Profit, Cost and Scale Efficiency for Latin American Banks: Concentration-Performance Relationship

Benjamin Tabak, Dimas Fazio and Daniel Cajueiro

No 244, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Using a sample of 495 Latin American banks over the period 2001-2008, this paper investigates how bank concentration influences cost and profit efficiency. We calculate scale efficiency to assess whether these banks are close to their optimal size. We find that banks are more inefficient in profits than in costs; concentration impairs cost efficiency; larger banks have higher performance, but this advantage decreases in concentrated markets; private and foreign banks are the most efficient; most banks are operating under increasing returns of scale, which contributes to the discussion on Basel III.

Date: 2011-05
New Economics Papers: this item is included in nep-ban, nep-com and nep-eff
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