IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2021-114.html
   My bibliography  Save this paper

Can Fintech Foster Competition in the Banking System in Latin America and the Caribbean?

Author

Listed:
  • Suchanan Tambunlertchai
  • Kotaro Ishi
  • Mr. Takuji Komatsuzaki
  • Mr. Ippei Shibata
  • Jasmin Sin

Abstract

This paper revisits the competitive environment of the banking system in Latin America and the Caribbean (LAC) and investigates the early impact of fintech development in the region thus far. Against the backdrop of high net interest margins (NIMs) and limited financial depth in the region, panel regressions broadly confirm results of existing literature on the association of NIMs with the changes in the financial sector structure, including market concentration, administrative costs, and foreign banks, although differences between domestic and foreign banks narrowed after the 2008-09 Global Financial Crisis. Difference-in-difference regressions and case studies on Brazil and Mexico suggest that fintech is associated with a reduction in NIMs and defensive responses by incumbent banks that benefit consumers. The case studies also shed light on regulatory approaches and prudential considerations in fostering financial innovation and banking sector competition.

Suggested Citation

  • Suchanan Tambunlertchai & Kotaro Ishi & Mr. Takuji Komatsuzaki & Mr. Ippei Shibata & Jasmin Sin, 2021. "Can Fintech Foster Competition in the Banking System in Latin America and the Caribbean?," IMF Working Papers 2021/114, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2021/114
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=50253
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yildirim, H. Semih & Philippatos, George C., 2007. "Restructuring, consolidation and competition in Latin American banking markets," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 629-639, March.
    2. Gabriel Garber & Márcio Issao Nakane, 2015. "The Break of Brand Exclusivity in Brazilian Credit Card Acquiring: effects and markup-cost decomposition in a price dispersion setting," Working Papers Series 390, Central Bank of Brazil, Research Department.
    3. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
    4. Maudos, Joaquín & Solís, Liliana, 2009. "The determinants of net interest income in the Mexican banking system: An integrated model," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1920-1931, October.
    5. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1229-1257.
    6. Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2004. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 593-622, June.
    7. Georgios E. Chortareas & Jesus G. Garza‐Garcia & Claudia Girardone, 2011. "Banking Sector Performance in Latin America: Market Power versus Efficiency," Review of Development Economics, Wiley Blackwell, vol. 15(2), pages 307-325, May.
    8. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
    9. Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 813-832, December.
    10. Alexander Herman & Alexander Klemm, 2019. "Financial Deepening in Mexico," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(11), pages 5-18, January.
    11. Marqués, José Manuel & Ávila, Fernando & Rodríguez-Martínez, Anahí & Morales-Reséndiz, Raúl & Marcos, Antonio & Godoy, Tamara & Villalobos, Pablo & Ocontrillo, Andrea & Lankester, Valerie Ann & Blanco, 2021. "Policy report on FinTech data gaps," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(3).
    12. Ashoka Mody & Maria Soledad Martinez Peria, 2004. "How foreign participation and market concentration impact bank spreads: evidence from Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 511-542.
    13. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2003. "Bank Concentration and Crises," NBER Working Papers 9921, National Bureau of Economic Research, Inc.
    14. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(4), pages 581-600, November.
    15. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
    16. R. Gaston Gelos, 2009. "Banking Spreads In Latin America," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 796-814, October.
    17. Williams, Jonathan, 2012. "Efficiency and market power in Latin American banking," Journal of Financial Stability, Elsevier, vol. 8(4), pages 263-276.
    18. Pelin Berkmen & Ms. Kimberly Beaton & Mr. Dmitry Gershenson & Mr. Javier Arze del Granado & Kotaro Ishi & Miss Marie S Kim & Emanuel Kopp & Mrs. Marina V Rousset, 2019. "Fintech in Latin America and the Caribbean: Stocktaking," IMF Working Papers 2019/071, International Monetary Fund.
    19. Shaffer, Sherrill & Spierdijk, Laura, 2020. "Measuring multi-product banks’ market power using the Lerner index," Journal of Banking & Finance, Elsevier, vol. 117(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lai, Xiaobing & Yue, Shujing & Guo, Chong & Zhang, Xinhe, 2023. "Does FinTech reduce corporate excess leverage? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 281-299.
