Risk of Internationalization on Taiwan Banking Industry

Abstract

Global banking system has changed dramatically in the last several decades which make banks encounter difficulties and discover opportunities while developing their business. In this increasingly saturated environment, existing banks start to find a way to expand their territories overseas to set up higher entry barriers. Especially in Taiwan, because of excessive banks, small economic scale and overlap financial services, the financial industry is more competitive than in other markets resulting the interest rate spread becomes more and more narrow. Most of research find a positive relationship between internationalization and bank risk. However, this paper employs the data of commercial banks in Taiwan, the result suggests that internationalization of a bank is associated with lower risk for overall banks. Additionally, we find that the bank size has different effects on the relationship between internationalization and risk. Large banks tend to have the lower average risk but to increase the bank risk when go abroad. On the other hand, small banks have a diversification effect on internationalization but the overall risk is larger and the operation is not as efficient as large banks.