Banking in Emerging Markets in the Aftermath of Global Financial Crisis

Title: Banking in emerging markets in the aftermath of Global Financial Crisis

Emerging markets are countries that are restructuring their economies along market-oriented lines and offer a wealth of opportunities in trade, technology transfers, and foreign direct investment. Currently, there are approximately 28 emerging markets in the world, with the economies of China and India considered to be by far the two largest. According to the World Bank, the five biggest emerging markets are China, India, Indonesia, Brazil and Russia. These countries made a critical transition from a developing country to an emerging market. Each of them is important as an individual market and the combined effect of the group as a whole will change the face of global economics and politics. Here we talk about banking in emerging markets after GFC from some aspects such as central bank’s supervision and support quality, bank lending and non-performing assets, risk management, banking structure and GFC management.

Central bank’s supervision and support quality during GFC to banks

Banking supervision has a significant influence on the effectiveness of the monetary policy. Risk control measures taken by the banking supervisory authorities will have some effects on the monetary policy. The stipulation of a minimum capital adequacy ratio will prevent banks from expanding their assets. When the economy is under the recession and the banking industry is likely to see a rise of its non-performing assets, under such a circumstance the banks may be called to take measures by the banking supervisory authorities such as improving asset quality and increasing loan loss provisioning. On the other hand, these measures could invalidate the expansionary monetary policy adopted to take the economy out of recession. As a requirement, the preservation of liquidity would also limit banks' lending ability.