Foreign Bank Income Composition in Emerging and Developing Economies

Foreign banks, those that are more than 50% owned by foreign entities, have played a major role in the financial markets of developing and emerging economies. Much research has been done on the benefits and downsides of the entry of these banks. This study investigates the operational differences between foreign and domestic-owned banks within these economies. Focusing on the period 2000–2024, we use Bloomberg sourced income data from approximately 700 banks to analyze the ratio of interest to non-interest income across ownership types. We investigate the trends in the different sources of revenue through the collection of fees, capital gains, and other investments that may deviate from the traditional role of financial intermediation (lending and borrowing).

In addition, we examine whether foreign ownership is systematically related to greater reliance on non-interest income and the possible determinants and economic implications of this income structure. By documenting the differences in income structure within banks local to and foreign to developing countries, this study contributes to literature on the financial makeup of foreign bank business models, and the impacts of income diversification by banks in emerging market economies.