Explaining cross-border bank expansion in East Africa

• We investigate the drivers of bank foreign expansion in East Africa.
• Institutional quality is vital at planning phase of foreign expansion decisions.
• Relatively competitive markets & weak market power at home “push” banks abroad.
• Relative efficiency drives, but higher foreign inflation deters, expansion abroad.
• Economic integration & follow-the-client premise do not explain foreign expansion.

This paper investigates the drivers of bank foreign expansion in East Africa. Our results support the view that institutional quality is vital at the planning phase of banks’ going-abroad decision but its importance is muted once the decision has been taken. Second, relatively competitive markets and weak market power at home seem to “push” banks abroad. Third, banks seek to exploit the benefits of their relative efficiency through regional expansion. Fourth, relatively higher foreign country inflation is a deterrent to banks expansion abroad. Finally, desire for greater earnings, economic integration, and follow-the-client hypothesis do not explain banks’ foreign expansion decisions.