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Acquisition of a Bank in a Developing Nation: risks, issues, limits, profitability

This short paper should describe the issues and risks involved with a financial institution acquiring a bank in an emerging market. It discusses the limits on foreign investors, expropriation risk, default risk and profitability issues.

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Acquisition of a Bank in a Developing Nation

Acquiring a bank in a developing nation is a risky proposition for any business and there are many questions which must be addressed before committing to such a move. Firstly, the investor must consider any limitations that will be placed upon a foreign operator in the country. Secondly, the investor must consider the risk of being expropriated by the government and take steps to guard against this. Also, the bank must consider the risk inherent in the operation, such as a high risk of defaulting on loans, and what institutional protection is offered in the country. Finally, as with any other business, the bank must consider its business model and the demand for its services in a country where per capita income is low in order to determine that there is potential to operate profitably.

Limitations on Foreign Operators:
Often, developing nations will impose limitations on foreign operators, particularly in the banking sector. There may be a limit on the number of foreign owned operators or a limit to the percentage of any bank which may be owned by a foreign business. Furthermore, ...

Solution Summary

In a 743 word solution, the response gives us a good set of explanations about the issues and risks of buying a bank in an emerging market.