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Banking Sector Performance in Latin America: Market Power versus Efficiency

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  • Georgios E. Chortareas

    () (University of Athens)

  • Jesus G. Garza-Garcia

    () (UWE, Bristol)

  • Claudia Girardone

    () (University of Essex)

Abstract

TSince the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalisation, a significant increase in foreign investments and greater mergers activities often occurring following financial crises. The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks’ market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale efficiency) hypotheses for a sample of over 2,500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks.

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File URL: http://carecon.org.uk/DPs/0905.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by University of the West of England, Department of Economics in its series Discussion Papers with number 0905.

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Length: 30 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:uwe:wpaper:0905

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Keywords: Structure-Conduct-Performance; Efficient Structure; Latin American banking; Data Envelopment Analysis (DEA).;

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