Intra- and extra-bank determinants of Latin American Banks' profitability

Paolo Saona

International Review of Economics & Finance, 2016, vol. 45, issue C, 197-214

Abstract: Using data on commercial banks in seven Latin American countries from 1995 to 2012, we find evidence of several major relationships involving bank profitability, including: 1) an inverse U-shaped relationship between banks' capital ratios and profitability, 2) a positive relationship between asset diversification (e.g. security trading, hedge funds, foreign exchange, assurance, etc.) and profitability, 3) a negative relationship between revenue diversification (e.g. interests, fees, commissions, etc.) and profitability, 4) a positive relationship between market concentration and profitability, and 5) improvements in the legal and regulatory system are associated with a negative impact on banks' profitability. This paper contributes to the literature by assessing these relationships using data on Latin American banks and by estimating their models using a system GMM approach that addresses issues arising from endogenous independent variables and heterogeneity among individual banks.

Keywords: Bank profitability; Capital ratio; Diversification; Institutional environment (search for similar items in EconPapers)
JEL-codes: C23 G21 L2 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:197-214

DOI: 10.1016/j.iref.2016.06.004

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