Emerging-Market Investments Prove Bitter-Sweet for Western Banks
Emerging-market investments have provided a way for banks in developed countries to overcome reduced growth opportunities in small, maturing and concentrated home markets, according to a report by Standard & Poor’s. However, while the report found that banks have been attracted to these markets by prospects of wider margins, improving macroeconomic conditions and higher growth, the reality of some of these markets has proved less appealing. ‘With volatile profitability, unstable economies, and sluggish growth, investing in emerging markets requires significant resources and capital,’ said Jesús Martinez, a Standard & Poor’s credit analyst. ‘More importantly, banks in emerging markets face higher economic and industry risks, a factor that has sometimes been underestimated by Western banks in their investment decisions,’ he added. In the mid- and late 1990s, financial institutions, mainly from Western Europe, acquired banks in emerging markets for a total of more than €65 billion.