    2. Luiz Antonio Joia & Rodrigo Proença, 2022. "The social representation of fintech from the perspective of traditional financial sector professionals: evidence from Brazil," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-27, December.
    3. Hodula, Martin, 2023. "Interest rates as a finance battleground? The rise of Fintech and big tech credit providers and bank interest margin," Finance Research Letters, Elsevier, vol. 53(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chortareas, Georgios E. & Garza-García, Jesús G. & Girardone, Claudia, 2012. "Competition, efficiency and interest rate margins in Latin American banking," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 93-103.
    2. Nguyen, Thach V.H. & Nguyen, Thai Vu Hong, 2022. "How do banks price liquidity? The role of market power," Global Finance Journal, Elsevier, vol. 53(C).
    3. Saona, Paolo, 2016. "Intra- and extra-bank determinants of Latin American Banks' profitability," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 197-214.
    4. Valente, José & Augusto, Mário & Murteira, José, 2024. "Differentiated impact of spread determinants by personal loan category: Evidence from the Brazilian banking sector," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 299-315.
    5. Koffie Ben Nassar & Edder Martinez & Anabel Pineda, 2014. "Determinants of Banks' Net Interest Margins in Honduras," IMF Working Papers 2014/163, International Monetary Fund.
    6. Pamuji Gesang Raharjo & Dedi Budiman Hakim & Adler Hayman Manurung & Tubagus N.A. Maulana, 2014. "The Determinant of Commercial Banks' Interest Margin in Indonesia: An Analysis of Fixed Effect Panel Regression," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 295-308.
    7. Raja Almarzoqi & Sami Ben Naceur, 2015. "Determinants of Bank Interest Margins in the Caucasus and Central Asia," IMF Working Papers 2015/087, International Monetary Fund.
    8. Dimitrios P. Louzis & Angelos T. Vouldis, 2015. "Profitability in the Greek Banking System: a Dual Investigation of Net Interest and Non-Interest Income," Working Papers 191, Bank of Greece.
    9. Bismark Addai & Wenjin Tang & Adjei Gyamfi Gyimah & Kingsley Opoku Appiah, 2023. "Bank intermediation margins in transition banking domains: panel evidence from Africa," Economic Change and Restructuring, Springer, vol. 56(4), pages 2129-2167, August.
    10. Molyneux, Philip & Reghezza, Alessio & Xie, Ru, 2019. "Bank margins and profits in a world of negative rates," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    11. Birchwood, Anthony & Brei, Michael & Noel, Dorian M., 2017. "Interest margins and bank regulation in Central America and the Caribbean," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 56-68.
    12. Nguyen Duy Suu & Thu-Quang Luu & Kim-Hung Pho & Michael McAleer, 2020. "Net Interest Marginof Commercial Banks in Vietnam," Advances in Decision Sciences, Asia University, Taiwan, vol. 24(1), pages 1-27, March.
    13. Claeys, Sophie & Vander Vennet, Rudi, 2008. "Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West," Economic Systems, Elsevier, vol. 32(2), pages 197-216, June.
    14. Florian Leon, 2015. "What do we know about the role of bank competition in Africa?," CERDI Working papers halshs-01164864, HAL.
    15. Philip Molyneux & Alessio Reghezza & Ru Xie, 2018. "Bank Profits and Margins in a World of Negative Rates," Working Papers 18001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    16. Koffie Nassar & Edder Martinez & Anabel Pineda, 2017. "Determinants of Banks’ Net Interest Margins in Honduras," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(7), pages 5-27, May.
    17. Chen, Sheng-Hung & Liao, Chien-Chang, 2011. "Are foreign banks more profitable than domestic banks? Home- and host-country effects of banking market structure, governance, and supervision," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 819-839, April.
    18. Li Xian Liu & Milind Sathye, 2019. "Bank Interest Rate Margin, Portfolio Composition and Institutional Constraints," JRFM, MDPI, vol. 12(3), pages 1-21, July.
    19. Ms. Laura Valderrama & Mr. Wendell A. Samuel, 2006. "The Monetary Policy Regime and Banking Spreads in Barbados," IMF Working Papers 2006/211, International Monetary Fund.
    20. Pierluigi Bologna, 2017. "Banks’ maturity transformation: risk, reward, and policy," Temi di discussione (Economic working papers) 1159, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    banking sector competition; panel regression; net interest margins; market share; r p rotec tio n; Fintech; Commercial banks; Foreign banks; Competition; Real interest rates; Caribbean; Global;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2021/114. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.