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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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  • Poghosyan, Tigran, 2010. "Re-examining the impact of foreign bank participation on interest margins in emerging markets," Emerging Markets Review, Elsevier, vol. 11(4), pages 390-403, December.
  • Handle: RePEc:eee:ememar:v:11:y:2010:i:4:p:390-403
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    Cited by:

    1. Canan Yildirim, 2014. "Competition in Turkish Banking: Impacts of Restructuring and the Global Financial Crisis," The Developing Economies, Institute of Developing Economies, vol. 52(2), pages 95-124, June.
    2. Raja Almarzoqi & Sami Ben Naceur, 2015. "Determinants of Bank Interest Margins in the Caucasus and Central Asia," IMF Working Papers 15/87, International Monetary Fund.
    3. 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.
    4. Francois Boutin-Dufresne & Santiago Peña & Oral Williams & Tomasz A. Zawisza, 2013. "Benchmarking Banking Sector Efficiency Across Regional Blocks in Sub-Saharan Africa; What Room for Policy?," IMF Working Papers 13/51, International Monetary Fund.
    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. Sarah Sanya & Matthew Gaertner, 2012. "Assessing Bank Competition within the East African Community," IMF Working Papers 12/32, International Monetary Fund.
    7. Kadri Männasoo, 2012. "Determinants of bank interest spread in Estonia," Bank of Estonia Working Papers wp2012-1, Bank of Estonia, revised 22 Feb 2012.
    8. Trinugroho, Irwan & Agusman, Agusman & Tarazi, Amine, 2014. "Why have bank interest margins been so high in Indonesia since the 1997/1998 financial crisis?," Research in International Business and Finance, Elsevier, vol. 32(C), pages 139-158.
    9. Koffie Ben Nassar & Edder Martinez & Anabel Pineda, 2014. "Determinants of Banks' Net Interest Margins in Honduras," IMF Working Papers 14/163, International Monetary Fund.
    10. repec:sgm:jbfeuw:v:1:y:2017:i:7:p:5-27 is not listed on IDEAS

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