Foreign Banks Traded Profits for Clout; ROA Suffered as U.S. Share Doubled in '80S, OCC Says
Rehm, Barbara A., American Banker
ROA Suffered as U.S. Share Doubled in '80s, OCC Says
WASHINGTON -- Foreign-owned banks have paid a high price to gain market share from their U.S. competitors, according to a study released Friday by the Comptroller of the Currency.
Foreign-owned banks have consistently made lower returns than U.S. banks, the OCC found. They also oprate less efficiently than U.S. rivals and have more problems with credit quality, the study concluded.
From 1983 through 1992, the return on assets of domestic banks outstripped that of their foreign rivals every year. In 1992, the average return on assets was 0.95% at domestic banks and 0.03% at foreign-owned banks.
"Foreign banks' profitability persistently lags that of U.S.-owned banks," the study states. "In addition, while U.S.-owned banks saw a surge in profitability after 1991, foreign-owned banks in the U.S. experienced profit levels below their average for the 10-year period 1983-92."
Daniel E. Nolle, an OCC economist, concluded that foreign-owned banks have sacrificed profits to gain market share here.
The assets of foreign-owned banks increased steadily during the 1980s and early 1990s as the the number of branches and agencies increased fivefold, Mr. Nolle found.
Foreign-owned banks' grew to 23.7% of all U.S. banking assets in 1991 from 13% in 1980, according to the study.
From 1983 to 1991, the amount of commercial and industrial loans held by foreign-owned banks quadrupled to $346 billion. Mr. Nolle noted in an interview that foreign-owned banks rarely originate C&I loans, opting instead to buy chunks of loans made by domestic banks.
"Foreign banks have not originated many loans," he said. "They are very heavily into participations."
Still, the surge in foreign-owned bank C&I lending, coupled with a $55 billion decline by U. …