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Re-examining the impact of foreign bank participation on interest margins in emerging markets

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  • Poghosyan, Tigran

Abstract

Over the past two decades, emerging markets have witnessed a considerable increase in foreign bank participation, with the anticipation that foreign entry would lower financial intermediation costs. We re-examine the impact of foreign participation on bank interest margins using data on 11 Central and Eastern European countries (CEECs), where the increase in foreign bank participation was the strongest. Using the modified dealership model of Maudos and Fernandez de Guevara (2004) as a baseline specification, we show that augmenting the model by proxies for direct and indirect impact of foreign bank participation does not produce a significant outcome. We explain our results by the fact that the dealership model fully accounts for the mechanisms through which foreign bank presence is hypothesized to affect interest margins in theoretical models on international banking. We call for re-examination of some of the previous findings showing a significant own effect of foreign bank participation on interest margins in emerging markets within the framework of the dealership model.

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Bibliographic Info

Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 11 (2010)
Issue (Month): 4 (December)
Pages: 390-403

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Handle: RePEc:eee:ememar:v:11:y:2010:i:4:p:390-403

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Web page: http://www.elsevier.com/locate/inca/620356

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Keywords: Foreign bank participation Emerging markets Interest margins Dealership model;

References

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Citations

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Cited by:
  1. Sarah Sanya & Matthew Gaertner, 2012. "Assessing Bank Competition within the East African Community," IMF Working Papers 12/32, International Monetary Fund.
  2. Irwan Trinugroho & Agusman Agusman & Amine Tarazi, 2012. "Why Have Bank Interest Margins Been so High in Indonesia Since the 1997/1998 Financial Crisis?," Working Papers hal-00916531, HAL.
  3. Kadri Männasoo, 2012. "Determinants of bank interest spread in Estonia," Bank of Estonia Working Papers wp2012-1, Bank of Estonia, revised 22 Feb 2012.
  4. Poghosyan, Tigran, 2013. "Financial intermediation costs in low income countries: The role of regulatory, institutional, and macroeconomic factors," Economic Systems, Elsevier, vol. 37(1), pages 92-110.
  5. Olson, Dennis & Zoubi, Taisier A., 2011. "Efficiency and bank profitability in MENA countries," Emerging Markets Review, Elsevier, vol. 12(2), pages 94-110, June.
  6. Tigran Poghosyan, 2012. "Financial Intermediation Costs in Low-Income Countries," IMF Working Papers 12/140, International Monetary Fund.
  7. Francois Boutin-Dufresne & Santiago Peña & Oral Williams & Tomasz A. Zawisza, 2013. "Benchmarking Banking Sector Efficiency Across Regional Blocks in Sub-Saharan Africa," IMF Working Papers 13/51, International Monetary Fund.

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