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Relative power and efficiency as a main determinant of banks’ profitability in Latin America

Author

Listed:
  • Jorge Guille´n
  • Erick W. Rengifo
  • Emre Ozsoz

Abstract

Despite the financial sector liberalization and openness that started in the earlier 90’s and significant macroeconomic development as well as increasing inflow of capital toward the region, there is not any evidence of the reduction of interest rates as well as banks’ profits in Latin America. In this paper we develop a model to estimate the determinants of Latin American banks’ profitability and, try to understand the reasons why banks are reluctant to decrease their interest rate spreads even when change in competitiveness in the financial system is improving. By using Data Envelopment Analysis to better exploit the information of several variables at the same time and, by employing a sample of 200 Banks located in Argentina, Bolivia, Brazil, Costa Rica, Ecuador, El Salvador, Mexico, Nicaragua, Paraguay, Peru, Uruguay and Venezuela; we find that banks’ profits grew consistently above the normal levels of profits adjusted by risk. Our results show that banks in Latin America have been profiting from their oligopolistic position in detriment of their clients in particular and of their whole economy in general

Suggested Citation

  • Jorge Guille´n & Erick W. Rengifo & Emre Ozsoz, 2014. "Relative power and efficiency as a main determinant of banks’ profitability in Latin America," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 14(2), pages 119-125, June.
    • Handle: RePEc:bor:bistre:v:14:y:2014:i:2:p:119-125
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    File URL: http://www.sciencedirect.com/science/article/pii/S2214845014000064
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    Citations

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    Cited by:

    1. Hasan Dinçer & Ozlem Olgu Akdeniz & Umit Hacioglu, 2018. "Competitive strategy selection in the European banking sector using a hybrid decision-making approach," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 213-242.
    2. Vera-Gilces, Paul & Camino-Mogro, Segundo & Ordeñana-Rodríguez, Xavier & Cornejo-Marcos, Gino, 2020. "A look inside banking profitability: Evidence from a dollarized emerging country," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 147-166.
    3. Le, Huong Nguyen Quynh & Nguyen, Thai Vu Hong & Schinckus, Christophe, 2021. "Bank efficiency, market structure and strategic interaction: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 56(C).
    4. Hedija Veronika & Fiala Roman & Kuncová Martina, 2017. "Is profitability a good proxy for efficiency? Evidence from the subsector of tour operators," Review of Economic Perspectives, Sciendo, vol. 17(4), pages 425-440, December.
    5. Boris Radovanov & Nada Milenković & Branimir Kalaš & Aleksandra Marcikić Horvat, 2023. "Do the Same Determinants Affect Banks’ Profitability and Liquidity? Evidence from West Balkan Countries Using a Panel Data Regression Analysis," Mathematics, MDPI, vol. 11(19), pages 1-20, September.
    6. Ben Aissa, Sami & Goaied, Mohamed, 2016. "Determinants of Tunisian hotel profitability: The role of managerial efficiency," Tourism Management, Elsevier, vol. 52(C), pages 478-487.

    More about this item

    Keywords

    Data Envelopment Analysis; Latin American banks; Banks’ profitability; Market concentration;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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