Foreign Bank Entry and Domestic Bank Performance in Developing Countries: A Systematic Review and Thematic Synthesis of the Empirical Evidence (1999-2024)

Abstract

This systematic review synthesizes empirical evidence (1999–2024) on how foreign bank entry affects domestic bank performance in developing countries. Following PRISMA 2020, 40 high-quality quantitative studies (mean quality score 9.2/10) were extracted from 1,370 records. Findings show that foreign banks compress domestic banks’ profitability through heightened competition while improving operational efficiency via technology and knowledge spillovers. Effects on financial stability and credit access-particularly for SMEs-are mixed and strongly conditioned by host-country institutional quality, regulatory oversight, bank size, and whether foreign presence is measured at the market-share or ownership level. Policymakers should sequence liberalization with strengthened supervision and institutions rather than treating openness as an automatic remedy.