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Banking Sector Performance in Latin America: Market Power versus Efficiency

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Author Info

  • 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 Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working 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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Related research

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

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Cited by:
  1. Goddard, John & Molyneux, Philip & Williams, Jonathan, 2014. "Dealing with cross-firm heterogeneity in bank efficiency estimates: Some evidence from Latin America," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 130-142.
  2. John Goddard & Phil Molyneux & Jonathan Williams, 2013. "Dealing with Cross-Firm Heterogeneity in Bank Efficiency Estimates: Some evidence from Latin America," Working Papers 13011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

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