Developing countries need to reconsider restrictions on foreign banks according to a new World Bank report released yesterday (Tuesday).
The Bankers without Borders report noted that growing restrictions imposed on foreign banks since the global financial crisis had been hampering better growth prospects of developing countries by limiting the flow of much-needed financing.
The report pointed out that international banks were critical gateways to global credit and faster economic growth as long as risks were managed adequately.
“International banking does create risks of exporting instability, especially for countries with poor regulations and institutions, and those risks need to be mitigated,” said World Bank president, Jim Yong Kim.
“But without a competitive banking sector, the poor will not be able to access basic financial services, many businesses will be locked out of markets, and growth in developing countries will stall,” he added.
Kim highlighted the need for bank finance as it was essential to a vibrant private sector and for nurturing small and medium-sized businesses.
The report emphasised that developing countries could maximise the benefits of a stronger banking system, while shielding against risks, by improving information sharing through credit registries, vigorously enforcing property and contract rights, and guaranteeing strong supervision of banks.
