An Empirical Analysis of the Policy Impact of Foreign Investment Deregulation in the Banking Sector

This chapter is dedicated to the empirical examination of the long-term policy impacts of deregulation on foreign investment, initiated by reforms following the Asian Financial Crisis. It assesses the effects of increased foreign penetration in the banking sector by analyzing bank-level panel data from Thai commercial banks from 2000 to 2015. This analysis focuses on profitability, operational expenses, and risk management of commercial banks. By differentiating between the impacts of market-level entry of foreign banks and bank-level foreign ownership, the results indicate that increased foreign ownership at the individual bank level leads to higher interest rate spreads and operational expenses, while also improving loan quality. Conversely, the entry of foreign banks into the market correlates with higher returns on assets, increased non-interest income, wider interest rate spreads, and lower operational expenses. In summary, the presence of foreign banks significantly enhances long-term banking performance.