Determinants of the performance of foreign-owned banks in New Zealand

Abstract

The paper examines the factors affecting the performance of foreign-owned banks in New Zealand, where they now control 99% of total banking system assets and retail banking networks. Econometric models were built to assess the determinants of the foreign bank's size, profitability, interest income, non-interest income and operating efficiency. The models were tested using two groups of pooled cross-sectional time-series data: seven banks over the nine-year period 1991 - 1999

and eight banks over the eight-year period 1991-1998. The study found that parent bank ownership- specific advantages are the most important factors impacting foreign bank performance in New

Zealand. However, the parent bank's return on assets and location-specific factors appeared to have no consistent significant relationship with foreign bank performance. This raises a question as to whether standard literature on multinational banking can be applied in the area of retail multinational banking in general, and in the New Zealand market in particular.