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

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  • 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.

Suggested Citation

  • Kutan, Ali M. & Ozsoz, Emre & Rengifo, Erick W., 2012. "Cross-sectional determinants of bank performance under deposit dollarization in emerging markets," Emerging Markets Review, Elsevier, vol. 13(4), pages 478-492.
  • Handle: RePEc:eee:ememar:v:13:y:2012:i:4:p:478-492
    DOI: 10.1016/j.ememar.2012.07.003
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    References listed on IDEAS

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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 1-17, November.
    2. repec:eee:ecosys:v:41:y:2017:i:1:p:122-138 is not listed on IDEAS
    3. TOMULEASA, Ioana-Iuliana & COCRIŞ, Vasile, 2014. "Measuring The Financial Performance Of The European Systemically Important Banks," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 18(4), pages 31-51.
    4. repec:eee:ecofin:v:42:y:2017:i:c:p:89-106 is not listed on IDEAS

    More about this item

    Keywords

    Dollarization; Bank performance; Bank profitability;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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