report said that bank finance is necessary for the growth of the private sector, especially for small and medium-sized businesses to flourish. It added that developing countries can reap significant benefits through a stronger banking infrastructure. Risks can be removed by improving information sharing, strong supervision of financial institutions, and enforcing contract and property rights.

The report also stated that banks from developed nations withdrew operations post the crisis while developing country banks continued expanding internationally, accounting for 60% of new entries by banks since the slump. This has resulted in improved banking relationships between developing nations and increased regionalisation of international banks.

World Bank Research Director Asli Demirguc-Kunt said that international banking does not guarantee financial stability or development. However, research proves that the right institutions and regulatory guidelines can lead to higher competitiveness and exposure to capital that will drive growth.

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