Anzoategui, D., M. S. Martínez Pería and R. Rocha, 2010, “Bank Competition in the Middle East and Northern Africa Region”, World Bank Policy Research Working Paper No. 5363.
Berger, A. N., 1995, “The Profit-Structure Relationship in Banking – Tests of Market-Power and Efficient-Structure Hypotheses.” Journal of Money, Credit and Banking, 27 (May), pp. 404-31.
Cabrera, J.M. and P. Bazerque, 2010, “Probabilidad de Default de Créditos Bancarios en una Economía Dollarizada”, Banco Central del Uruguay Working Paper http://www3.bcu.gub.uy/autoriza/peiess/jor/2010/iees03j3501010.pdf
Chortareas, G. E., J. G. Garza-Garcia and C. Girardone, 2010, “Competition, Efficiency, and Interest Rate Margin in Latin America”, University of Essex Discussion Paper.
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Claessens, S. and L. Laeven, 2005, “Financial Dependence, Banking Sector Competition, and Economic Growth”, World Bank Policy Research Working Paper 3481.
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Mello Costa, M., 2009, “Estimacion de Economias de Escala y de Alcance para el Sistema Bancario Uruguayo con Datos de Panel”, Banco Central del Uruguay Working Paper http://www3.bcu.gub.uy/autoriza/peiees/jor/2009/iees03j3201009.pdf
Mello Costa, M., 2006, “Midiendo la Concentracion y el Poder de Mercado en el Sector Bancario Uruguayo: 2003-05”, Banco Central del Uruguay Working Paper http://www3.bcu.gub.uy/autoriza/peiees/jor/2006/iees03j3100806.pdf
Prepared by Jiri Podpiera and Torsten Wezel.
The private-sector-credit-to-GDP ratio is influenced by exchange rate movements due to high credit dollarization.
Simple average for Brazil, Chile, Colombia, Mexico, and Peru.
The HHI is computed as the sum of squared market shares of all banks (and multiplied by 10).4 The index ranges from a low of 0, indicating perfect competition, to a high of 10,000 for a complete monopoly.
In this paper Banco Hipotecario del Uruguay (BHU), a state-owned, mortgage-specialized bank, is excluded unless otherwise noted.
Agencies that asses market effects of proposed mergers and acquisitions also follow general standards for changes in concentration based on the HHI.
BBVA acquired Credit Uruguay in 2011.
The portfolio, once allocated to the banks, is subject to the standard degree of bank supervision.
A sum of the coefficients of the costs of production factors in the (1+ROA) regression (analogically to H-statistics computation).
There might be a difference in the degree of competition between currency market segments. Mello Costa (2006) found, using Lerner indexes, that competition is higher in foreign currency loans than in the local currency segment.
The only difference is inclusion of yearly dummies by Anzoategui et al. (2010). Including time dummies reduces the significance of the parameters in small samples and therefore they were not included here. For completeness, however, the H-statistic, computed using the model with time dummies, equals 0.6*** (0.137).
Chile (ROA = 1.4 percent), Ecuador (1.8), Panama (1.8), Argentina (2), Mexico (2), Costa Rica (2.1), Peru (2.4), Dominican Republic (2.5), Brazil (2.7), Paraguay (3.5), and Colombia (3.8).
The analysis uses officially reported data on ROA. ROA cleaned for the inflation adjustment would produce similar results due to independence of the inflationary adjustment on banks’ size.
The estimated coefficient of 0.02 suggests that banks with a relatively higher market share tend to earn a higher ROA. A bank with market share 42 (18) percent is estimated to have a higher ROA by 0.7 (0.2) percentage points than the average bank (market share of 8 percent).
According to the Law 18.358, claims by BROU on debtors have a legal priority ranked just below that of the social security authority and the tax directorate. At the same time, BROU’s claims have higher priority than those by other commercial banks.
International Financial Reporting Standards (IFRS) and principal-based Standards, Interpretations, and Framework (1989), adopted by the International Accounting Standards Board http://www.ifrs.org/IFRSs/IFRs.htm prescribe Constant Purchasing Power Accounting (CPPA) during hyperinflation. They authorize using both CPPA and Constant Item Purchasing Power Accounting (CIPPA) during low inflation and deflation. CPPA is not authorized under U.S. GAAP.
Prior 2010, the inflation adjustment was mandatory if annual inflation exceeded eight percent.
Non-performing loans to the non-financial sector.
The impact of the downturn on the banking sector extended into 2010 due to lags in making specific provisions. One bank experienced its maximum net provisioning flow already in 2007 on the account of idiosyncratic factors.
Five banks did not record any positive NPF during 2006-10 on account of releases of provisions and loan recoveries and are thus excluded from the calculation of averages.
That is, the cost of the increase in the dynamic provisioning funds of private banks relative to total pre-tax profits recorded in 2006-09, a period that includes the increase in specific provisions, and thus the gradual drawdown of dynamic provisions, during 2008Q4-2009Q3.
It could be that in the absence of dynamic provisioning the lending rate would have been lower, spurring credit growth and thereby lowering the ROA due to the increase in assets.
On the calculation of default probabilities see Cabrera and Bazerque (2010) who determine the one-year PD for each year during 1999-2009 based on loan-by-loan data gathered from the central loan registry. The recalibrated rates for the upper three loan classification categories reflect this research effort.