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Cross-sectional determinants of bank performance under deposit dollarization in emerging markets

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Author Info

  • Kutan, Ali M.
  • Ozsoz, Emre
  • Rengifo, Erick W.

Abstract

Dollar-denominated deposits and loans could increase financial fragility in emerging market banking systems. This currency mismatch does not only increase banks' currency risk when the proportion of dollar-denominated loans with respect to local-denominated loans increases but also it increases their clients' default risk if depreciation occurs. This paper investigates the profitability of 36 dollarized banking systems. Results suggest that after controlling for some macroeconomic and institutional variables, dollarization, as the currency mismatch hypothesis suggests, depresses bank performance and lowers bank profitability. Results also show that the effect of institutions more than offsets the negative impact of dollarization on banks' profitability.

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Bibliographic Info

Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 13 (2012)
Issue (Month): 4 ()
Pages: 478-492

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Handle: RePEc:eee:ememar:v:13:y:2012:i:4:p:478-492

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

Related research

Keywords: Dollarization; Bank performance; Bank profitability;

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References

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Cited by:
  1. Erick W. Rengifo & Emre Ozsoz & Mustapha A. Akinkunmi & Eduardo Court, 2013. "Bank Regulation in Dollarized Economies: The Case of Turkey," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(4), pages 137-153, November.

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