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This paper draws from three country case studies of the liberalization and development of the banking and insurance service sectors in Bangladesh, Nepal and Malaysia, which were undertaken as part of an ARTNeT regional study on trade in services led by the author. The paper first explores the relationship between financial and economic development, and the causality between service sector liberalization and financial deepening. An overview of the growth and importance of the banking and insurance sectors as well as of the regulatory frameworks in place in the three economies is then presented, followed by comparative case studies of bank performance according to ownership structure. The case studies reveal that private banks (including joint-venture banks) tend to outperform state-owned banks in the two least developed countries. The following three main challenges are identified for financial sector development in the three economies: (a) non-performing loans in government banks; (b) the failure of insurance companies to undertake long-term investments; and (c) the continued limited access by the poor and small businesses to credit. The paper concludes with policy implications.

By Dilli Raj Khanal
This paper draws from three country case studies of the liberalization and development of the banking and insurance service sectors in Bangladesh, Nepal and Malaysia, which were undertaken as part of an ARTNeT regional study on trade in services led by the author. The paper first explores the relationship between financial and economic development, and the causality between service sector liberalization and financial deepening. An overview of the growth and importance of the banking and insurance sectors as well as of the regulatory frameworks in place in the three economies is then presented, followed by comparative case studies of bank performance according to ownership structure. The case studies reveal that private banks (including joint-venture banks) tend to outperform state-owned banks in the two least developed countries. The following three main challenges are identified for financial sector development in the three economies: (a) non-performing loans in government banks; (b) the failure of insurance companies to undertake long-term investments; and (c) the continued limited access by the poor and small businesses to credit. The paper concludes with policy implications.

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