Banking Sector Performance in Latin America: Market Power versus Efficiency

Georgios Chortareas (), Jesus Garza-Garcia and Claudia Girardone
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Georgios Chortareas: University of Athens

No 905, Working Papers from Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol

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.

Keywords: Structure-Conduct-Performance; Efficient Structure; Latin American banking; Data Envelopment Analysis (DEA). (search for similar items in EconPapers)
JEL-codes: D24 G21 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-04
New Economics Papers: this item is included in nep-ban, nep-com and nep-eff
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Citations: View citations in EconPapers (1)

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http://carecon.org.uk/DPs/0905.pdf First version, 2009 (application/pdf)

Related works:
Journal Article: Banking Sector Performance in Latin America: Market Power versus Efficiency (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:uwe:wpaper:0905

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